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 ~~September 26, 2020~~October 2, 2021


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

Commission File No. 1-9973

THE MIDDLEBY CORPORATION

(Exact name of registrant as specified in its charter)


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


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


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

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

Yes x No o

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

Yes x No o

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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


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

As of ~~October 30, 2020,~~November 5, 2021, there were ~~55,612,255~~55,626,327 shares of the registrant's common stock outstanding.

THE MIDDLEBY CORPORATION

QUARTER ENDED ~~SEPTEMBER 26, 2020~~OCTOBER 2, 2021

INDEX


DESCRIPTION		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS as of ~~SEPTEMBER 26, 2020~~OCTOBER 2, 2021 and ~~DECEMBER 28, 2019~~JANUARY 2, 2021	1

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020 ~~and SEPTEMBER 28, 2019~~	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three and nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020 ~~and SEPTEMBER 28, 2019~~	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended OCTOBER 2, 2021 and SEPTEMBER 26, 2020 ~~and SEPTEMBER 28, 2019~~	5

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3031

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3839

Item 4.	Controls and Procedures	3940

PART II. OTHER INFORMATION

Item ~~1.A~~	~~Risk Factors~~	40

~~Item~~ 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4241

Item 6.	Exhibits	4342

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


ASSETS	ASSETS	Sep 26, 2020		Dec 28, 2019		ASSETS	Oct 2, 2021		Jan 2, 2021
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	220,310	$	94,500	Cash and cash equivalents	$	251,476	$	268,103
Accounts receivable, net of reserve for doubtful accounts of $20,237 and $14,886		381,273		447,612
Accounts receivable, net of reserve for doubtful accounts of $19,440 and $19,225						Accounts receivable, net of reserve for doubtful accounts of $19,440 and $19,225	466,487		363,361
Inventories, net	Inventories, net	557,512		585,699		Inventories, net	686,043		540,198
Prepaid expenses and other	Prepaid expenses and other	67,261		61,224		Prepaid expenses and other	82,582		81,049
Prepaid taxes	Prepaid taxes	14,826		20,161		Prepaid taxes	21,149		17,782
Total current assets	Total current assets	1,241,182		1,209,196		Total current assets	1,507,737		1,270,493
Property, plant and equipment, net of accumulated depreciation of $223,844 and $197,629		343,860		352,145
Property, plant and equipment, net of accumulated depreciation of $256,701 and $229,871						Property, plant and equipment, net of accumulated depreciation of $256,701 and $229,871	370,266		344,482
Goodwill	Goodwill	1,855,361		1,849,747		Goodwill	2,106,182		1,934,261
Other intangibles, net of amortization of $385,737 and $333,507		1,420,600		1,443,381
Other intangibles, net of amortization of $458,451 and $403,347						Other intangibles, net of amortization of $458,451 and $403,347	1,574,601		1,450,381
Long-term deferred tax assets	Long-term deferred tax assets	35,115		36,932		Long-term deferred tax assets	83,589		76,052
Other assets	Other assets	124,066		110,742		Other assets	130,476		126,805
Total assets	Total assets	$	5,020,184	$	5,002,143	Total assets	$	5,772,851	$	5,202,474

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	23,152	$	2,894	Current maturities of long-term debt	$	21,553	$	22,944
Accounts payable	Accounts payable	152,262		173,693		Accounts payable	254,287		182,773
Accrued expenses	Accrued expenses	421,580		416,550		Accrued expenses	546,996		494,541
Total current liabilities	Total current liabilities	596,994		593,137		Total current liabilities	822,836		700,258
Long-term debt	Long-term debt	1,808,973		1,870,246		Long-term debt	1,866,022		1,706,652
Long-term deferred tax liability	Long-term deferred tax liability	137,276		133,500		Long-term deferred tax liability	165,100		147,224
Accrued pension benefits	Accrued pension benefits	252,420		289,086		Accrued pension benefits	432,909		469,500
Other non-current liabilities	Other non-current liabilities	193,199		169,360		Other non-current liabilities	187,014		202,191
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; NaN issued		0		0
Common stock, $0.01 par value; 63,558,226 and 63,129,775 shares issued in 2020 and 2019, respectively		146		145
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued						Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 63,654,275 and 63,651,773 shares issued in 2021 and 2020, respectively						Common stock, $0.01 par value; 63,654,275 and 63,651,773 shares issued in 2021 and 2020, respectively	147		147
Paid-in capital	Paid-in capital	415,952		387,402		Paid-in capital	381,014		433,308
Treasury stock, at cost; 7,945,527 and 6,940,089 shares in 2020 and 2019		(528,506)		(451,262)
Treasury stock, at cost; 8,027,948 and 8,013,296 shares in 2021 and 2020						Treasury stock, at cost; 8,027,948 and 8,013,296 shares in 2021 and 2020	(539,611)		(537,134)
Retained earnings	Retained earnings	2,516,919		2,361,462		Retained earnings	2,959,625		2,568,756
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(373,189)		(350,933)		Accumulated other comprehensive loss	(502,205)		(488,428)
Total stockholders' equity	Total stockholders' equity	2,031,322		1,946,814		Total stockholders' equity	2,298,970		1,976,649
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	5,020,184	$	5,002,143	Total liabilities and stockholders' equity	$	5,772,851	$	5,202,474

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Data)

(Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Net sales	Net sales	$	634,525	$	724,014	$	1,783,961	$	2,171,820	Net sales	$	817,545	$	634,525	$	2,384,376	$	1,783,961
Cost of sales	Cost of sales	411,776		453,986		1,157,896		1,358,001		Cost of sales	517,918		411,776		1,505,149		1,157,896
Gross profit	Gross profit	222,749		270,028		626,065		813,819		Gross profit	299,627		222,749		879,227		626,065
Selling, general and administrative expenses	Selling, general and administrative expenses	128,814		144,460		384,580		445,000		Selling, general and administrative expenses	175,354		128,814		496,022		384,580
Restructuring expenses	Restructuring expenses	7,263		4,223		10,281		6,806		Restructuring expenses	791		7,263		2,596		10,281

Merger termination fee										Merger termination fee	(110,000)		—		(110,000)		—
Loss (gain) on sale of plant										Loss (gain) on sale of plant	—		—		(763)		—

Income from operations	Income from operations	86,672		121,345		231,204		362,013		Income from operations	233,482		86,672		491,372		231,204
Interest expense and deferred financing amortization, net	Interest expense and deferred financing amortization, net	18,418		20,846		55,881		63,334		Interest expense and deferred financing amortization, net	13,192		18,418		43,481		55,881
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)	(10,149)		(7,175)		(30,004)		(22,233)		Net periodic pension benefit (other than service costs)	(11,363)		(10,149)		(34,268)		(30,004)
Other (income) expense, net		(294)		1,444		3,414		(489)
Other expense (income), net										Other expense (income), net	794		(294)		(1,366)		3,414
Earnings before income taxes	Earnings before income taxes	78,697		106,230		201,913		321,401		Earnings before income taxes	230,859		78,697		483,525		201,913
Provision for income taxes	Provision for income taxes	18,181		24,210		46,456		78,158		Provision for income taxes	54,893		18,181		97,711		46,456
Net earnings	Net earnings	$	60,516	$	82,020	$	155,457	$	243,243	Net earnings	$	175,966	$	60,516	$	385,814	$	155,457

Net earnings per share:	Net earnings per share:									Net earnings per share:
Basic	Basic	$	1.10	$	1.47	$	2.82	$	4.37	Basic	$	3.19	$	1.10	$	6.99	$	2.82
Diluted	Diluted	$	1.10	$	1.47	$	2.82	$	4.37	Diluted	$	3.09	$	1.10	$	6.83	$	2.82
Weighted average number of shares	Weighted average number of shares									Weighted average number of shares
Basic	Basic	54,982		55,663		55,104		55,641		Basic	55,232		54,982		55,225		55,104
Dilutive common stock equivalents	Dilutive common stock equivalents	118		0		48		0		Dilutive common stock equivalents	1,707		118		1,301		48
Diluted	Diluted	55,100		55,663		55,152		55,641		Diluted	56,939		55,100		56,526		55,152
Comprehensive income	Comprehensive income	$	82,887	$	55,915	$	133,201	$	191,876	Comprehensive income	$	163,011	$	82,887	$	372,037	$	133,201

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(amounts in thousands)

(Unaudited)

Common
Stock Paid-in
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income/(loss) Total
Stockholders'
Equity
Balance, June 27, 2020 $ 145 $ 406,640 $ (528,111) $ 2,456,403 $ (395,560) $ 1,939,517
Net earnings 0 0 0 60,516 0 60,516
Currency translation adjustments 0 0 0 0 25,851 25,851
Change in unrecognized pension benefit costs, net of tax of $(1,283) 0 0 0 0 (6,133) (6,133)
Unrealized gain on interest rate swap, net of tax of $960 0 0 0 0 2,653 2,653
Stock compensation 0 5,300 0 0 0 5,300
Stock issuance 1 3,705 0 0 0 3,706
Purchase of treasury stock 0 0 (395) 0 0 (395)
Equity component of issuance of convertible notes 0 307 0 0 0 307
Balance, September 26, 2020 $ 146 $ 415,952 $ (528,506) $ 2,516,919 $ (373,189) $ 2,031,322
Balance, December 28, 2019 $ 145 $ 387,402 $ (451,262) $ 2,361,462 $ (350,933) $ 1,946,814
Net earnings 0 0 0 155,457 0 155,457
Currency translation adjustments 0 0 0 0 (3,213) (3,213)
Change in unrecognized pension benefit costs, net of tax of $1,308 0 0 0 0 6,184 6,184
Unrealized (loss) on interest rate swap, net of tax of $(9,303) 0 0 0 0 (25,227) (25,227)
Stock compensation 0 14,422 0 0 0 14,422
Stock issuance 1 13,821 0 0 0 13,822
Purchase of treasury stock 0 0 (77,244) 0 0 (77,244)
Equity component of issuance of convertible notes 0 307 0 0 0 307
Balance, September 26, 2020 $ 146 $ 415,952 $ (528,506) $ 2,516,919 $ (373,189) $ 2,031,322


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity
Balance, July 3, 2021	$	147	$	370,816	$	(539,496)	$	2,783,659	$	(489,250)	$	2,125,876
Net earnings	—		—		—		175,966		—		175,966
Currency translation adjustments	—		—		—		—		(21,881)		(21,881)
Change in unrecognized pension benefit costs, net of tax of $1,296	—		—		—		—		5,870		5,870
Unrealized gain on interest rate swap, net of tax of $1,065	—		—		—		—		3,056		3,056
Stock compensation	—		10,198		—		—		—		10,198

Purchase of treasury stock	—		—		(115)		—		—		(115)
Balance, October 2, 2021	$	147	$	381,014	$	(539,611)	$	2,959,625	$	(502,205)	$	2,298,970

Balance, January 2, 2021	$	147	$	433,308	$	(537,134)	$	2,568,756	$	(488,428)	$	1,976,649
Net earnings	—		—		—		385,814		—		385,814
Adoption of ASU 2020-06 (1)	—		(79,430)		—		5,055		—		(74,375)
Currency translation adjustments	—		—		—		—		(33,000)		(33,000)
Change in unrecognized pension benefit costs, net of tax of $673	—		—		—		—		3,052		3,052
Unrealized gain on interest rate swap, net of tax of $5,637	—		—		—		—		16,171		16,171
Stock compensation	—		27,136		—		—		—		27,136

Purchase of treasury stock	—		—		(2,477)		—		—		(2,477)

Balance, October 2, 2021	$	147	$	381,014	$	(539,611)	$	2,959,625	$	(502,205)	$	2,298,970

(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.

~~See accompanying notes~~

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(amounts in thousands)

(Unaudited)

Common
Stock Paid-in
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income/(loss) Total
Stockholders'
Equity
Balance, June 29, 2019 $ 145 $ 380,603 $ (451,204) $ 2,170,445 $ (301,738) $ 1,798,251
Net earnings 0 0 0 82,020 0 82,020
Currency translation adjustments 0 0 0 0 (25,428) (25,428)
Change in unrecognized pension benefit costs, net of tax of $1,026 0 0 0 0 4,975 4,975
Unrealized (loss) on interest rate swap, net of tax of $(1,867) 0 0 0 0 (5,652) (5,652)
Stock compensation 0 1,923 0 0 0 1,923
Purchase of treasury stock 0 0 (58) 0 0 (58)
Balance, September 28, 2019 $ 145 $ 382,526 $ (451,262) $ 2,252,465 $ (327,843) $ 1,856,031
Balance, December 29, 2018 $ 145 $ 377,419 $ (445,118) $ 2,009,233 $ (276,476) $ 1,665,203
Net earnings 0 0 0 243,243 0 243,243
Adoption of ASU 2017-12 (1) 0 0 0 (11) 11 0
Currency translation adjustments 0 0 0 0 (27,190) (27,190)
Change in unrecognized pension benefit costs, net of tax of $955 0 0 0 0 4,966 4,966
Unrealized (loss) on interest rate swap, net of tax of $(9,890) 0 0 0 0 (29,154) (29,154)
Stock compensation 0 3,257 0 0 0 3,257
Stock issuance 0 1,850 0 0 0 1,850
Purchase of treasury stock 0 0 (6,144) 0 0 (6,144)
Balance, September 28, 2019 $ 145 $ 382,526 $ (451,262) $ 2,252,465 $ (327,843) $ 1,856,031


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity
Balance, June 27, 2020	$	145	$	406,640	$	(528,111)	$	2,456,403	$	(395,560)	$	1,939,517
Net earnings	—		—		—		60,516		—		60,516
Currency translation adjustments	—		—		—		—		25,851		25,851
Change in unrecognized pension benefit costs, net of tax of $(1,283)	—		—		—		—		(6,133)		(6,133)
Unrealized gain on interest rate swap, net of tax of $960	—		—		—		—		2,653		2,653
Stock compensation	—		5,300		—		—		—		5,300
Stock issuance	1		3,705		—		—		—		3,706
Purchase of treasury stock	—		—		(395)		—		—		(395)
Equity component of issuance of convertible notes	—		307		—		—		—		307
Balance, September 26, 2020	$	146	$	415,952	$	(528,506)	$	2,516,919	$	(373,189)	$	2,031,322

Balance, December 28, 2019	$	145	$	387,402	$	(451,262)	$	2,361,462	$	(350,933)	$	1,946,814
Net earnings	—		—		—		155,457		—		155,457
Currency translation adjustments	—		—		—		—		(3,213)		(3,213)
Change in unrecognized pension benefit costs, net of tax of $1,308	—		—		—		—		6,184		6,184
Unrealized (loss) on interest rate swap, net of tax of $(9,303)	—		—		—		—		(25,227)		(25,227)
Stock compensation	—		14,422		—		—		—		14,422
Stock issuance	1		13,821		—		—		—		13,822
Purchase of treasury stock	—		—		(77,244)		—		—		(77,244)
Equity component of issuance of convertible notes	—		307		—		—		—		307
Balance, September 26, 2020	$	146	$	415,952	$	(528,506)	$	2,516,919	$	(373,189)	$	2,031,322

~~(1) As of December 30, 2018, the company adopted ASU No. 2017-12,~~ ~~"Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"~~ ~~using the modified retrospective method. The adoption of this guidance resulted in the recognition of less than $0.1 million as an adjustment to the opening balance of retained earnings.~~

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


		Nine Months Ended					Nine Months Ended
		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020
Cash flows from operating activities--	Cash flows from operating activities--					Cash flows from operating activities--
Net earnings	Net earnings	$	155,457	$	243,243	Net earnings	$	385,814	$	155,457
Adjustments to reconcile net earnings to net cash provided by operating activities--	Adjustments to reconcile net earnings to net cash provided by operating activities--					Adjustments to reconcile net earnings to net cash provided by operating activities--
Depreciation and amortization	Depreciation and amortization	81,594		77,272		Depreciation and amortization	90,672		81,594
Amortization of discount and issuance costs on convertible notes	Amortization of discount and issuance costs on convertible notes	2,130		0		Amortization of discount and issuance costs on convertible notes	—		2,130
Non-cash share-based compensation	Non-cash share-based compensation	14,422		3,257		Non-cash share-based compensation	27,136		14,422
Deferred income taxes	Deferred income taxes	11,696		9,931		Deferred income taxes	(5,704)		11,696
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)	(30,004)		(22,233)		Net periodic pension benefit (other than service costs)	(34,268)		(30,004)

Gain on sale of plant						Gain on sale of plant	(763)		—

Changes in assets and liabilities, net of acquisitions	Changes in assets and liabilities, net of acquisitions					Changes in assets and liabilities, net of acquisitions
Accounts receivable, net	Accounts receivable, net	69,176		(1,116)		Accounts receivable, net	(97,355)		69,176
Inventories, net	Inventories, net	43,188		(65,864)		Inventories, net	(134,523)		43,188
Prepaid expenses and other assets	Prepaid expenses and other assets	16,576		1,903		Prepaid expenses and other assets	11,132		16,576
Accounts payable	Accounts payable	(28,171)		(17,659)		Accounts payable	61,286		(28,171)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(19,882)		1,010		Accrued expenses and other liabilities	42,613		(19,882)
Net cash provided by operating activities	Net cash provided by operating activities	316,182		229,744		Net cash provided by operating activities	346,040		316,182
Cash flows from investing activities--	Cash flows from investing activities--					Cash flows from investing activities--
Net additions to property, plant and equipment	Net additions to property, plant and equipment	(29,776)		(33,819)		Net additions to property, plant and equipment	(29,732)		(29,776)
Proceeds on sale of property, plant and equipment	Proceeds on sale of property, plant and equipment	9,381		0		Proceeds on sale of property, plant and equipment	6,062		9,381

Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(33,144)		(238,974)		Acquisitions, net of cash acquired	(389,009)		(33,144)
Net cash used in investing activities	Net cash used in investing activities	(53,539)		(272,793)		Net cash used in investing activities	(412,679)		(53,539)
Cash flows from financing activities--	Cash flows from financing activities--					Cash flows from financing activities--
Proceeds under Credit Facility	Proceeds under Credit Facility	2,547,305		444,451		Proceeds under Credit Facility	485,976		2,547,305
Repayments under Credit Facility	Repayments under Credit Facility	(3,217,507)		(375,188)		Repayments under Credit Facility	(421,550)		(3,217,507)
Proceeds from issuance of convertible notes, net of issuance costs	Proceeds from issuance of convertible notes, net of issuance costs	729,933		0		Proceeds from issuance of convertible notes, net of issuance costs	—		729,933
Premiums paid for capped call	Premiums paid for capped call	(104,650)		0		Premiums paid for capped call	—		(104,650)
Net proceeds under international credit facilities		2,033		319
Net (repayments) proceeds under international credit facilities						Net (repayments) proceeds under international credit facilities	(1,473)		2,033
Net repayments under other debt arrangement	Net repayments under other debt arrangement	(34)		(175)		Net repayments under other debt arrangement	(254)		(34)
Payments of deferred purchase price	Payments of deferred purchase price	(3,700)		(1,648)		Payments of deferred purchase price	(5,861)		(3,700)
Repurchase of treasury stock	Repurchase of treasury stock	(77,244)		(6,144)		Repurchase of treasury stock	(2,477)		(77,244)
Debt issuance costs on Credit Facility	Debt issuance costs on Credit Facility	(10,974)		0		Debt issuance costs on Credit Facility	—		(10,974)

Net cash (used in) provided by financing activities		(134,838)		61,615
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	54,361		(134,838)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(1,995)		(3,086)		Effect of exchange rates on cash and cash equivalents	(4,349)		(1,995)
Changes in cash and cash equivalents--	Changes in cash and cash equivalents--					Changes in cash and cash equivalents--
Net increase in cash and cash equivalents		125,810		15,480
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(16,627)		125,810
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	94,500		71,701		Cash and cash equivalents at beginning of year	268,103		94,500
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	220,310	$	87,181	Cash and cash equivalents at end of period	$	251,476	$	220,310

Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Stock issuance related to acquisition	Stock issuance related to acquisition	$	3,706	$	0	Stock issuance related to acquisition	$	—	$	3,706

See accompanying notes

THE MIDDLEBY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 26, 2020~~OCTOBER 2, 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 ~~2019~~2020 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year ~~2020.~~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 ~~September 26, 2020~~October 2, 2021 and ~~December 28, 2019,~~January 2, 2021, the results of operations for the three and nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ cash flows for the nine months ended October 2, 2021 and September 26, 2020 ~~and September 28, 2019~~ and statement of stockholders' equity for the three and nine months ended October 2, 2021 and September 26, ~~2020 and September 28, 2019.~~

Certain prior year amounts have been reclassified to be consistent with current year presentation, including classifying the non-operating components of pension benefit as an individual adjustment within the operating activities on the Consolidated Statements of Cash Flows. Previously the amounts were reported as changes in accrued expenses and other liabilities.

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 ~~$5.3~~$10.2 million and ~~$2.0~~$5.3 million for the three months period ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ respectively. Non-cash share-based compensation expense was ~~$14.4~~$27.1 million and ~~$3.3~~$14.4 million for the nine months period ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ respectively.

c)Income Taxes

A tax provision of ~~$18.2~~$54.9 million, at an effective rate of ~~23.1%~~23.8% was recorded during the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to a ~~$24.2~~$18.2 million tax provision at an effective rate of ~~22.8%~~23.1% in the prior year period. A tax provision of ~~$46.5~~$97.7 million, at an effective rate of ~~23.0%~~20.2%, was recorded during the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to a ~~$78.2~~$46.5 million tax provision at a ~~24.3%~~23.0% effective rate in the prior year period. ~~The effective tax rates in 2020 and 2019 are higher than the federal tax rate of 21% primarily due to state taxes. The effective tax rate for the nine months period ended September 26, 2020~~ ~~is lower than the comparable prior year rate primarily due to a reduction in non-deductible costs.~~

d)Fair Value Measures

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

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

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

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

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


		Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total			Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total
As of September 26, 2020
As of October 2, 2021										As of October 2, 2021
Financial Assets:										Financial Assets:
Interest rate swaps										Interest rate swaps	$	—	$	1,465	$	—	$	1,465

Financial Liabilities:										Financial Liabilities:
Interest rate swaps										Interest rate swaps	$	—	$	30,750	$	—	$	30,750
Contingent consideration										Contingent consideration	$	—	$	—	$	25,251	$	25,251
Foreign exchange derivative contracts										Foreign exchange derivative contracts	$	—	$	3,400	$	—	$	3,400

As of January 2, 2021										As of January 2, 2021

Financial Liabilities:	Financial Liabilities:									Financial Liabilities:
Interest rate swaps	Interest rate swaps	$	0	$	57,820	$	0	$	57,820	Interest rate swaps	$	—	$	51,093	$	—	$	51,093
Contingent consideration	Contingent consideration	$	0	$	0	$	10,542	$	10,542	Contingent consideration	$	—	$	—	$	25,558	$	25,558
Foreign exchange derivative contracts	Foreign exchange derivative contracts	0		171		0		$	171	Foreign exchange derivative contracts	$	—	$	2,191	$	—	$	2,191

As of December 28, 2019
Financial Assets:
Interest rate swaps		$	0	$	1,830	$	0	$	1,830

Financial Liabilities:
Interest rate swaps		$	0	$	25,120	$	0	$	25,120
Contingent consideration		$	0	$	0	$	6,697	$	6,697
Foreign exchange derivative contracts		$	0	$	901	$	0	$	901

The contingent consideration as of ~~September 26, 2020~~October 2, 2021 and ~~December 28, 2019,~~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 ~~$51.1~~$38.5 million and ~~$61.7~~$51.1 million for the nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ respectively. Cash payments totaling ~~$28.0~~$98.9 million and ~~$65.7~~$28.0 million were made for income taxes for the nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ 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 ~~118,000~~28,102 and ~~48,000,~~118,143 for the three ~~and nine~~ months ~~periods~~ ended October 2, 2021, and September 26, 2020, respectively. ~~There were no~~The company’s potentially dilutive securities consist of shares issuable on vesting of restricted stock grants computed using the treasury method and amounted to 16,342 and 47,555 for the ~~three and~~ nine months ~~periods~~ ended ~~September 28, 2019. For the three~~October 2, 2021, and ~~nine months periods ended~~ September 26, 2020, asrespectively. For the nine months ended October 2, 2021, the average market price of the company's common stock ~~has not~~ exceeded the exercise price of the Convertible Notes (as defined below) resulting in 1,678,501 and ~~there~~1,284,381 diluted common stock equivalents to be included in the diluted net earnings per share for the three and nine months ended October 2, 2021, respectively. There have been no conversions to ~~date, there is no impact to the diluted earnings per share.~~date. See Note 12, Financing Arrangements ~~in these Notes to the Condensed Consolidated Financial Statements included in this Part I, Item 1 of this Quarterly Report on Form 10-Q~~ for further details on the Convertible Notes. There were no anti-dilutive restricted stock grants excluded from common stock equivalents in any period presented.

2) Acquisitions and Purchase Accounting

The company operates in a highly fragmented industry and has completed numerous acquisitions over the past several years as a component of its growth strategy. The company has acquired industry leading brands and technologies to position itself as a leader in the commercial foodservice equipment, food processing equipment and residential kitchen equipment industries.

The company ~~has accounted~~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 ~~also~~ 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.

Termination of Welbilt Merger

As previously disclosed, on April 20, 2021, Middleby, entered into a Merger Agreement with Welbilt, Inc., a Delaware corporation ("Welbilt"), Middleby Marshall Inc., a Delaware corporation and a direct wholly owned subsidiary of Middleby ("Acquiror") and Mosaic Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of Acquiror ("Merger Sub"), which provided that, upon the terms and subject to the conditions set forth therein, Merger Sub would merge with and into Welbilt, with Welbilt surviving as an indirect, wholly-owned subsidiary of Middleby.

As previously disclosed, on July 13, 2021, Middleby announced that, under the terms of the Merger Agreement, it would not exercise its right to propose any modifications to the terms of the Merger Agreement and would allow the five-day match period to expire. Accordingly, on July 14, 2021, Welbilt delivered to Middleby a written notice terminating the Merger Agreement in accordance with Section 7.1(c)(iii) of the Merger Agreement and, concurrently with Middleby’s receipt of the termination fee of $110.0 million in cash from Welbilt, the Merger Agreement was terminated on July 14, 2021.

The termination fee received is reflected in the Condensed Consolidated Statements of Comprehensive Income 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 Condensed Consolidated Statements of Comprehensive Income.

The following represents the company's significant acquisitions in ~~2020~~2021 and ~~2019~~2020 as well as summarized information on various acquisitions that were not individually material. ~~The company also made smaller acquisitions not presented below which are individually and collectively immaterial.~~

~~Cooking Solutions Group~~

On April 1, 2019, the company completed its acquisition of all of the capital stock of Cooking Solutions Group, Inc. ("Cooking Solutions Group") from Standex International Corporation, which consists of the brands APW Wyott, Bakers Pride, BKI and Ultrafryer with locations in Texas, South Carolina and Mexico for a purchase price of approximately $106.1 million, net of cash acquired. During the third quarter of 2019, the company finalized the working capital provision provided for by the purchase agreement resulting in a payment due to the sellers of $0.1 million.

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

(as initially
reported)
April 1, 2019 Measurement
Period
Adjustments (as adjusted)
April 1, 2019
Cash $ 843 $ 0 $ 843
Current assets 33,666 (1,625) 32,041
Property, plant and equipment 15,959 (58) 15,901
Goodwill 31,207 6,330 37,537
Other intangibles 53,450 (5,850) 47,600
Other assets 0 1,470 1,470
Current liabilities (15,130) (1,583) (16,713)
Long-term deferred tax liability (13,082) 2,553 (10,529)
Other non-current liabilities 0 (1,163) (1,163)
Net assets acquired and liabilities assumed $ 106,913 $ 74 $ 106,987

The long-term deferred tax liability amounted to $10.5 million. The net deferred tax liability is comprised of $11.6 million of deferred tax liability related to the difference between the book and tax basis on identifiable intangible asset and liability accounts and $1.1 million of deferred tax asset related to the difference between the book and tax basis on identifiable tangible assets and liability accounts.

The goodwill and $24.7 million of other intangibles associated with the trade name are subject to the non-amortization provisions of ASC 350. Other intangibles also include $22.5 million allocated to customer relationships and $0.4 million allocated to backlog, which are being amortized over periods of 9 years and 3 months, respectively. Goodwill and other intangibles of Cooking Solutions Group are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.

~~Other 2019~~2020 Acquisitions

During ~~2019,~~2020, the company completed various ~~other~~ 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 ~~other 2019~~2020 acquisitions and are summarized as follows (in thousands):


		Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet			Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	Cash	$	2,683	$	(10)	$	2,673	Cash	$	14,647	$	—	$	14,647

Current assets	Current assets	21,525		1,016		22,541		Current assets	43,670		(13,391)		30,279
Property, plant and equipment	Property, plant and equipment	8,920		(166)		8,754		Property, plant and equipment	3,014		(241)		2,773
Goodwill	Goodwill	99,838		(11,213)		88,625		Goodwill	55,335		3,740		59,075
Other intangibles	Other intangibles	64,019		11,363		75,382		Other intangibles	63,201		(4,375)		58,826
Long-term deferred tax asset		1,288		1,428		2,716

Other assets	Other assets	137		854		991		Other assets	6,121		52		6,173

Current liabilities	Current liabilities	(20,437)		(348)		(20,785)		Current liabilities	(54,478)		13,037		(41,441)

Long-term deferred tax liability								Long-term deferred tax liability	(123)		387		264
Other non-current liabilities	Other non-current liabilities	(6,170)		(4,129)		(10,299)		Other non-current liabilities	(21,902)		791		(21,111)

Consideration paid at closing	Consideration paid at closing	$	171,803	$	(1,205)	$	170,598	Consideration paid at closing	$	109,485	$	—	$	109,485

Deferred payments	Deferred payments	2,404		0		2,404		Deferred payments	8,666		(468)		8,198
Contingent consideration	Contingent consideration	4,258		3,600		7,858		Contingent consideration	16,144		(836)		15,308

Net assets acquired and liabilities assumed	Net assets acquired and liabilities assumed	$	178,465	$	2,395	$	180,860	Net assets acquired and liabilities assumed	$	134,295	$	(1,304)	$	132,991

The long-term deferred tax asset amounted to ~~$2.7 million. The net deferred tax asset~~$0.3 million and is comprised of $2.9 million of deferred tax asset related to tax loss carryforwards, $1.0 million of deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.8 million of deferred tax asset related to the difference between the book and tax basis on ~~identifiable tangible asset~~other assets and liability accounts.

The goodwill and ~~$33.8~~$15.7 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include ~~$27.9~~$10.6 million allocated to customer relationships, ~~$12.3~~$26.2 million allocated to developed technology and ~~$1.4~~$6.3 million allocated to backlog, which are being amortized over periods of 56 to 109 years, 56 to 12 years, and 3 to 9 months, respectively. Goodwill of ~~$42.6~~$59.1 million and other intangibles of ~~$35.5~~$58.8 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Goodwill of $34.9 million and other intangibles of $30.1 million are allocated to the Food Processing Equipment Group for segment reporting purposes. Goodwill of $11.2 million and other intangibles of $9.8 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of ~~$77.8~~$24.4 million and intangibles of ~~$64.8~~$58.5 million are expected to be deductible for tax purposes.

~~Two~~Several purchase agreements include deferred ~~payments~~payment and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded. The deferred payments are payable between ~~2020~~2021 and 2022. The contractual obligations associated with the deferred payments on the acquisition ~~dates~~date amount to ~~$2.4~~$8.2 million. The earnouts are payable between 2021 and ~~2030,~~2023, if the ~~companies exceed~~company exceeds certain sales and earnings targets. The contractual obligations associated with the contingent earnout provisions recognized on the acquisition ~~dates~~date amount to ~~$7.9~~$15.3 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 various ~~2019~~2020 acquisitions. Thus, the provisional measurements of fair ~~value~~values set forth above are subject to change. The company expects to complete the purchase price ~~allocations during 2020.~~

allocation as soon as practicable but no later than one year from the acquisition date.

~~2020 Acquisitions~~Novy Invest NV

~~As of September 26, 2020,~~On July 12, 2021, the company ~~has~~ completed ~~various acquisitions that were not individually material.~~ its acquisition of all of the capital stock of Novy Invest NV ("Novy"), a leading manufacturer of premium residential ventilation hoods and cook tops located in Belgium, for a purchase price of approximately $250.9 million, net of cash acquired.

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

Preliminary Opening Balance Sheet Preliminary Measurement
Period
Adjustments Adjusted Opening Balance Sheet
Cash $ 2,347 $ 0 $ 2,347
Current assets 31,089 (12,908) 18,181
Property, plant and equipment 1,032 (241) 791
Goodwill 12,776 672 13,448
Other intangibles 16,484 0 16,484
Other assets 1,708 0 1,708
Current liabilities (30,005) 12,477 (17,528)
Other non-current liabilities (3,070) 0 (3,070)
Consideration paid at closing $ 32,361 $ 0 $ 32,361
Deferred payments 1,250 0 1,250
Contingent consideration 1,774 0 1,774
Net assets acquired and liabilities assumed $ 35,385 $ 0 $ 35,385


	Preliminary Opening Balance Sheet
Cash	$	16,152

Current assets	23,762
Property, plant and equipment	17,058
Goodwill	142,741
Other intangibles	126,557

Other assets	26

Current liabilities	(23,440)

Long-term deferred tax liability	(33,918)
Other non-current liabilities	(1,930)






Net assets acquired and liabilities assumed	$	267,008

The long-term deferred tax liability amounted to $33.9 million. The deferred tax liability is comprised of $31.6 million related to the difference between the book and tax basis of identifiable intangible assets and $2.3 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and ~~$9.0~~$89.5 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include ~~$5.3~~$33.9 million allocated to customer relationships, ~~$0.2~~$2.3 million allocated to developed technology and ~~$2.0~~$0.9 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 93 months, respectively. Goodwill of ~~$13.4~~$142.7 million and other intangibles of ~~$16.5~~$126.6 million of the ~~companies~~company 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.

Imperial Manufacturing Company

On September 24, 2021, the company completed its acquisition of all of the capital stock of Spenuzza, Inc. (dba Imperial Manufacturing Company) ("Imperial") located in Corona, CA, a manufacturer of ranges, fryers, ovens, countertop equipment and other specialty cooking products for commercial kitchens, for a purchase price of approximately $127.3 million, net of cash acquired.

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


	Preliminary Opening Balance Sheet
Cash	$	347

Current assets	8,070
Property, plant and equipment	19,120
Goodwill	42,570
Other intangibles	65,230

Other assets	6

Current liabilities	(7,701)









Net assets acquired and liabilities assumed	$	127,642

The goodwill and $35.5 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $28.3 million allocated to customer relationships, $0.9 million allocated to developed technology and $0.6 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively. Goodwill of $42.6 million and other intangibles of $65.2 million of the company are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes and are expected to be deductible for tax purposes.

One purchase agreement includes a deferred payment and earnout provision providing for contingent payments due to the sellers to the extent certain financial targets are exceeded. The deferred payment is payable during 2020. The contractual obligation associated with the deferred payments on the acquisition date is $1.3 million. The earnout is payable in 2023, if the company exceeds certain sales and earnings targets. The contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $1.8 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~~2021 acquisitions to date. Thus, the provisional measurements of fair ~~value~~values set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

In accordance with ASC 805 Business Combinations, the following unaudited pro forma results of operations for the nine months ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ assumes the ~~2019~~2020 and ~~2020~~2021 acquisitions described above were completed on December ~~30, 2018~~29, 2019 (first day of fiscal year ~~2019)~~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):


		Nine Months Ended					Nine Months Ended
		September 26, 2020		September 28, 2019			October 2, 2021		September 26, 2020
Net sales	Net sales	$	1,786,481	$	2,262,959	Net sales	$	2,472,306	$	1,899,883
Net earnings	Net earnings	158,115		231,068		Net earnings	407,715		155,067

Net earnings per share:	Net earnings per share:					Net earnings per share:
Basic	Basic	$	2.87	$	4.15	Basic	$	7.38	$	2.81
Diluted	Diluted	$	2.87	$	4.15	Diluted	$	7.21	$	2.81

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

3) Litigation Matters

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

4) Recently Issued Accounting Standards

Accounting Pronouncements - Recently Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, and has since modified the standard with several ASUs (collectively, the “new credit loss standard”). The new credit loss standard requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The company adopted the new standard as of December 29, 2019 (first day of fiscal year 2020) using the modified retrospective approach. As a result of the company's assessment process on its receivables and contract assets portfolio, which is the only financial instrument in scope of this standard, the adoption of this guidance did not have a material impact on the company's Condensed Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in ASU-04 simplify the subsequent measurement of goodwill, by removing the second step of the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement". The amendments in ASU-13 remove, modify and add various disclosure requirements around fair value measurement in order to clarify and improve the cost-benefit nature of disclosures. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)". The amendments in ASU-15 align the requirements for capitalizing implementation costs in a service contract hosting arrangement with those of developing or obtaining internal-use software. The company adopted this guidance on December 29, 2019 on a prospective basis. The adoption of this guidance did not have an impact on the company's Condensed Consolidated Financial Statements.

~~Accounting Pronouncements - To be adopted~~

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)". The amendments in ASU-14 remove, modify and add various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2020 with early adoption permitted. The amendments must be applied on a retrospective basis for all periods presented. The company is currently evaluating the impacts the adoption of this guidance will have on its Condensed Consolidated Financial Statements.

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

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. 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 Condensed Consolidated Financial Statements.

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

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes (Topic 740)", which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, ~~2021~~2020 with early adoption permitted. The company adopted this guidance on January 3, 2021, and it did not have a material impact on the company's Consolidated Financial Statements upon adoption.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)," which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition related to reference rate reform. The amendments in this update were effective immediately for all entities. The adoption of this guidance did not materially impact the company's Consolidated Financial Statements.

~~Adoption~~

Accounting Pronouncements - To be adopted

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): 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 ~~either a modified retrospective method or a fully retrospective.~~ 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. The company is currently evaluating ~~early~~the impacts the adoption ~~and the impacts~~of this guidance will have on its ~~Condensed~~ Consolidated Financial ~~Statements.~~

Statements and disclosures.

1314

5) Revenue Recognition

Disaggregation of Revenue

The company disaggregates its net sales by reportable operating segment and geographical location as the company believes it best depicts how the nature, timing and uncertainty of its net sales and cash flows are affected by economic factors. In general, the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups recognize revenue at the point in time control transfers to their customers based on contractual shipping terms. Revenue from equipment sold under the company's long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes the company's net sales by reportable operating segment and geographical location (in thousands):


											Commercial Foodservice		Food Processing		Residential Kitchen		Total
Three Months Ended October 2, 2021										Three Months Ended October 2, 2021
United States and Canada										United States and Canada	$	366,619	$	84,443	$	113,230	$	564,292
Asia										Asia	49,489		4,257		2,741		56,487
Europe and Middle East										Europe and Middle East	82,881		14,332		76,310		173,523
Latin America										Latin America	12,491		9,638		1,114		23,243
Total										Total	$	511,480	$	112,670	$	193,395	$	817,545

Nine Months Ended October 2, 2021										Nine Months Ended October 2, 2021
United States and Canada										United States and Canada	$	1,064,482	$	259,577	$	335,138	$	1,659,197
Asia										Asia	146,849		10,713		7,631		165,193
Europe and Middle East										Europe and Middle East	255,649		56,507		181,359		493,515
Latin America										Latin America	34,433		28,375		3,663		66,471
Total										Total	$	1,501,413	$	355,172	$	527,791	$	2,384,376
		Commercial Foodservice		Food Processing		Residential Kitchen		Total
Three Months Ended September 26, 2020	Three Months Ended September 26, 2020									Three Months Ended September 26, 2020
United States and Canada	United States and Canada	$	265,793	$	82,126	$	97,318	$	445,237	United States and Canada	$	265,793	$	82,126	$	97,318	$	445,237
Asia	Asia	39,864		4,711		1,875		46,450		Asia	39,864		4,711		1,875		46,450
Europe and Middle East	Europe and Middle East	60,603		18,600		52,216		131,419		Europe and Middle East	60,603		18,600		52,216		131,419
Latin America	Latin America	4,963		5,211		1,245		11,419		Latin America	4,963		5,211		1,245		11,419
Total	Total	$	371,223	$	110,648	$	152,654	$	634,525	Total	$	371,223	$	110,648	$	152,654	$	634,525

Nine Months Ended September 26, 2020	Nine Months Ended September 26, 2020									Nine Months Ended September 26, 2020
United States and Canada	United States and Canada	$	768,202	$	227,770	$	264,116	$	1,260,088	United States and Canada	$	768,202	$	227,770	$	264,116	$	1,260,088
Asia	Asia	104,936		18,460		3,753		127,149		Asia	104,936		18,460		3,753		127,149
Europe and Middle East	Europe and Middle East	180,187		57,051		117,187		354,425		Europe and Middle East	180,187		57,051		117,187		354,425
Latin America	Latin America	28,522		13,196		581		42,299		Latin America	28,522		13,196		581		42,299
Total	Total	$	1,081,847	$	316,477	$	385,637	$	1,783,961	Total	$	1,081,847	$	316,477	$	385,637	$	1,783,961

Three Months Ended September 28, 2019
United States and Canada		$	346,616	$	57,255	$	86,859	$	490,730
Asia		53,463		5,100		1,490		60,053
Europe and Middle East		82,244		21,125		44,395		147,764
Latin America		18,667		5,667		1,133		25,467
Total		$	500,990	$	89,147	$	133,877	$	724,014

Nine Months Ended September 28, 2019
United States and Canada		$	1,004,609	$	172,944	$	270,689	$	1,448,242
Asia		153,787		21,836		4,355		179,978
Europe and Middle East		258,102		67,624		142,016		467,742
Latin America		55,302		17,070		3,486		75,858
Total		$	1,471,800	$	279,474	$	420,546	$	2,171,820

1415

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):


		Sep 26, 2020		Dec 28, 2019			Oct 2, 2021		Jan 2, 2021
Contract assets	Contract assets	$	21,345	$	22,675	Contract assets	$	20,955	$	20,328
Contract liabilities	Contract liabilities	$	86,103	$	74,511	Contract liabilities	$	132,984	$	93,871
Non-current contract liabilities	Non-current contract liabilities	$	12,488	$	12,870	Non-current contract liabilities	$	12,187	$	13,523

During the nine months period ended ~~September 26, 2020,~~October 2, 2021, the company reclassified ~~$13.0~~$14.0 million to receivables, which was included in the contract asset balance at the beginning of the period. During the nine months period ended ~~September 26, 2020,~~October 2, 2021, the company recognized revenue of ~~$43.8~~$72.6 million which was included in the contract liability balance at the beginning of the period. Additions to contract liabilities representing amounts billed to clients in excess of revenue recognized to date were ~~$70.9~~$122.7 million during the nine months period ended ~~September 26, 2020. The increase in contract liabilities primarily relates to companies acquired during the nine months period ended September 26, 2020.~~October 2, 2021. Substantially, all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were 0no contract asset impairments during the nine months period ended ~~September 26, 2020.~~October 2, 2021.

1516

6) Other Comprehensive Income

The company reports changes in equity during a period, except those resulting from investments by owners and distributions to owners, in accordance with ASC 220, "Comprehensive Income".

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


											Currency Translation Adjustment		Pension Benefit Costs		Unrealized Gain/(Loss) Interest Rate Swap		Total
Balance as of January 2, 2021										Balance as of January 2, 2021	$	(49,961)	$	(400,919)	$	(37,548)	$	(488,428)
Other comprehensive income before reclassification										Other comprehensive income before reclassification	(33,000)		3,052		1,480		(28,468)
Amounts reclassified from accumulated other comprehensive income										Amounts reclassified from accumulated other comprehensive income	—		—		14,691		14,691
Net current-period other comprehensive income										Net current-period other comprehensive income	$	(33,000)	$	3,052	$	16,171	$	(13,777)
Balance as of October 2, 2021										Balance as of October 2, 2021	$	(82,961)	$	(397,867)	$	(21,377)	$	(502,205)
		Currency Translation Adjustment		Pension Benefit Costs		Unrealized Gain/(Loss) Interest Rate Swap		Total
Balance as of December 28, 2019	Balance as of December 28, 2019	$	(105,705)	$	(228,336)	$	(16,892)	$	(350,933)	Balance as of December 28, 2019	$	(105,705)	$	(228,336)	$	(16,892)	$	(350,933)
Other comprehensive income before reclassification	Other comprehensive income before reclassification	(3,213)		6,184		(35,646)		(32,675)		Other comprehensive income before reclassification	(3,213)		6,184		(35,646)		(32,675)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	0		0		10,419		10,419		Amounts reclassified from accumulated other comprehensive income	—		—		10,419		10,419
Net current-period other comprehensive income	Net current-period other comprehensive income	$	(3,213)	$	6,184	$	(25,227)	$	(22,256)	Net current-period other comprehensive income	$	(3,213)	$	6,184	$	(25,227)	$	(22,256)
Balance as of September 26, 2020	Balance as of September 26, 2020	$	(108,918)	$	(222,152)	$	(42,119)	$	(373,189)	Balance as of September 26, 2020	$	(108,918)	$	(222,152)	$	(42,119)	$	(373,189)

Balance as of December 29, 2018		$	(112,771)	$	(170,938)	$	7,233	$	(276,476)
Adoption of ASU 2017-12 (2)		0		0		11		11
Other comprehensive income before reclassification		(27,190)		4,966		(27,201)		(49,425)
Amounts reclassified from accumulated other comprehensive income		0		0		(1,953)		(1,953)
Net current-period other comprehensive income		$	(27,190)	$	4,966	$	(29,143)	$	(51,367)
Balance as of September 28, 2019		$	(139,961)	$	(165,972)	$	(21,910)	$	(327,843)

(1) As of October 2, 2021, pension and interest rate swap amounts are net of tax of $(88.4) million and $(7.5) million, respectively. During the nine months ended October 2, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $0.7 million and $5.6 million, respectively. As of September 26, 2020 pension and interest rate swap amounts are net of tax of $(47.3) million and $(15.3) million, respectively. During the nine months ended September 26, 2020, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $1.3 million and $(9.3) million, respectively. As of September 28, 2019 pension and interest rate swap amounts are net of tax of $(35.8) million and $(7.3) million, respectively. During the nine months ended September 28, 2019, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $1.0 million and $(9.9) million, respectively.

~~(2) As of December 30, 2018, the company adopted ASU No. 2017-12,~~ ~~"Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities"~~ ~~using the modified retrospective method. The adoption of this guidance resulted in the recognition of less than $0.1 million as an adjustment to the opening balance of retained earnings.~~

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Net earnings	Net earnings	$	60,516	$	82,020	$	155,457	$	243,243	Net earnings	$	175,966	$	60,516	$	385,814	$	155,457
Currency translation adjustment	Currency translation adjustment	25,851		(25,428)		(3,213)		(27,190)		Currency translation adjustment	(21,881)		25,851		(33,000)		(3,213)
Pension liability adjustment, net of tax	Pension liability adjustment, net of tax	(6,133)		4,975		6,184		4,966		Pension liability adjustment, net of tax	5,870		(6,133)		3,052		6,184
Unrealized gain (loss) on interest rate swaps, net of tax	Unrealized gain (loss) on interest rate swaps, net of tax	2,653		(5,652)		(25,227)		(29,143)		Unrealized gain (loss) on interest rate swaps, net of tax	3,056		2,653		16,171		(25,227)
Comprehensive income	Comprehensive income	$	82,887	$	55,915	$	133,201	$	191,876	Comprehensive income	$	163,011	$	82,887	$	372,037	$	133,201

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 ~~September 26, 2020~~October 2, 2021 and ~~December 28, 2019~~January 2, 2021 are as follows (in thousands):


		Sep 26, 2020		Dec 28, 2019			Oct 2, 2021		Jan 2, 2021
Raw materials and parts	Raw materials and parts	$	274,769	$	277,394	Raw materials and parts	$	369,221	$	263,200
Work-in-process	Work-in-process	59,496		58,663		Work-in-process	68,360		55,104
Finished goods	Finished goods	223,247		249,642		Finished goods	248,462		221,894
		$	557,512	$	585,699		$	686,043	$	540,198

8) Goodwill

Changes in the carrying amount of goodwill for the nine months ended ~~September 26, 2020~~October 2, 2021 are as follows (in thousands):


		Commercial Foodservice		Food Processing		Residential Kitchen		Total			Commercial Foodservice		Food Processing		Residential Kitchen		Total
Balance as of December 28, 2019		$	1,153,552	$	257,679	$	438,516	$	1,849,747
Balance as of January 2, 2021										Balance as of January 2, 2021	$	1,228,436	$	255,798	$	450,027	$	1,934,261
Goodwill acquired during the year	Goodwill acquired during the year	13,448		0		0		13,448		Goodwill acquired during the year	42,570		—		142,741		185,311
Measurement period adjustments to goodwill acquired in prior year	Measurement period adjustments to goodwill acquired in prior year	(55)		(8,732)		1,673		(7,114)		Measurement period adjustments to goodwill acquired in prior year	2,302		—		—		2,302
Exchange effect	Exchange effect	3,571		2,706		(6,997)		(720)		Exchange effect	(7,012)		(3,814)		(4,866)		(15,692)
Balance as of September 26, 2020		$	1,170,516	$	251,653	$	433,192	$	1,855,361
Balance as of October 2, 2021										Balance as of October 2, 2021	$	1,266,296	$	251,984	$	587,902	$	2,106,182

The company continues to monitor the global outbreak of the COVID-19 pandemic to assess the outlook for demand of its products and the impact on its business and financial performance. The potential impact of the COVID-19 pandemic on demand, production levels, and its operating results in the short-term is uncertain, but the company remains committed to the strategic actions necessary to realize long-term revenue and cash flow growth rates. The potential negative demand effect on revenues is also uncertain given the volatile environment, but demand and production levels are anticipated to recover.

~~As a result of the company's analysis, and in consideration of the totality of events and circumstances, there were no triggering events requiring an interim goodwill~~annual impairment assessment ~~identified during the nine months period ended September 26, 2020.~~

Additionally, for the assessment of indefinite-life intangible assets other than goodwill, primarily trademarks and trade names, the company identified several trademarks and trade names with indicators of potential risk for impairment and performed quantitative assessments. The fair values of the trademarks tested exceeded their carrying values by more than 10%. As a result, 0 impairment charges for goodwill and indefinite-lived intangible assets ~~were recorded during~~is performed as of the ~~nine months period ended September 26, 2020.~~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):

September 26, 2020 December 28, 2019
Estimated
Weighted Avg
Remaining
Life Gross
Carrying
Amount Accumulated
Amortization Estimated
Weighted Avg
Remaining
Life Gross
Carrying
Amount Accumulated
Amortization
Amortized intangible assets:
Customer lists 8.7 $ 726,631 $ (331,670) 9.2 $ 717,397 $ (283,846)
Backlog 0.5 31,336 (30,389) 1.3 29,426 (28,283)
Developed technology 7.3 36,351 (23,678) 5.2 32,999 (21,378)
$ 794,318 $ (385,737) $ 779,822 $ (333,507)
Indefinite-lived assets:
Trademarks and tradenames $ 1,012,019 $ 997,066


	October 2, 2021					January 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 lists	7.9	$	794,079	$	(393,686)	8.5	$	735,264	$	(347,029)
Backlog	0.2	37,039		(36,331)		0.3	34,729		(31,924)
Developed technology	8.9	65,534		(28,434)		10.0	56,931		(24,394)
		$	896,652	$	(458,451)		$	826,924	$	(403,347)
Indefinite-lived assets:
Trademarks and tradenames		$	1,136,400				$	1,026,804

The aggregate intangible amortization expense was ~~$16.9~~$18.2 million and ~~$17.3~~$16.9 million for the three months period ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ respectively. The aggregate intangible amortization expense was ~~$51.4~~$54.9 million and ~~$48.1~~$51.4 million for the nine months period ended October 2, 2021 and September 26, 2020, ~~and September 28, 2019,~~ 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 Third Quarter	Twelve Month Period coinciding with the end of the company's Fiscal Third Quarter	Amortization Expense		Twelve Month Period coinciding with the end of the company's Fiscal Third Quarter	Amortization Expense

2021		$	64,119
2022	2022	60,564		2022	$	73,869
2023	2023	54,096		2023	66,711
2024	2024	45,053		2024	57,656
2025	2025	35,892		2025	48,507
2026				2026	46,054
Thereafter	Thereafter	148,857		Thereafter	145,404
		$	408,581		$	438,201

10) Accrued Expenses

Accrued expenses consist of the following (in thousands):


		Sep 26, 2020		Dec 28, 2019			Oct 2, 2021		Jan 2, 2021
Contract liabilities	Contract liabilities	$	86,103	$	74,511	Contract liabilities	$	132,984	$	93,871
Accrued payroll and related expenses	Accrued payroll and related expenses	71,526		80,621		Accrued payroll and related expenses	105,498		93,926
Accrued warranty	Accrued warranty	67,714		66,374		Accrued warranty	81,708		69,667
Accrued customer rebates	Accrued customer rebates	33,418		51,709		Accrued customer rebates	61,160		43,703
Accrued short-term leases						Accrued short-term leases	21,987		22,493
Accrued professional fees						Accrued professional fees	20,743		12,133
Accrued sales and other tax	Accrued sales and other tax	23,438		19,862		Accrued sales and other tax	17,380		22,030
Accrued short-term leases		23,297		21,827
Accrued agent commission						Accrued agent commission	14,265		11,105
Accrued product liability and workers compensation						Accrued product liability and workers compensation	11,244		12,909
Accrued interest rate swaps	Accrued interest rate swaps	15,282		0		Accrued interest rate swaps	768		14,075
Accrued product liability and workers compensation		13,134		15,164
Accrued professional fees		12,291		13,368
Accrued agent commission		10,562		13,816
Accrued restructuring		5,818		1,121
Accrued liabilities held for sale						Accrued liabilities held for sale	—		22,313
Other accrued expenses	Other accrued expenses	58,997		58,177		Other accrued expenses	79,259		76,316

		$	421,580	$	416,550		$	546,996	$	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):


	Nine Months Ended
	~~Sep 26, 2020~~Oct 2, 2021
Balance as of ~~December 28, 2019~~January 2, 2021	$	~~66,374~~69,667
Warranty reserve related to acquisitions	~~1,335~~1,836
Warranty expense	~~42,480~~54,164
Warranty claims	~~(42,475)~~(43,959)
Balance as of ~~September 26, 2020~~October 2, 2021	$	~~67,714~~81,708

12) Financing Arrangements


		Sep 26, 2020		Dec 28, 2019			Oct 2, 2021		Jan 2, 2021
		(in thousands)					(in thousands)
Senior secured revolving credit line	Senior secured revolving credit line	$	854,758	$	1,869,402	Senior secured revolving credit line	$	827,856	$	755,000
Term loan facility	Term loan facility	345,312		0		Term loan facility	321,875		335,938
Convertible senior notes	Convertible senior notes	627,006		0		Convertible senior notes	733,825		632,847
Foreign loans	Foreign loans	4,967		3,622		Foreign loans	2,833		4,421
Other debt arrangement	Other debt arrangement	82		116		Other debt arrangement	1,186		1,390
Total debt	Total debt	1,832,125		1,873,140		Total debt	1,887,575		1,729,596
Less: Current maturities of long-term debt	Less: Current maturities of long-term debt	23,152		2,894		Less: Current maturities of long-term debt	21,553		22,944
Long-term debt	Long-term debt	1,808,973		1,870,246		Long-term debt	$	1,866,022	$	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, ~~the company's pre-existing $3.0~~is in an aggregate principal amount of $3.1 billion, ~~credit facility, which had an original maturity~~consisting of ~~July 2021, to provide for~~ (i) a ~~$750.0~~$350 million term loan facility and (ii) a $2.75 billion multi-currency revolving credit facility, with the potential under certain circumstances, to increase the amount of the credit facility to up to a total of $4.0 billion (plus additional amounts, subject to compliance with a senior secured net leverage ratio).facility. The Credit Facility matures on January 31, 2025. The term loan facility ~~will amortize~~amortizes in equal quarterly installments due on the last day of each fiscal quarter ~~commencing with the first full fiscal quarter after January 31, 2020,~~ in an aggregate annual amount equal to 2.50% of the original aggregate principal amount of the term loan facility, with the balance, plus any accrued interest, due and payable on January 31, 2025.

On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2025 (the "Convertible Notes") in a private offering pursuant to an indenture, dated August 21, 2020 (the "Indenture"), between the company and U.S. Bank National Association, as trustee. The net proceeds from the sale of the Convertible Notes were approximately $729.9 million after deducting the initial purchasers' discounts and the offering expenses payable by the company. In connection with the pricing of the Convertible Notes, the company entered into privately negotiated capped call transactions (the "Capped Call Transactions") and the company used the net proceeds to pay the aggregate amount of $104.7 million for them. The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of the company's common stock that underlie the Convertible Notes.

The company used a portion of the net proceeds from the offering of the Convertible Notes to prepay $400.0 million aggregate principal amount of its term loan obligations owed under its Credit Facility; which was amended concurrently with the issuance of the Convertible Notes. The Credit Facility, as amended, is in an aggregate principal amount of $3.1 billion, consisting of (i) a $350 million term loan facility and (ii) a $2.75 billion multi-currency revolving credit facility. The maturity date remains unchanged at January 31, 2025. The company intends to use the remaining net proceeds for general corporate purposes, including the financing of its operations, the potential repayment of additional indebtedness and potential acquisitions and other strategic transactions.

~~Credit Facility~~

As of ~~September 26, 2020,~~October 2, 2021, the company had ~~$1.2~~$1.1 billion of borrowings outstanding under the Credit Facility, including ~~$814.0~~$566.5 million of borrowings in U.S. Dollars, ~~$40.8~~$261.3 million of borrowings denominated in ~~British Pounds,~~Euro, and ~~$345.3~~$321.9 million outstanding under the term loan. The company also had ~~$13.4~~$2.7 million in outstanding letters of credit as of ~~September 26, 2020,~~October 2, 2021, which reduces the borrowing availability under the Credit Facility. ~~Remaining borrowing availability under this facility was $1.9 billion at September 26, 2020.~~

At ~~September 26, 2020,~~October 2, 2021, borrowings under the Credit Facility accrued interest at a rate of ~~1.625%~~1.375% above LIBOR per annum or ~~0.625%~~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 ~~3.75%~~2.78% 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%~~0.20% per annum as of September 26, 2020. As a result of the amendment, for the quarterly periods extending through the second fiscal quarter of 2021, borrowings under the Credit Facility will accrue interest at a minimum of 2.00% above LIBOR and the variable unused commitment fee will be at a minimum of 0.35%.

October 2, 2021. The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of ~~2.83%~~2.60% as of ~~September 26, 2020.~~October 2, 2021.

In addition, the company has other international credit facilities to fund working capital needs outside the United ~~States and the United Kingdom.~~States. At ~~September 26, 2020,~~October 2, 2021, these foreign credit facilities amounted to ~~$5.0~~$2.8 million in U.S. Dollars with a weighted average per annum interest rate of approximately ~~6.08%~~7.80%.

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):

Sep 26, 2020 Dec 28, 2019
Carrying Value Fair Value Carrying Value Fair Value
Total debt excluding convertible senior notes $ 1,205,119 $ 1,205,119 $ 1,873,140 $ 1,873,140


	Oct 2, 2021				Jan 2, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Total debt excluding convertible senior notes	$	1,153,750	$	1,153,750	$	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 ~~September 26, 2020,~~October 2, 2021, the company had outstanding floating-to-fixed interest rate swaps totaling ~~$251.0~~ $60.0

million notional amount carrying an average interest rate of ~~2.39%~~1.31% maturing in less than 12 months and ~~$862.0~~$802.0 million notional amount carrying an average interest rate of ~~1.87%~~1.91% that mature in more than 12 months but less than 8466 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~~4.25 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. However; the maximum secured leverage ratio is permitted to be at higher amounts for periods extending through the second fiscal quarter of 2021, after which time covenants will revert to their original levels. The Credit Facility is secured by substantially all of the assets of Middleby Marshall, the company and the company's domestic subsidiaries and is unconditionally guaranteed by, subject to certain exceptions, the company and certain of the company's direct and indirect material foreign and domestic subsidiaries. The Credit Facility contains certain customary events of default, including, but not limited to, the failure to make required payments; bankruptcy and other insolvency events; 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 ~~September 26, 2020,~~October 2, 2021, the company was in compliance with all covenants pursuant to its borrowing agreements.

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

Convertible Notes

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


	~~Sep 26, 2020~~
	~~(in thousands)~~
~~Principal amounts:~~
~~Principal~~	$	~~747,500~~
~~Unamortized debt discount~~	~~(120,494)~~
~~Net carrying amount~~	$	~~627,006~~


	Oct 2, 2021		Jan 2, 2021
	(in thousands)
Principal amounts:
Principal	$	747,500	$	747,500
Unamortized debt discounts	—		(98,358)
Unamortized issuance costs	(13,675)		(16,295)
Net carrying amount	$	733,825	$	632,847

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


	~~Nine Months Ended~~
	~~Sep 26, 2020~~
~~Contractual interest expense~~	$	~~726~~
~~Interest cost related to amortization of the debt discount and issuance costs~~	~~2,130~~
~~Total interest expense~~	$	~~2,856~~


	Three Months Ended				Nine Months Ended
	Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Contractual interest expense	$	1,848	$	726	$	5,607	$	726
Interest cost related to amortization of issuance costs	864		2,130		2,620		2,130
Total interest expense	$	2,712	$	2,856	$	8,227	$	2,856

On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes maturing on September 1, 2025 (the "Convertible Notes") in a private offering pursuant to an indenture, dated August 21, 2020 (the "Indenture"), between the company and U.S. Bank National Association, as trustee. The Convertible Notes are general unsecured obligations of the company and bear interest semi-annually in arrears. The estimated fair value of the Convertible Notes was ~~$740.7 million~~$1.1 billion as of ~~September 26, 2020~~October 2, 2021 and was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 1 (d), Fair Value Measurements, ~~in these Notes to the Condensed Consolidated Financial Statements included in this Part I, Item 1~~ of this Quarterly Report on Form 10-Q. The if-converted value of the Convertible Notes ~~did not exceed~~exceeded their respective principal value by $262.8 million as of ~~September 26, 2020.~~October 2, 2021.

The Convertible Notes are general unsecured obligations of the company. The Convertible Notes rank senior in right of payment to any of the company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; rank equal in right of payment to the company’s existing and future unsecured indebtedness that is not so subordinated; are effectively subordinated in right of payment to any of the company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and are structurally subordinated to all existing and future indebtedness and liabilities of the company’s subsidiaries.

In accounting for the issuance of the Convertible Notes, the company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, which does not meet the criteria for separate accounting as a derivative as it is indexed to the company's own stock, was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. The difference between the principal amount of the Convertible Notes and the liability component represents the debt discount, which is recorded as a direct deduction from the related debt liability in the Condensed Consolidated Balance Sheets and amortized to interest expense using the effective interest method over the term of the Convertible Notes. Theannual effective interest rate of the Convertible Notes following adoption of ASU 2020-06 is ~~4.7%~~1.5%. The equity component of the Convertible Notes of approximately $105.0 million is included in the additional paid-in capital in the Condensed Consolidated Balance Sheets and is not remeasured as long as it continues to meet the conditions for equity classification. The company allocated transaction costs related to the Convertible Notes using the same proportions as the proceeds from the Convertible Notes. Transaction costs attributable to the liability component were recorded as a direct deduction from the related debt liability in the Condensed Consolidated Balance Sheets and amortized to interest expense over the term of the Convertible Notes, and transaction costs attributable to the equity component were netted with the equity component in shareholders' equity.

2221

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

The Convertible Notes will mature on September 1, 2025 unless they are redeemed, repurchased or converted prior to such date in accordance with their terms. Prior to the close of business on the business day immediately preceding June 1, 2025, the notes will be convertible at the option of the holders only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on January 2, 2021 (and only during such fiscal quarter), if the last reported sale price of the company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130.0% of the conversion price for the Convertible Notes on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of that ten consecutive trading day period was less than 98.0% of the product of the last reported sale price of the company's common stock and the conversion rate of the Convertible Notes on each such trading day; (3) if the company calls such Convertible Notes for redemption; or (4) upon the occurrence of specified corporate events. On or after June 1, 2025, the notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the Convertible Notes who convert in connection with a Make-Whole Fundamental Change or during a Redemption Period (each as defined in the Indenture) will be, under certain circumstances, entitled to an increase in the conversion rate.

The company may settle the conversions of the Convertible Notes in cash, shares of the company's common stock or any combination thereof at its election. The number of shares of the company's common stock issuable at the conversion price of $128.62 per share is expected to be 5.8 million shares. ~~However, the Capped Call Transactions are expected generally~~As of October 2, 2021, there have been no conversions to reduce the potential dilution of the company's common stock upon any conversion of Convertible Notes and/or offset the cash payments the company is required to make in excess of the principal amount of the Notes. Under the Capped Call Transactions, the number of shares of common stock issuable at the conversion price of $207.93 is expected to be 3.6 million shares.

~~The Convertible Notes were not convertible during~~date. For the nine months ~~period~~ ended ~~September 26, 2020 and none have been converted to date. Also given~~October 2, 2021, the average market price of the company's common stock ~~has not~~ exceeded the exercise price ~~for the three and nine months periods ended September 26, 2020, there is no impact to the diluted earnings per share.~~

~~The company may redeem all or any portion~~ of the Convertible Notes at its option, on or after September 5, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, at a redemption price equal to 100.0% of the principal amount of the Convertible Notesresulting in 1,284,381 diluted common stock equivalents to be ~~redeemed, plus accrued and unpaid interest thereon, if~~included in the ~~last reported sales price of~~diluted net earnings per share for 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.

period.

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

Capped Call Transactions

In conjunction with the pricing of the Convertible Notes, the company entered into privately negotiated capped call transactions in the aggregate amount of $104.7 million ("Capped Call Transactions"). The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions. ~~The~~Under the Capped Call Transactions, ~~have an initial cap~~the number of shares of common stock issuable at the conversion price of $207.93 ~~per share~~is expected to be 3.6 million shares. As of ~~the company's common stock.~~October 2, 2021, there have been no conversions to date. The Capped Call Transactions cover ~~initially,~~ the number of shares of the company's common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.

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

13) Financial Instruments

ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If a derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated comprehensive income until the hedged item is recognized in earnings.

Foreign Exchange: The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The fair value of the forward and option contracts was a ~~gain~~loss of ~~$0.2~~$3.4 million at the end of the third quarter of ~~2020.~~2021.

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. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of ~~September 26, 2020,~~October 2, 2021, the fair value of these instruments was a liability of ~~$57.8~~$29.3 million. The change in fair value of these swap agreements in the first nine months of ~~2020~~2021 was a ~~loss~~gain of ~~$25.2~~$16.2 million, net of taxes.

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

Condensed Consolidated
Balance Sheet Presentation Sep 26, 2020 Dec 28, 2019
Fair value Other assets $ 0 $ 1,830
Fair value Accrued expenses $ 15,282 $ 0
Fair value Other non-current liabilities $ 42,538 $ 25,120


	Condensed Consolidated Balance Sheet Presentation	Oct 2, 2021		Jan 2, 2021
Fair value	Other assets	$	1,465	$	—
Fair value	Accrued expenses	$	768	$	14,075
Fair value	Other non-current liabilities	$	29,982	$	37,018

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


			Three Months Ended				Nine Months Ended						Three Months Ended				Nine Months Ended
		Presentation of Gain/(loss)	Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019			Presentation of Gain/(loss)	Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Gain/(loss) recognized in accumulated other comprehensive income	Gain/(loss) recognized in accumulated other comprehensive income	Other comprehensive income	$	(1,545)	$	(7,114)	$	(44,949)	$	(37,090)	Gain/(loss) recognized in accumulated other comprehensive income	Other comprehensive income	$	(340)	$	(1,545)	$	7,117	$	(44,949)
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense	$	(5,158)	$	403	$	(10,419)	$	1,953	Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense	$	(4,461)	$	(5,158)	$	(14,691)	$	(10,419)

Interest rate swaps are subject to default risk to the extent the counterparties are unable to satisfy their settlement obligations under the interest rate swap agreements. The company reviews the credit profile of the financial institutions that are counterparties to such swap agreements and assesses their creditworthiness prior to entering into the interest rate swap agreements and throughout the term. The interest rate swap agreements typically contain provisions that allow the counterparty to require early settlement in the event that the company becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreements.

14) Segment Information

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

The Commercial Foodservice Equipment Group manufactures, sells, and distributes foodservice equipment for the restaurant and institutional kitchen industry. This business segment has manufacturing facilities in Arkansas, California, Colorado, Florida, Illinois, ~~Massachusetts,~~ Michigan, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, ~~South Carolina,~~ Tennessee, Texas, Vermont, Washington, Australia, Canada, China, Denmark, Estonia, Italy, Mexico, the Philippines, Poland, Spain, Sweden and the United Kingdom. Principal product lines of this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, food warming equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment, toasters, griddles, charcoal grills, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers, coldrooms, ice machines, freezers, ~~and~~ soft serve ice cream equipment, coffee and beverage dispensing ~~equipment.~~equipment, home and professional craft brewing equipment, fry dispensers, bottle filling and canning equipment, and IoT solutions. These products are sold and marketed under the brand names: Anets, APW Wyott, Bakers Pride, Beech, BKI, Blodgett, Blodgett Combi, ~~Blodgett Range,~~ Bloomfield, Britannia, ~~CTX,~~ Carter-Hoffmann, Celfrost, Concordia, CookTek, Crown, CTX, Desmon, Deutsche Beverage, Doyon, Eswood, EVO, Firex, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Imperial, Induc, Ink Kegs, Inline Filling Systems, Jade, JoeTap, Josper, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Meheen, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, RAM, ~~SiteSage,~~ Southbend, Ss Brewtech, Star, Starline, Sveba Dahlen, ~~Ss Brewtech,~~ Synesso, Tank, Taylor, Thor, Toastmaster, TurboChef, Ultrafryer, Varimixer, Wells, Wild Goose and Wunder-Bar.

The Food Processing Equipment Group manufactures preparation, cooking, packaging food handling and food safety equipment for the food processing industry. This business segment has manufacturing operations in Georgia, Illinois, Iowa, North Carolina, Oklahoma, Pennsylvania, Texas, Virginia, Washington, Wisconsin, Denmark, France, Germany, India, Italy, and the United Kingdom. Principal product lines of this group include batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems, grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, forming equipment, automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment. These products are sold and marketed under the brand names: Alkar, Armor Inox, Auto-Bake, Baker Thermal Solutions, Burford, Cozzini, ~~CVP Systems,~~CV-Tek, Danfotech, Deutsche Process, Drake, ~~Emico,~~ Glimek, Hinds-Bock, Maurer-Atmos, MP Equipment, ~~M-TEK, Pacpro,~~Pacproinc, RapidPak, Scanico, Spooner Vicars, Stewart Systems, Thurne and Ve.Ma.C.

The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential market. This business segment has manufacturing facilities in California, Michigan, Mississippi, ~~Oregon,~~ Wisconsin, Belgium, France ~~Ireland, Romania~~ and the United Kingdom. Principal product lines of this group are ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, ~~microwaves, cooktops,~~undercounter refrigeration, wine ~~coolers,~~cellars, ice machines, ventilation equipment and outdoor equipment. These products are sold and marketed under the brand names: AGA, AGA Cookshop, Brava, ~~Brigade,~~ EVO, ~~Fired Earth, Heartland,~~ La Cornue, Leisure Sinks, Lynx, Marvel, Mercury, Novy, Rangemaster, Rayburn, Redfyre, Sedona, Stanley, TurboChef, U-Line and Viking.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision maker evaluates individual segment performance based on operating income.

Net Sales Summary

(dollars in thousands)


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
		Sep 26, 2020				Sep 28, 2019				Sep 26, 2020				Sep 28, 2019					Oct 2, 2021				Sep 26, 2020				Oct 2, 2021				Sep 26, 2020
		Sales		Percent		Sales		Percent		Sales		Percent		Sales		Percent			Sales		Percent		Sales		Percent		Sales		Percent		Sales		Percent
Business Segments:	Business Segments:																	Business Segments:
Commercial Foodservice	Commercial Foodservice	$	371,223	58.5	%	$	500,990	69.2	%	$	1,081,847	60.6	%	$	1,471,800	67.8	%	Commercial Foodservice	$	511,480	62.6	%	$	371,223	58.5	%	$	1,501,413	63.0	%	$	1,081,847	60.6	%
Food Processing	Food Processing	110,648		17.4		89,147		12.3		316,477		17.7		279,474		12.9		Food Processing	112,670		13.8		110,648		17.4		355,172		14.9		316,477		17.7
Residential Kitchen	Residential Kitchen	152,654		24.1		133,877		18.5		385,637		21.7		420,546		19.3		Residential Kitchen	193,395		23.6		152,654		24.1		527,791		22.1		385,637		21.7
Total	Total	$	634,525	100.0	%	$	724,014	100.0	%	$	1,783,961	100.0	%	$	2,171,820	100.0	%	Total	$	817,545	100.0	%	$	634,525	100.0	%	$	2,384,376	100.0	%	$	1,783,961	100.0	%

2625

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


													Commercial Foodservice		Food Processing		Residential Kitchen		Corporate and Other (1)		Total
Three Months Ended October 2, 2021												Three Months Ended October 2, 2021
Net sales												Net sales	$	511,480	$	112,670	$	193,395	$	—	$	817,545
Income (loss) from operations (2, 3, 6)												Income (loss) from operations (2, 3, 6)	105,529		21,425		31,322		75,206		233,482
Depreciation expense												Depreciation expense	5,793		1,353		3,608		122		10,876
Amortization expense (5)												Amortization expense (5)	12,822		1,773		3,589		1,570		19,754
Net capital expenditures												Net capital expenditures	6,391		1,106		2,127		797		10,421

Nine Months Ended October 2, 2021												Nine Months Ended October 2, 2021
Net sales												Net sales	$	1,501,413	$	355,172	$	527,791	$	—	$	2,384,376
Income (loss) from operations (2, 3, 4, 6)												Income (loss) from operations (2, 3, 4, 6)	311,789		68,048		95,088		16,447		491,372
Depreciation expense												Depreciation expense	17,579		4,005		9,120		476		31,180
Amortization expense (5)												Amortization expense (5)	42,272		5,450		7,145		4,625		59,492
Net capital expenditures												Net capital expenditures	17,599		3,539		7,256		1,338		29,732

Total assets												Total assets	$	3,498,696	$	640,229	$	1,578,857	$	55,069	$	5,772,851
		Commercial Foodservice		Food Processing		Residential Kitchen		Corporate and Other (1)		Total
Three Months Ended September 26, 2020	Three Months Ended September 26, 2020											Three Months Ended September 26, 2020
Net sales	Net sales	$	371,223	$	110,648	$	152,654	$	0	$	634,525	Net sales	$	371,223	$	110,648	$	152,654	$	—	$	634,525
Income (loss) from operations (2)(3)		57,483		22,860		22,626		(16,297)		86,672
Income (loss) from operations (2, 3)												Income (loss) from operations (2, 3)	57,483		22,860		22,626		(16,297)		86,672
Depreciation expense	Depreciation expense	5,360		1,480		2,965		0		9,805		Depreciation expense	5,360		1,480		2,965		—		9,805
Amortization expense (4)		12,923		1,794		2,170		692		17,579
Amortization expense (5)												Amortization expense (5)	12,923		1,794		2,170		692		17,579
Net capital expenditures	Net capital expenditures	5,279		692		794		299		7,064		Net capital expenditures	5,279		692		794		299		7,064

Nine Months Ended September 26, 2020	Nine Months Ended September 26, 2020											Nine Months Ended September 26, 2020
Net sales	Net sales	$	1,081,847	$	316,477	$	385,637	$	0	$	1,783,961	Net sales	$	1,081,847	$	316,477	$	385,637	$	—	$	1,783,961
Income (loss) from operations (2)(3)		173,064		57,801		41,860		(41,521)		231,204
Income (loss) from operations (2, 3)												Income (loss) from operations (2, 3)	173,064		57,801		41,860		(41,521)		231,204
Depreciation expense	Depreciation expense	15,567		4,179		8,742		15		28,503		Depreciation expense	15,567		4,179		8,742		15		28,503
Amortization expense (4)		38,257		5,494		7,627		1,713		53,091
Amortization expense (5)												Amortization expense (5)	38,257		5,494		7,627		1,713		53,091
Net capital expenditures	Net capital expenditures	12,771		3,115		4,089		420		20,395		Net capital expenditures	22,152		3,115		4,089		420		29,776

Total assets	Total assets	$	3,155,360	$	628,156	$	1,149,550	$	87,118	$	5,020,184	Total assets	$	3,155,360	$	628,156	$	1,149,550	$	87,118	$	5,020,184

Three Months Ended September 28, 2019
Net sales		$	500,990	$	89,147	$	133,877	$	0	$	724,014
Income (loss) from operations (2)(3)		105,099		13,349		17,850		(14,953)		121,345
Depreciation expense		5,413		1,158		2,897		8		9,476
Amortization expense (4)		12,230		2,616		2,413		402		17,661
Net capital expenditures		5,852		3,212		3,125		0		12,189

Nine Months Ended September 28, 2019
Net sales		$	1,471,800	$	279,474	$	420,546	$	0	$	2,171,820
Income (loss) from operations (2)(3)		313,482		44,477		57,220		(53,166)		362,013
Depreciation expense		15,714		3,498		8,697		105		28,014
Amortization expense (4)		34,519		6,223		7,308		1,208		49,258
Net capital expenditures		19,065		5,289		7,061		2,404		33,819

Total assets		$	3,162,315	$	606,186	$	1,129,935	$	30,092	$	4,928,528

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

(2)Non-operating expenses are not allocated to the operating segments. Non-operating expenses consist of interest expense and deferred financing amortization, foreign exchange gains and losses and other income and expense items outside of income from operations.

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

(4)Gain (loss) on sale of plants are included in Commercial Foodservice and Residential Kitchen.

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

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

2726

Geographic Information

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


		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020
United States and Canada	United States and Canada	$	321,159	$	309,117	United States and Canada	$	337,790	$	321,159
Asia	Asia	22,857		21,668		Asia	33,783		22,857
Europe and Middle East	Europe and Middle East	152,914		139,486		Europe and Middle East	204,696		152,914
Latin America	Latin America	6,111		8,030		Latin America	8,062		6,111
Total international	Total international	$	181,882	$	169,184	Total international	$	246,541	$	181,882
		$	503,041	$	478,301		$	584,331	$	503,041

15) Employee Retirement Plans

(a)Pension Plans

U.S. Plans:

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

The company maintains a non-contributory defined benefit plan for its employees at the Smithville, Tennessee facility. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 1, 2008, and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 1, 2008 upon reaching retirement age.

The company also maintains a retirement benefit agreement with its former Chairman ("Chairman Plan"). The retirement benefits are based upon a percentage of the former Chairman’s final base salary.

Non-U.S. Plans:

The company maintains a defined benefit plan for its employees at the Wrexham, the United Kingdom facility. Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on April 30, 2010 ~~prior to Middleby’s acquisition of the company. No~~and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30, 2010 upon reaching retirement age.

The company maintains several pension plans related to AGA and its subsidiaries (collectively, the "AGA Group"), the most significant being the Aga Rangemaster Group Pension Scheme in the United Kingdom. Membership in the plan on a defined benefit basis of pension provision was closed to new entrants in ~~2001.The~~2001. The plan became open to new entrants on a defined contribution basis of pension provision in 2002, but was generally closed to new entrants on this basis during 2014. In December 2020, it was agreed that the Group Pension Scheme would be closed to future pension accruals effective April 5, 2021.

The other, much smaller, defined benefit pension plans operating within the AGA Group cover employees in France and the United Kingdom. All pension plan assets are held in separate trust funds although the net defined benefit pension obligations are included in the company's consolidated balance sheet.

The following table summarizes the company's net periodic pension benefit related to the AGA Group pension plans (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Net Periodic Pension Benefit:	Net Periodic Pension Benefit:									Net Periodic Pension Benefit:
Service cost	Service cost	$	649	$	593	$	1,918	$	1,839	Service cost	$	194	$	649	$	584	$	1,918
Interest cost	Interest cost	6,456		7,995		19,086		24,776		Interest cost	4,287		6,456		12,927		19,086
Expected return on assets	Expected return on assets	(18,089)		(16,118)		(53,476)		(49,948)		Expected return on assets	(19,516)		(18,089)		(58,851)		(53,476)
Amortization of net loss (gain)	Amortization of net loss (gain)	842		149		2,489		462		Amortization of net loss (gain)	3,150		842		9,498		2,489
Amortization of prior service cost (credit)	Amortization of prior service cost (credit)	642		614		1,897		1,904		Amortization of prior service cost (credit)	716		642		2,158		1,897
Curtailment loss (gain)		0		185		0		573

		$	(9,500)	$	(6,582)	$	(28,086)	$	(20,394)
											$	(11,169)	$	(9,500)	$	(33,684)	$	(28,086)

The pension costs for all other plans of the company were not material during the period. The service cost component is recognized within Selling, general and administrative expenses and the non-operating components of pension benefit are included within Net periodic pension benefit (other than service cost) in the Condensed Consolidated Statements of Comprehensive Income.

(b)Defined Contribution Plans

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

16) Restructuring

Commercial Foodservice Equipment Group

During the fiscal years 2020 and 2019, the company undertook cost reduction initiatives related to the Commercial Foodservice Equipment Group including headcount reductions and facility consolidations. These actions resulted in ~~an additional charge~~expenses of $0.5 million and $7.0 million in the three months ended ~~March 28, 2020. There were no additional expenses incurred in~~October 2, 2021 and September 26, 2020, respectively, primarily for severance related to headcount reductions associated with ~~respect to such cost reduction initiatives taken during fiscal 2019. These expenses are reflected in restructuring expenses in~~ the ~~Condensed Consolidated Statements of Comprehensive Income. At~~COVID-19 pandemic and facility consolidations. For the nine months period ended October 2, 2021 and September 26, 2020 the ~~restructuring obligations~~expenses for these ~~initiatives were completed with no future expenses expected.~~

~~During the second and third quarter of fiscal 2020, due~~actions amounted to the COVID-19 pandemic, the company began cost reduction initiatives primarily related to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group. These actions resulted in a charge of $7.0$1.4 million and $8.6 million, ~~in the three and nine months ended September 26, 2020,~~ respectively. These expenses are reflected in restructuring expenses in the Condensed Consolidated Statements of Comprehensive Income. The ~~company estimates that these~~realization of cost savings from the restructuring initiatives ~~will result~~began in ~~future cost~~2020 with an expected annual savings of approximately $20.0 ~~million annually.~~million. At ~~September 26, 2020,~~October 2, 2021, the restructuring obligations accrued for these initiatives ~~is $5.4 million~~are immaterial and ~~should~~will substantially be ~~completed~~complete by the end of fiscal ~~2020.~~2021.

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

17) Share Repurchases

On November 7, 2017, the company's Board of Directors approved a stock repurchase program. This program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock in open market purchase transactions. For the nine months ended September 26, 2020, the company repurchased 896,965 shares of its common stock under the program for $69.7 million, including applicable commissions, which represented an average price of $77.70. As of September 26, 2020, 1,023,165 shares had been purchased under the 2017 stock repurchase program.

The company ~~also~~ treats shares withheld for tax purposes on behalf of employees in connection with the vesting of restricted share grants as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. For the three and nine months ended ~~September 26, 2020,~~October 2, 2021, the company repurchased ~~108,473~~621 and 14,652 shares of its common stock, respectively, that were surrendered to the company for withholding taxes related to restricted stock vestings for ~~$7.5 million.~~ $0.1 million and $2.5 million, respectively. These withheld shares are not considered common stock repurchases under the authorized common stock repurchase plan and accordingly are not included in the common stock repurchase totals disclosed below.

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

18) Subsequent Events

On October 21, 2021, the company entered into a five-year, $4.5 billion amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement amends and restates the company’s prior $3.1 billion credit facility. The Credit Agreement provides for a new senior secured credit facility in an aggregate principal amount of $4.5 billion, consisting of (i) a $1 billion term loan facility, (ii) a $750 million delayed draw term loan facility and (iii) a $2.75 billion multi-currency revolving credit facility, with the potential, under certain circumstances, to increase the amount of the credit facility by the greater of $625 million and 100% of consolidated EBITDA for the most recently ended period of consecutive fiscal quarters (plus additional amounts, subject to compliance with a senior secured net leverage ratio), either by increasing the revolving commitment or by adding one or more revolver or term loan tranches.The credit facility matures on October 21, 2026, with the potential to extend the maturity date in one year increments with the consent of the extending lenders. All obligations under the Credit Agreement are secured by substantially all the assets of the company and certain of the company’s material domestic subsidiaries, and unconditionally guaranteed by, subject to certain exceptions, the company and certain of the company’s direct and indirect material foreign and domestic subsidiaries.

The term loan facility will amortize in equal quarterly installments due on the last day of each fiscal quarter, commencing with the first full fiscal quarter after October 21, 2021, 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 October 21, 2026. The delayed draw term loan facility is available for borrowing within one year. The delayed draw term loan facility will amortize in quarterly installments due on the last day of each fiscal quarter, commencing with the first full fiscal quarter after each delayed draw term loan borrowing in an amount equal to 0.625% of the original aggregate principal amount of such borrowing, with the balance, plus any accrued interest, due and payable on October 21, 2026. The Credit Agreement requires the company to satisfy the following financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00; and (ii) a maximum Secured Leverage Ratio (as defined in the Credit Agreement) of Funded Secured Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Agreement) of 3.75 to 1.00, which may be adjusted to 4.25 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 Agreement. The Credit Agreement provides availability to provide working capital, capital expenditures, to support the issuance of letters of credit and other general corporate purposes, as well as for financing permitted acquisitions. The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, a copy of which is attached as Exhibit 10.1 hereto.

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

~~Informational~~Special Notes Regarding Forward-Looking Statements

This report contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company cautions readers that these projections are based upon future results or events and are highly dependent upon a variety of important factors which could cause such results or events to differ materially from any forward-looking statements which may be deemed to have been made in this report, or which are otherwise made by or on behalf of the company. Such factors include, but are not limited to, the impact of COVID-19 pandemic and the response of governments, businesses and other third parties; volatility in earnings resulting from goodwill impairment losses which may occur irregularly and in varying amounts; variability in financing costs; quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange and political risks affecting international sales; ability to protect trademarks, copyrights and other intellectual property; changing market conditions; the impact of competitive products and pricing; the timely development and market acceptance of the company’s products; the availability and cost of raw materials; and other risks detailed herein and from time-to-time in the company’s SEC filings, including the company’s ~~2019~~2020 Annual Report on Form 10-K. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this report are made only as of the date hereof and, except as required by federal securities laws and rules and regulations of the SEC, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

During the nine months period ended September 26, 2020, the company's business experienced significant disruptions due to the COVID-19 pandemic. In response, the company implemented swift actions to protect our employees, ensure uninterrupted service to our customers and aggressively adjust our business and cost structure for a decline in revenues. The company's actions include, but are not limited to the following:Termination of Welbilt Merger

–~~Employee Safety - Implemented companywide procedures including enhanced workplace sanitation, travel discontinuation, social distancing, staggered shifts~~As previously disclosed, on April 20, 2021, Middleby, entered into a Merger Agreement with Welbilt, Acquiror and ~~established work-at-home protocols for non-production employees.~~Merger Sub, which provided that, upon the terms and subject to the conditions set forth therein, Merger Sub would merge with and into Welbilt, with Welbilt surviving as an indirect, wholly-owned subsidiary of Middleby.

–~~Customer Support - Ensured continued access~~As previously disclosed, on July 13, 2021, Middleby announced that, under the terms of the Merger Agreement, it would not exercise its right to ~~customer support, technical service~~propose any modifications to the terms of the Merger Agreement and ~~uninterrupted shipping~~would allow the five-day match period to expire. Accordingly, on July 14, 2021, Welbilt delivered to Middleby a written notice terminating the Merger Agreement in accordance with Section 7.1(c)(iii) of ~~service parts~~the Merger Agreement and, ~~finished goods. Production continued to meet customer demand~~concurrently with ~~minimal disruptions to address employee safety precautions.~~

–~~Cost and Profitability Initiatives - Instituted aggressive reduction~~Middleby’s receipt of ~~all controllable and discretionary costs. This included~~ the ~~adjustment~~termination fee of ~~global office and production workforces~~$110 million in ~~response to near-term reduced demand levels and reduced~~ cash ~~compensation to executives. Increased focus~~from Welbilt, the Merger Agreement was terminated on ~~prioritizing product and customers with highest profitability.~~

–~~Supply Chain - Established a task force to identify and mitigate supply chain disruption and ensure continuity of business operations and customer support.~~

–Liquidity and Cash Flow - Reduced capital expenditures for the remainder of year, enhanced working capital reduction initiatives to drive inventory efficiency, and suspended the Middleby share repurchase program. Maintained investments in key strategic initiatives. Improved our capital structure through the issuance of Convertible Notes and amended our Credit Facility to provide additional flexibility.

–COVID-19 Product Introductions - Developed and launched products addressing COVID-19 needs, including sterilization units for N95 masks, mobile and touchless handwashing stations, plexiglass safety shields for restaurants and retail locations, mobile foodservice stations and hand and cleaning sanitizer produced at our most recent acquired company Deutsche.July 14, 2021.

The ~~company believes that these aggressive cost reduction~~termination fee received is reflected in the Condensed Consolidated Statements of Comprehensive Income as the "merger termination fee" and ~~liquidity preservation actions serve to position us appropriately~~$19.7 million of deal costs associated with the transaction are reflected in selling, general and ~~provide additional operating and financial flexibility to successfully navigate this uncertain environment.~~

administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

Net Sales Summary

(dollars in thousands)


		Three Months Ended								Nine Months Ended									Three Months Ended								Nine Months Ended
		Sep 26, 2020				Sep 28, 2019				Sep 26, 2020				Sep 28, 2019					Oct 2, 2021				Sep 26, 2020				Oct 2, 2021				Sep 26, 2020
		Sales		Percent		Sales		Percent		Sales		Percent		Sales		Percent			Sales		Percent		Sales		Percent		Sales		Percent		Sales		Percent
Business Segments:	Business Segments:																	Business Segments:
Commercial Foodservice	Commercial Foodservice	$	371,223	58.5	%	$	500,990	69.2	%	$	1,081,847	60.6	%	$	1,471,800	67.8	%	Commercial Foodservice	$	511,480	62.6	%	$	371,223	58.5	%	$	1,501,413	63.0	%	$	1,081,847	60.6	%
Food Processing	Food Processing	110,648		17.4		89,147		12.3		316,477		17.7		279,474		12.9		Food Processing	112,670		13.8		110,648		17.4		355,172		14.9		316,477		17.7
Residential Kitchen	Residential Kitchen	152,654		24.1		133,877		18.5		385,637		21.7		420,546		19.3		Residential Kitchen	193,395		23.6		152,654		24.1		527,791		22.1		385,637		21.7
Total	Total	$	634,525	100.0	%	$	724,014	100.0	%	$	1,783,961	100.0	%	$	2,171,820	100.0	%	Total	$	817,545	100.0	%	$	634,525	100.0	%	$	2,384,376	100.0	%	$	1,783,961	100.0	%

Results of Operations

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		Sep 26, 2020		Sep 28, 2019		Sep 26, 2020		Sep 28, 2019			Oct 2, 2021		Sep 26, 2020		Oct 2, 2021		Sep 26, 2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	Cost of sales	64.9		62.7		64.9		62.5		Cost of sales	63.4		64.9		63.1		64.9
Gross profit	Gross profit	35.1		37.3		35.1		37.5		Gross profit	36.6		35.1		36.9		35.1
Selling, general and administrative expenses	Selling, general and administrative expenses	20.3		20.0		21.6		20.5		Selling, general and administrative expenses	21.4		20.3		20.8		21.6
Restructuring	Restructuring	1.1		0.6		0.6		0.3		Restructuring	0.1		1.1		0.1		0.6
Merger termination fee										Merger termination fee	(13.5)		—		(4.6)		—

Income from operations	Income from operations	13.7		16.7		12.9		16.7		Income from operations	28.6		13.7		20.6		12.9
Interest expense and deferred financing amortization, net	Interest expense and deferred financing amortization, net	2.9		2.9		3.1		2.9		Interest expense and deferred financing amortization, net	1.6		2.9		1.8		3.1
Net periodic pension benefit (other than service costs)	Net periodic pension benefit (other than service costs)	(1.6)		(1.0)		(1.7)		(1.0)		Net periodic pension benefit (other than service costs)	(1.4)		(1.6)		(1.4)		(1.7)
Other (income) expense, net		—		0.2		0.2		—
Other expense (income), net										Other expense (income), net	0.1		—		(0.1)		0.2
Earnings before income taxes	Earnings before income taxes	12.4		14.6		11.3		14.8		Earnings before income taxes	28.3		12.4		20.3		11.3
Provision for income taxes	Provision for income taxes	2.9		3.3		2.6		3.6		Provision for income taxes	6.7		2.9		4.1		2.6
Net earnings	Net earnings	9.5	%	11.3	%	8.7	%	11.2	%	Net earnings	21.6	%	9.5	%	16.2	%	8.7	%

3132

Three Months Ended ~~September 26, 2020~~October 2, 2021 as compared to Three Months Ended September ~~28, 2019~~26, 2020

NET SALES. Net sales for the three months period ended ~~September 26, 2020 decreased~~October 2, 2021 increased by ~~$89.5~~$183.0 million or ~~12.4%~~28.8% to ~~$634.5~~$817.5 million as compared to ~~$724.0~~$634.5 million in the three months period ended September ~~28, 2019.~~26, 2020. Net sales increased by ~~$8.0~~$39.4 million, or ~~1.1%~~6.2%, from the fiscal ~~2019 acquisitions of Pacproinc, Brava and Synesso and fiscal~~ 2020 acquisitions of ~~RAM~~Wild Goose and ~~Deutsche.~~United Foodservice Equipment Zhuhai and the fiscal 2021 acquisitions of Novy and Imperial. Excluding acquisitions and a disposition, net sales ~~decreased $97.5~~increased $148.9 million, or ~~13.5%~~23.7%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the three months period ended ~~September 26, 2020~~October 2, 2021 increased net sales by approximately ~~$4.6~~$7.9 million or ~~0.6%~~1.3%. Excluding the impact of foreign exchange, acquisitions and ~~acquisitions,~~a disposition, sales ~~decreased 14.1%~~increased 22.4% for the three months period ended ~~September 26, 2020~~October 2, 2021 as compared to the prior year period, including a net sales ~~decrease~~increase of ~~27.4%~~31.9% at the Commercial Foodservice Equipment Group, a net sales increase of ~~22.4%~~1.4% at the Food Processing Equipment Group and a net sales increase of ~~11.4%~~14.2% at the Residential Kitchen Equipment Group.

•Net sales of the Commercial Foodservice Equipment Group ~~decreased~~increased by ~~$129.8~~$140.3 million, or ~~25.9%~~37.8%, to ~~$371.2~~$511.5 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$501.0~~$371.2 million in the prior year period. Net sales from the acquisitions of ~~Synesso, RAM,~~Wild Goose, United Foodservice Equipment Zhuhai, and ~~Deutsche,~~Imperial, which were acquired on ~~November 27, 2019, January 13,~~December 7, 2020, and ~~March 2,~~December 18, 2020, and September 24, 2021, respectively, accounted for an increase of ~~$5.9~~$18.2 million during the three months period ended ~~September 26, 2020.~~October 2, 2021. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group ~~decreased $135.7~~increased $122.1 million, or ~~27.1%~~32.9%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales ~~decreased $137.3~~increased $118.5 million or ~~27.4%~~31.9% at the Commercial Foodservice Equipment Group. Domestically, ~~which is considered to be the U.S. and Canada,~~ the company realized a sales ~~decrease~~increase of ~~$80.8~~$100.8 million, or ~~23.3%~~37.9%, to ~~$265.8~~$366.6 million, as compared to $346.6 million in the prior year period. The decline in domestic sales reflects the impacts of COVID-19. This includes an increase of $3.8 million from recent acquisitions. Excluding the acquisitions, the net decrease in domestic sales was $84.6 million, or 24.4%. International sales decreased $49.0 million, or 31.7%, to $105.4 million, as compared to $154.4$265.8 million in the prior year period. This includes an increase of ~~$2.1~~$14.8 million from recent acquisitions. Excluding the acquisitions, the net increase in domestic sales was $86.0 million, or 32.4%. International sales increased $39.5 million, or 37.5%, to $144.9 million, as compared to $105.4 million in the prior year period. This includes an increase of $3.4 million from the recent acquisitions and an increase of ~~$1.6~~$3.6 million related to the favorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales ~~decrease~~increase in international sales was ~~$52.7~~$32.5 million, or ~~34.1%~~30.8%. The ~~decrease~~increase in domestic and international ~~revenues reflects~~sales is related to improvements in market conditions and consumer demand, as the ~~outbreak of COVID-19.~~prior year period was significantly impacted by the COVID-19 pandemic.

•Net sales of the Food Processing Equipment Group increased by ~~$21.5~~$2.0 million, or ~~24.1%~~1.8%, to ~~$110.6~~$112.6 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$89.1~~$110.6 million in the prior year period. Excluding the impact of foreign exchange, ~~and the acquisition of Pacproinc, acquired July 16, 2019,~~ net sales increased ~~$20.0~~$1.5 million, or ~~22.4%~~1.4% at the Food Processing Equipment Group. Domestically, the company realized a sales increase of ~~$24.9~~$2.3 million, or ~~43.5%~~2.8%, to ~~$82.1~~$84.4 million, as compared to ~~$57.2~~$82.1 million in the prior year period. The increase in domestic sales reflects growth ~~across our product portfolio. Excluding the acquisition, the net increase in domestic sales was $24.1 million, or 42.1%.~~primarily driven by protein products. International sales decreased ~~$3.4~~$0.3 million, or ~~10.7%~~1.1%, to ~~$28.5~~$28.2 million, as compared to ~~$31.9~~$28.5 million in the prior year period. ~~Excluding~~This includes an increase of $0.5 million related to the ~~acquisition and~~favorable impact of exchange rates. Excluding foreign exchange, the net sales decrease in international sales was ~~$4.1~~$0.8 million, or ~~12.9%~~2.8%. ~~The decrease in international revenues reflects declines in sales primarily due to the disruptive impact of COVID-19.~~

•Net sales of the Residential Kitchen Equipment Group increased by ~~$18.8~~$40.7 million, or ~~14.0%~~26.7%, to ~~$152.7~~$193.4 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$133.9~~$152.7 million in the prior year period. Excluding the impact of ~~foreign exchange and~~ the acquisition of ~~Brava,~~Novy, acquired ~~November 19, 2019,~~on July 12, 2021, and the disposition, net sales increased ~~$15.2~~$24.8 million, or ~~11.4%~~16.8%, as compared to the prior year period. Excluding the impact of foreign exchange, the acquisition, and the disposition, net sales increased $21.0 million, or 14.2% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales increase of ~~$10.4~~$15.9 million, or ~~12.0%~~16.3%, to ~~$97.3~~$113.2 million, as compared to ~~$86.9~~$97.3 million in the prior year period. The increase in domestic sales is primarily related to strong consumer demand for out premium appliance brands. Excluding the acquisition, the net increase in domestic sales was $9.1 million, or 10.5%. International sales increased ~~$8.4~~$24.8 million, or ~~17.9%~~44.8%, to ~~$55.4~~$80.2 million, as compared to ~~$47.0~~$55.4 million in the prior year period. This includes aan increase of $3.8 million related to the favorable impact of exchange ~~rates of $2.3 million.~~rates. Excluding foreign exchange, the acquisition, and the disposition, the net sales increase in international sales was ~~$6.1~~$5.1 million, or ~~13.0%, primarily due to~~10.2%. The increase in domestic and international sales reflects the strong demand for our premium appliance ~~brands.~~brands and strength in the European market.

3233

GROSS PROFIT. Gross profit ~~decreased~~increased to $299.6 million in the three months period ended October 2, 2021 from $222.7 million in the prior year period, primarily reflecting higher sales volumes related to improvements in market conditions and consumer demand and favorable impact of foreign exchanges rates of $2.7 million. The gross margin rate was 35.1% in the three months period ended September 26, 2020 from $270.0 million in the prior year period, primarily reflecting lower sales volumes related to COVID-19, lower margins at recent acquisitions, offset by the favorable impact of foreign exchanges rates of $1.6 million. The gross margin rate was 37.3% in the three months period ended September 28, 2019 as compared to ~~35.1%~~36.6% in the current year period. Gross profit margins have been negatively impacted by rising costs of many raw materials and inputs, as well as higher labor rates and logistics costs.

•Gross profit at the Commercial Foodservice Equipment Group ~~decreased~~increased by ~~$59.6~~$59.8 million, or ~~31.9%~~46.9%, to ~~$127.5~~$187.3 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$187.1~~$127.5 million in the prior year period. Gross profit from the acquisitions of ~~Synesso, RAM,~~Wild Goose, United Foodservice Equipment Zhuhai, and ~~Deutsche~~Imperial increased gross profit by ~~$1.9~~$7.1 million. Excluding acquisitions, gross profit ~~decreased~~increased by ~~$61.5~~$52.7 million ~~primarily~~ related to ~~lower~~higher sales volumes. The impact of foreign exchange rates increased gross profit by approximately ~~$0.6~~$1.2 million. The gross margin rate ~~decreased~~increased to ~~34.3%~~36.6%, as compared to ~~37.3%~~34.3% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was ~~34.4%~~36.6%.

•Gross profit at the Food Processing Equipment Group increased by ~~$9.3~~$1.5 million, or ~~29.9%~~3.7%, to ~~$40.4~~$41.9 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$31.1~~$40.4 million in the prior year period. ~~Excluding the acquisition, gross profit increased by $9.1 million.~~ The impact of foreign exchange rates increased gross profit by approximately ~~$0.4~~$0.3 million. The gross profit margin rate increased to ~~36.5%~~37.2%, as compared to ~~34.9%~~36.5% in the prior year period primarily related to higher sales volumes and product mix. The gross margin rate, excluding the ~~acquisition and the~~ impact of foreign exchange, was ~~36.5%~~37.1%.

•Gross profit at the Residential Kitchen Equipment Group increased by ~~$3.4~~$15.2 million, or ~~6.5%~~27.4%, to ~~$55.5~~$70.7 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$52.1~~$55.5 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately ~~$0.6~~$1.2 million. The gross margin rate ~~decreased~~increased to ~~36.3%~~36.6%, as compared to ~~38.9%~~36.3% in the prior year ~~period.~~period related to higher sales volumes. The gross margin rate, excluding the acquisition and the impact of foreign exchange, was ~~36.6%~~37.5%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and administrative expenses ~~decreased~~increased from ~~$144.5 million in the three months period ended September 28, 2019 to~~ $128.8 million in the three months period ended September 26, ~~2020.~~2020 to $175.4 million in the three months period ended October 2, 2021. As a percentage of net sales, selling, general, and administrative expenses were ~~20.0% in the three months period ended September 28, 2019, as compared to~~ 20.3% in the three months period ended September 26, ~~2020.~~2020, as compared to 21.4% in the three months period ended October 2, 2021.

Selling, general and administrative expenses reflect increased costs of ~~$5.5~~$9.4 million associated with acquisitions, including ~~$0.9~~$2.2 million of intangible amortization expense. Selling, general and administrative expenses ~~decreased $6.8~~increased $16.9 million related to compensation costs and ~~commissions and $12.2~~$11.9 million ~~due~~related to ~~controllable cost reductions within travel & entertainment, convention costs,~~ professional fees, ~~and advertising.~~including deal expenses. Higher sales volumes also resulted in increased commission expense. Foreign exchange rates had an unfavorable impact of ~~$1.0~~$1.3 million. ~~The compensation decreases were partially offset by a $3.3 million increase related to higher non-cash share-based compensation.~~

RESTRUCTURING EXPENSES. Restructuring expenses were ~~$4.2 million for the three months period ended September 28, 2019 and~~ $7.3 million for the three months period ended September 26, ~~2020.~~2020 and $0.8 million for the three months period ended October 2, 2021. Restructuring expenses in ~~the current period~~both periods related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group. In the three months period ended September 28, 2019, restructuring expenses related primarily to headcount reductions and cost reduction initiatives related to facility consolidations within the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were ~~$18.4~~$13.2 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$20.8~~$18.4 million in the prior year period, reflecting the reduction in borrowing levels, the reduction in average interest rates under the Credit Facility and ~~benefit from~~ the ~~Convertible Notes, offset by higher non-cash interest~~benefit from the Convertible Notes. Net periodic pension benefit (other than service costs) increased ~~$2.9~~$1.3 million to ~~$10.1~~$11.4 million in the three months period ended ~~September 26, 2020~~October 2, 2021 from ~~$7.2~~$10.1 million in the prior year period, related to the decrease in discount rate used to calculate the interest ~~cost and higher expected returns on assets driven by higher asset values at the end of fiscal 2019.~~cost. Other ~~income~~expense was ~~$0.3~~$0.8 million in the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to other ~~expense~~income of ~~$1.4~~$0.3 million in the prior year period and consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of ~~$18.2~~$54.9 million, at an effective rate of ~~23.1%~~23.8%, was recorded during the three months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$24.2~~$18.2 million at an effective rate of ~~22.8%~~23.1%, in the prior year period.~~The effective tax rates in 2020 and 2019~~ ~~are higher than the federal tax rate of 21% primarily due to state taxes.~~.

3334

Nine Months Ended ~~September 26, 2020~~October 2, 2021 as compared to Nine Months Ended September ~~28, 2019~~26, 2020

NET SALES. Net sales for the nine months period ended ~~September 26, 2020 decreased~~October 2, 2021 increased by ~~$387.8~~$600.4 million or ~~17.9%~~33.7% to ~~$1,784.0~~$2,384.4 million as compared to ~~$2,171.8~~$1,784.0 million in the nine months period ended September ~~28, 2019.~~26, 2020. Net sales increased by ~~$61.8~~$73.5 million, or ~~2.8%~~4.1%, from the fiscal ~~2019 acquisitions of Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Brava and Synesso and fiscal~~ 2020 acquisitions of ~~RAM~~Deutsche, Wild Goose and ~~Deutsche.~~United Foodservice Equipment Zhuhai, and fiscal 2021 acquisitions of Novy and Imperial. Excluding acquisitions and a disposition, net sales ~~decreased $449.6~~increased $540.9 million, or ~~20.7%~~30.6%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the nine months period ended ~~September 26, 2020 decreased~~October 2, 2021 increased net sales by approximately ~~$4.1~~$39.2 million or ~~0.2%~~2.2%. Excluding the impact of foreign exchange, acquisitions and ~~acquisitions~~a disposition, sales ~~decreased 20.5%~~increased 28.3% for nine months period ended ~~September 26, 2020~~October 2, 2021 as compared to the prior year period, including a net sales ~~decrease~~increase of ~~29.2%~~32.2% at the Commercial Foodservice Equipment Group, a net sales increase of ~~8.7%~~10.7% at the Food Processing Equipment Group and a net sales ~~decrease~~increase of ~~9.4%~~32.2% at the Residential Kitchen Equipment Group.

•Net sales of the Commercial Foodservice Equipment Group ~~decreased~~increased by ~~$389.9~~$419.5 million, or ~~26.5%~~38.8%, to ~~$1,081.9~~$1,501.4 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$1,471.8~~$1,081.9 million in the prior year period. Net sales from the acquisitions of ~~Cooking Solutions Group, Powerhouse, Ss Brewtech, Synesso, RAM,~~Deutsche, Wild Goose, United Foodservice Equipment Zhuhai, and ~~Deutsche,~~Imperial, which were acquired on ~~April 1, 2019, April 1, 2019, June 15, 2019, November 27, 2019, January 13,~~March 2, 2020, December 7, 2020, December 18, 2020, and ~~March 2, 2020,~~September 24, 2021, respectively, accounted for an increase of ~~$44.2~~$52.3 million during the nine months period ended ~~September 26, 2020.~~October 2, 2021. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group ~~decreased $434.1~~increased $367.2 million, or ~~29.5%~~33.9%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales ~~decreased $430.3~~increased $348.0 million or ~~29.2%~~32.2% at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales ~~decrease~~increase of ~~$236.4~~$296.3 million, or ~~23.5%~~38.6%, to ~~$768.2~~$1,064.5 million, as compared to ~~$1,004.6~~$768.2 million in the prior year period. This includes an increase of ~~$36.3~~$40.3 million from recent acquisitions. Excluding acquisitions, the net ~~decrease~~increase in domestic sales was ~~$272.7~~$256.0 million, or ~~27.1%~~33.3%. The ~~decline~~increase in domestic sales ~~reflects the impacts of COVID-19.~~is related to improvements in market conditions and consumer demand. International sales ~~decreased $153.5~~increased $123.2 million, or ~~32.9%~~39.3%, to ~~$313.7~~$436.9 million, as compared to ~~$467.2~~$313.7 million in the prior year period. This includes an increase of ~~$7.9~~$12.0 million from the recent acquisitions and ~~a decrease~~an increase of ~~$3.8~~$19.2 million related to the ~~unfavorable~~favorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales ~~decrease~~increase in international sales was ~~$157.6~~$92.0 million, or ~~33.7%~~29.3%. The ~~decrease~~increase in international revenues ~~reflects~~is related to improvements in market conditions, primarily in the ~~impacts of COVID-19.~~European and Asian markets.

•Net sales of the Food Processing Equipment Group increased by ~~$37.0~~$38.7 million, or ~~13.2%~~12.2%, to ~~$316.5~~$355.2 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$279.5~~$316.5 million in the prior year period. Excluding the impact of foreign exchange, ~~and the acquisition of Pacproinc, acquired July 16, 2019,~~ net sales increased ~~$24.3~~$34.0 million or ~~8.7%~~10.7% at the Food Processing Equipment Group. Domestically, the company realized a sales increase of ~~$54.8~~$31.8 million, or ~~31.7%~~14.0%, to ~~$227.8~~$259.6 million, as compared to ~~$173.0~~$227.8 million in the prior year period. ~~Excluding the acquisition, the net increase in domestic sales was $42.1 million, or 24.3%.~~ The increase in domestic sales reflects growth inprimarily driven by both protein ~~equipment sales.~~and bakery products. International sales ~~decreased $17.8~~increased $6.9 million, or ~~16.7%~~7.8%, to ~~$88.7~~$95.6 million, as compared to ~~$106.5~~$88.7 million in the prior year period. This includes an increase of $4.7 million related to the favorable impact of exchange rates. Excluding the ~~acquisition and~~ foreign exchange, the net sales ~~decrease~~increase in international sales was ~~$17.8~~$2.2 million, or ~~16.7%~~2.5%. The ~~decrease~~increase in international revenues ~~reflects declines in sales~~is primarily ~~due to the disruptive impact of COVID-19.~~driven by protein projects.

•Net sales of the Residential Kitchen Equipment Group ~~decreased~~increased by ~~$34.9~~$142.2 million or ~~8.3%~~36.9%, to ~~$385.6~~$527.8 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$420.5~~$385.6 million in the prior year period. Excluding the impact of ~~foreign exchange and~~ the acquisition of ~~Brava,~~Novy, acquired ~~November 19, 2019,~~on July 12, 2021, and the disposition, net sales ~~decreased $39.5~~increased $135.0 million, or ~~9.4%~~36.3%, as compared to the prior year period. Excluding the impact of foreign exchange, the acquisition, and the disposition, net sales increased $119.7 million, or 32.2%, at the Residential Kitchen Equipment Group. Domestically, the company realized a sales ~~decrease~~increase of ~~$6.6~~$71.0 million, or ~~2.4%~~26.9%, to ~~$264.1~~$335.1 million, as compared to ~~$270.7~~$264.1 million in the prior year period. ~~Excluding the impact of the acquisition, the net decrease in domestic~~International sales ~~was $10.6~~increased $71.2 million, or 3.9%. The decline in domestic sales reflects the impacts of COVID-19 through the first half of the year, partially offset by strong consumer demand in the three months period ended September 28, 2019. International sales decreased $28.3 million, or 18.9%58.6%, to ~~$121.5~~$192.7 million, as compared to ~~$149.8~~$121.5 million in the prior year period. This includes an increase of $15.3 million related to the favorable impact of exchange rates. Excluding foreign exchange, an acquisition, and a disposition, the net sales ~~decrease~~increase in international sales was ~~$28.9~~$48.7 million, or ~~19.3%~~45.3%. The ~~decline of~~increase in domestic and international sales reflects the strong demand for our premium appliance brands and strength in the European ~~market reflects the impacts of Brexit and the outbreak of COVID-19 partially offset by strong consumer demand in the three months period ended September 28, 2019.~~market.

3435

GROSS PROFIT. Gross profit ~~decreased~~increased to $879.2 million in the nine months period ended October 2, 2021 from $626.1 million in the prior year period, primarily reflecting higher sales volumes related to improvements in market conditions and consumer demand and the favorable impact of foreign exchanges rates of $14.2 million. The gross margin rate was 35.1% in the nine months period ended September 26, 2020 from $813.8 million in the prior year period, primarily related to lower sales volumes due to COVID-19 and the unfavorable impact of foreign exchanges rates of $0.7 million. The gross margin rate was 37.5% in the nine months period ended September 28, 2019 as compared to ~~35.1%~~36.9% in the current year period. Gross profit margins have been negatively impacted by rising costs of many raw materials and inputs, as well as higher labor rates and logistics costs.

•Gross profit at the Commercial Foodservice Equipment Group ~~decreased~~increased by ~~$176.0~~$176.9 million, or ~~31.8%~~46.8%, to ~~$377.6~~$554.5 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$553.6~~$377.6 million in the prior year period. Gross profit from the acquisitions ~~accounted for $10.9 million~~ of ~~the increase in~~Deutsche, Wild Goose, United Foodservice Equipment Zhuhai, and Imperial increased gross profit ~~during the period.~~by $18.8 million. Excluding ~~the recent~~ acquisitions, gross profit ~~decreased~~increased by ~~$186.9~~$158.1 million ~~on lower~~related to higher sales volumes. The impact of foreign exchange rates ~~decreased~~increased gross profit by approximately ~~$0.6~~$6.9 million. The gross margin rate ~~decreased~~increased to ~~34.9%~~36.9%, as compared to ~~37.6%~~34.9% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was ~~35.3%~~37.0%.

•Gross profit at the Food Processing Equipment Group increased by ~~$14.1~~$15.7 million, or ~~14.3%~~13.9%, to ~~$112.6~~$128.3 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to $98.5 million in the prior year period. Excluding the acquisition, gross profit increased by approximately $9.8 million. The impact of foreign exchange rates decreased gross profit by approximately $0.3 million. The gross profit margin rate increased to 35.6%, as compared to 35.2% in the prior year period. The gross margin rate, excluding the acquisition and the impact of foreign exchange, was 35.7%.

•~~Gross profit at the Residential Kitchen Equipment Group decreased by $26.1 million, or 16.0%, to $137.5 million in the nine months period ended September 26, 2020, as compared to $163.6~~$112.6 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately ~~$0.2~~$2.3 million. The gross profit margin rate ~~decreased~~increased to ~~35.7%~~36.1%, as compared to ~~38.9%~~35.6% in the prior year period primarily related to ~~lower~~higher sales volumes and product mix. The gross margin rate, excluding the impact of foreign exchange, was 35.9%.

•Gross profit at the Residential Kitchen Equipment Group increased by $58.8 million, or 42.8%, to $196.3 million in the nine months period ended October 2, 2021, as compared to $137.5 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately $5.0 million. The gross margin rate increased to 37.2%, as compared to 35.7% in the prior year period, related to higher sales volumes. The gross margin rate, excluding the acquisition and the impact of foreign exchange, was 37.6%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and administrative expenses ~~decreased~~increased from ~~$445.0 million in the nine months period ended September 28, 2019 to~~ $384.6 million in the nine months period ended September 26, ~~2020.~~2020 to $496.0 million in the nine months period ended October 2, 2021. As a percentage of net sales, selling, general, and administrative expenses were ~~20.5% in the nine months period ended September 28, 2019, as compared to~~ 21.6% in the nine months period ended September 26, ~~2020.~~2020, as compared to 20.8% in the nine months period ended October 2, 2021.

Selling, general and administrative expenses reflect increased costs of ~~$21.1~~$19.2 million associated with acquisitions, including ~~$5.4~~$6.5 million of intangible amortization expense. Selling, general and administrative expenses ~~decreased $40.7~~increased $56.0 million related to compensation costs and ~~commissions and $32.3~~$28.0 million ~~due~~related to ~~controllable cost reductions within~~ professional fees, ~~travel & entertainment, convention costs and advertising.~~including deal expenses. Higher sales volumes also resulted in increased commission expense, which was offset by decreases in bad debt provisions. Foreign exchange rates had ~~a favorable~~an unfavorable impact of ~~$1.7~~$6.9 million. The compensation decreases were partially offset by a $11.2 million increase related to higher non-cash share-based compensation. The prior year period expenses also included $10.1 million related to the transition costs with respect to the former Chairman and Chief Executive Officer upon his retirement in February 2019.

RESTRUCTURING EXPENSES. Restructuring expenses ~~increased $3.5~~decreased $7.7 million from ~~$6.8 million in the nine months period ended September 28, 2019 to~~ $10.3 million in the nine months period ended September 26, ~~2020.~~2020 to $2.6 million in the nine months period ended October 2, 2021. Restructuring expenses in ~~the current period~~both periods related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group. In the nine months period ended September 28, 2019, restructuring charges related primarily to headcount reductions and cost reduction initiatives related to facility consolidations at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were ~~$55.9~~$43.5 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$63.3~~$55.9 million in the prior year period, reflecting the reduction in borrowing levels, the reduction in the average interest rates under the Credit Facility and ~~benefit from~~ the ~~Convertible Notes, offset by higher non-cash interest~~benefit from the Convertible Notes. Net periodic pension benefit (other than service costs) increased ~~$7.8~~$4.3 million to ~~$30.0~~$34.3 million in the nine months period ended ~~September 26, 2020~~October 2, 2021 from ~~$22.2~~$30.0 million in the prior year period, related to the decrease in discount rate used to calculate the interest ~~cost and higher expected returns on assets driven by higher asset values at the end of fiscal 2019.~~cost. Other ~~expense~~income was ~~$3.4~~$1.4 million in the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to other ~~income~~expense of ~~$0.5~~$3.4 million in the prior year period and consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of ~~$46.5~~$97.7 million, at an effective rate of ~~23.0%~~20.2%, was recorded during the nine months period ended ~~September 26, 2020,~~October 2, 2021, as compared to ~~$78.2~~$46.5 million at an effective rate of ~~24.3%~~23.0%, in the prior year period. The ~~effective rates~~lower rate in ~~2020 and 2019 are higher than~~ the ~~federal tax rate of 21%~~current year is primarily due to several discrete tax benefits, including a deferred tax benefit for the enacted UK tax rate change from 19% to 25% and tax benefits from amended U.S. tax returns, partially offset by a tax charge for state ~~taxes.~~deferred tax rate changes.

When excluding the discrete tax adjustments, the 2021 rate was approximately 24.0%.

3536

Financial Condition and Liquidity

During the nine months ended ~~September 26, 2020,~~October 2, 2021, cash and cash equivalents ~~increased~~decreased by ~~$125.8~~$16.6 million to ~~$220.3~~$251.5 million from ~~$94.5~~$268.1 million at ~~December 28, 2019. Borrowings decreased from~~January 2, 2021. Total debt increased to $1.9 billion ~~to $1.8~~at October 2, 2021 from $1.7 billion at ~~December 28, 2019 and September 26, 2020, respectively.~~January 2, 2021 primarily due to the adoption of ASU 2020-06 as discussed in Note 4, Recently Issued Accounting Standards, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

OPERATING ACTIVITIES. Net cash provided by operating activities was $346.0 million for the nine months ended October 2, 2021, compared to $316.2 million for the nine months ended September 26, ~~2020, compared to $229.7 million for~~2020. During the nine months period ended ~~September 28, 2019.~~October 2, 2021, the company received approximately $67.7 million in a termination fee, net of deal costs and taxes, approximately.

During the nine months period ended ~~September 26, 2020, net~~October 2, 2021, working capital changes meaningfully impacted operating cash ~~provided by changes~~flows. These included an increase in ~~assets~~accounts receivable of $97.4 million due to improved market conditions and ~~liabilities amounted~~increased sales volumes. Also, inventory increased $134.5 million and accounts payable increased $61.3 million to ~~$80.9 million. This resulted from payments~~support increased demand and ~~collections largely attributable~~ to reduction in sales volumes at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group, as well as decreases in inventory levels. Changes also included a $19.9 million decrease in accrued expenses and other non-current liabilities including impacts from the timing of payments made for various customer programs and compensation programs.manage supply chain risks.

INVESTING ACTIVITIES. During the nine months ended ~~September 26, 2020,~~October 2, 2021, net cash used for investing activities amounted to ~~$53.5~~$412.7 million. ~~This included $33.7~~Cash used to fund acquisitions and investments amounted to $389.0 million primarily for the ~~2020~~2021 acquisitions of ~~RAM, Deutsche.~~Novy and Imperial during the nine months ended October 2, 2021. Additionally, ~~$29.8~~$29.7 million was expended, primarily ~~associated with~~for additions and upgrades of production equipment, manufacturing facilities and residential and commercial ~~showrooms, and was offset by $9.4 million proceeds~~showrooms. Proceeds on the sale of ~~properties~~property following facility ~~consolidations actions.~~consolidation actions generated $6.1 million

FINANCING ACTIVITIES. Net cash flows ~~used~~provided by financing activities were ~~$134.8~~$54.4 million during the nine months ended September 26, 2020. On January 31, 2020, the company entered into an amended and restated five-year, $3.5 billion multi-currency senior secured credit agreement (the "Credit Facility"). On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% the Convertible Senior Notes due 2025 (the "Notes"), and incurred $17.6 million of issuance costs.October 2, 2021. The company then entered into privately negotiated capped call transactions (the "Capped Call Transactions") in an aggregate amount of $104.7 million. A portion of the net proceeds from the Notes offering was used to prepay $400.0 million aggregate principal amount of its term loan obligations and to execute an amendment to the Credit Facility. The company incurred approximately $11.0 million of debt issuance costs, in aggregate, for amendments to the Credit Facility.

~~In addition to the term loan prepayment, the~~ company’s borrowing activities during the nine months ended ~~September 26, 2020~~October 2, 2021 included ~~$270.2~~$64.4 million of net ~~repayments~~proceeds under its Credit ~~Facility, as a result of utilization of net proceeds from the Convertible Notes transactions, as well as repaying borrowing made during the first half of the year.~~

~~Additionally, the~~Facility. The company ~~repurchased $77.2 million of Middleby common shares during the nine months ended September 26, 2020. This was comprised of $7.5~~used $2.5 million to repurchase ~~108,473~~14,652 shares of Middleby common stock that were surrendered to the company by employees in lieu of cash payment for withholding taxes related to restricted stock ~~vestings and $69.7~~vesting during the quarter. Additionally, the company settled deferred purchase price obligations of $5.9 million ~~used to repurchase 896,965 shares of its common stock under a repurchase program.~~during the nine months ended October 2, 2021.

At ~~September 26, 2020,~~October 2, 2021, the company ~~was in compliance with all covenants pursuant to its borrowing agreements. The company has run various scenarios to estimate the impact of the COVID-19 pandemic and continues to believe~~believes that its ~~future~~current capital resources, including cash and cash equivalents, cash expected to be generated from operations, ~~together with~~funds available from its ~~capacity under~~current lenders and access to the credit and capital markets will be sufficient to finance its ~~Credit Facility~~operations, debt service obligations, capital expenditures, product development and ~~its cash on hand, will provide adequate resources to meet its working capital needs and cash requirements and maintain compliance with financial covenants in its Credit Facility~~expenditures for ~~at least~~ the ~~next 12 months.~~foreseeable future.

3637

Recently Issued Accounting Standards

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

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences could be material to the company's consolidated financial statements. There have been no changes in the company's critical accounting policies, which include revenue recognition, inventories, goodwill and other intangibles, pensions benefits, and income taxes, as discussed in the company's Annual Report on Form 10-K for the year ended ~~December 28, 2019~~January 2, 2021 (the ~~“2019~~“2020 Annual Report on Form 10-K”) other than those described below.

~~During the nine months period ended September 26, 2020,~~Effective January 3, 2021, the company adopted ASU ~~2017-04, "Intangibles - Goodwill~~2020-06, "Accounting for Convertible Instruments and Other (Topic 350)". The amendments simplify the subsequent measurement of goodwill, by removing the second step of the goodwill impairment test. The company's qualitative assessment of goodwill impairment remains consistent; however,Contracts in ~~the case of~~ an ~~impairment, the company will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value.~~

During the nine months period ended September 26, 2020, the company completed the issuance of convertible debt with debt and equity components. The company evaluated the different components and features of the hybrid instrument and determined whether certain elements were embedded derivative instruments which require bifurcation. Components of convertible debt instruments that upon conversion may be settled fully in cash or partly in cash based on a net-share settlement basis are accounted for separately as long-term debt and equity when the conversion feature of the convertible bonds constitute an embedded equity instrument. When an equity instrument is identified, proceeds from issuance are allocated between debt and equity by measuring first the liability component and then determining the equity component as a residual amount. The liability component is measured as the fair value of a similar nonconvertible debt, which results in the recognition of a debt discount. In subsequent periods, the company will amortize the debt discount to interest expense, net within the Condensed Consolidated Statements of Comprehensive Income, using the effective interest method based on the expected maturity of the debt. The equity component is reported in additional paid-in capital within the Condensed Consolidated Statement of Changes in Stockholders' Equity and is not remeasured as long as it continues to meet the conditions for equity classification.

The company allocated transaction costs related to the issuance of convertible debt using the same proportions as the proceeds from the convertible debt. Transaction costs attributable to the liability component are recorded as a direct deduction from the related debt liability in the Condensed Consolidated Balance Sheets and are amortized to interest expense, net within the Condensed Consolidated Statements of Comprehensive Income over the term of the convertible debt using the effective interest rate method. Transaction costs attributable to the equity component are netted within additional paid-in capital within the Condensed Consolidated Statement of Stockholders'Entity’s Own Equity.

For additional information regarding our convertible debt, see Note 12, Financing Arrangements, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

3738

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

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


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

2021		$	23,152
2022	2022	19,132		2022	$	21,553
2023	2023	18,838		2023	19,051
2024	2024	18,832		2024	19,056
2025 and thereafter		1,752,171
2025				2025	1,827,627
2026 and thereafter				2026 and thereafter	288
		$	1,832,125		$	1,887,575

The company is exposed to interest rate risk on its floating-rate debt. The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of ~~September 26, 2020,~~October 2, 2021, the fair value of these instruments was a liability of ~~$57.8~~$29.3 million. The change in fair value of these swap agreements in the first nine months of ~~2020~~2021 was a ~~loss~~gain of ~~$25.2~~$16.2 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's financial position, results of operations and cash flows.

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

Foreign Exchange Derivative Financial Instruments

The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations and cash flows. The fair value of the forward and option contracts was a ~~gain~~loss of ~~$0.2~~$3.4 million at the end of the third quarter of ~~2020.~~2021.

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

3839

Item 4. Controls and Procedures

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

As of ~~September 26, 2020,~~October 2, 2021, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of this period.

During the quarter ended ~~September 26, 2020,~~October 2, 2021, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

3940

PART II. OTHER INFORMATION

The company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the nine months ended ~~September 26, 2020,~~October 2, 2021, except as follows:

~~Item 1A. Risk Factors~~

The risk factors disclosed in the 2019 Annual Report on Form 10-K should be considered together with information included in this Quarterly Report on Form 10-Q for the quarter ended September 26, 2020 and should not be limited to those referenced. The below information details changes that have occurred to the previously disclosed risk factors in the 2019 Annual Report on Form 10-K. Except for such additional information, the company believes there have been no material changes from the risk factors previously disclosed in the 2019 Annual Report on Form 10-K.

~~The COVID-19 pandemic has, and likely will continue to, adversely impact and pose risks to the company, the nature and extent of which are highly uncertain and unpredictable.~~

The company is monitoring the global outbreak of the COVID-19 pandemic and taking steps to mitigate the risks posed by its spread, including working with its customers, employees, suppliers and other stakeholders. The pandemic is adversely affecting, and is expected to continue to adversely affect, the company's financial results, condition and outlook. Certain elements of the company's business (including its supply chain, distribution systems, production levels and research and development activities) and operations have been negatively impacted due to significant portions of the company's workforce being unable to work effectively due to quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions. The company also has experienced, and expects to continue to experience, unpredictable volatility in demand given disruptions in global health, economic and market conditions, consumer behavior and global restaurant operations. If the pandemic continues and conditions worsen, the company expects to experience additional adverse impacts on operational and commercial activities, costs, customer orders and purchases and collections of accounts receivable, which may be material, and the extent of these exposures remains uncertain even if conditions begin to improve. The pandemic has also increased the risk related to the company's ability to ensure business continuity during a potential disruption, including increased cybersecurity attacks related to the work-from-home environment. Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates, all of which could continue to negatively impact the company. Due to the speed with which the situation is developing, the global breadth of the pandemic's spread and the range of governmental and community reactions, there is uncertainty around the pandemic's duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and the impact on the company's consolidated results of operations, financial position and cash flows could be material. In addition, the continuation or a resurgence of the pandemic could exacerbate the other risk factors identified in the "Risk Factors" section of the 2019 Annual Report on Form 10K.

~~The company's level of indebtedness could adversely affect its business, results of operations and growth strategy.~~

In August 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2025 (the "Convertible Notes"), which bear interest semi-annually in arrears and mature on September 1, 2025 unless they are redeemed, repurchased or converted prior to such date in accordance with their terms. Upon conversion, the company can elect to pay or deliver, cash, shares of common stock or a combination of cash and shares of common stock, in respect of the remainder, if any, of the company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. Under certain circumstances, the holders of the Convertible Notes may require the company to repay all or a portion of the principal and interest outstanding under the Convertible Notes in cash prior to the maturity date, which could have an adverse effect on our financial results.

~~The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.~~

In the event the conditional conversion feature of the Convertible Notes is triggered, holders will be entitled to convert their option at any time during specified periods. If one or more holders elect to convert their Convertible Notes, unless the company elects to satisfy the conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), the company would be required to settle a portion or all of the conversion obligation through the payment of cash, which could adversely affect the company's liquidity. To the extent the company satisfies the conversion obligation by delivering shares of common stock, the company would be required to deliver a significant number of shares, which would cause dilution to our existing stockholders. In addition, even if holders do not elect to convert their Convertible Notes in such circumstances, the company could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the applicable series of Convertible Notes as a current rather than long-term liability, which would result in a material reduction in net working capital.

~~The capped call transactions expose the company to counterparty risk and may affect the value of the company's common stock.~~

In connection with the issuance of the Convertible Notes, the company entered into capped call transactions with certain financial institutions, referred to as the capped call counterparties. The capped call transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments the company is required to make in excess of the principal amount of the Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. From time to time, the capped call counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to the company's common stock and/or purchasing or selling the company's common stock in secondary market transactions prior to the maturity of the Convertible Notes. This activity could cause a decrease in the market price of the company's common stock.

In addition, the capped call counterparties are financial institutions, and the company is subject to the risk that one or more of the capped call counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. The company's exposure to the credit risk of the option counterparties is not secured by any collateral. If a capped call counterparty becomes subject to insolvency proceedings, the company will become an unsecured creditor in those proceedings with a claim equal to the exposure at the time under such transaction. The company's exposure will depend on many factors but, generally, the exposure will increase if the market price or the volatility of the company's common stock increases. In addition, upon a default or other failure to perform, or a termination of obligations, by a capped call counterparty, the company may suffer more dilution than currently anticipated with respect to the company's common stock. The company can provide no assurances as to the financial stability or viability of the capped call counterparties.

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

~~a) Unregistered Sales of Equity Securities in connection with Investments~~

On June 29, 2020, in connection with the company’s minority investment in Bluezone Products, Inc. (“Bluezone”), the company issued 46,365 unregistered shares of the company’s common stock to a certain stockholder of Bluezone (“Bluezone Stockholder”) in exchange for 36,764 shares of series A preferred stock of Bluezone. The shares of company common stock were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”). The company relied on such exemption based in part upon representations made by the Bluezone Stockholder, including its status as an accredited investor, as such term is defined in Rule 501 of the Securities Act.

c) Issuer Purchases of Equity Securities


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares that May Yet be Purchased Under the Plan or Program (1)
~~June 28, 2020~~July 4, 2021 to July ~~25, 2020~~31, 2021	—	$	—	—	1,476,835
~~July 26, 2020~~August 1, 2021 to August ~~22, 2020~~28, 2021	—	—		—	1,476,835
August ~~23, 2020~~29, 2021 to ~~September 26, 2020~~October 2, 2021	—	—		—	1,476,835
Quarter ended ~~September 26, 2020~~October 2, 2021	—	$	—	—	1,476,835

(1) On November 7, 2017, the company's Board of Directors resolved to terminate the company's existing share repurchase program, effective as of such date, which was originally adopted in 1998, and approved a new stock repurchase program. This program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. As of ~~September 26, 2020,~~October 2, 2021, the total number of shares authorized for repurchase under the program is 2,500,000. As of ~~September 26, 2020,~~October 2, 2021, 1,023,165 shares had been purchased under the 2017 stock repurchase program.

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

4241

Item 6. Exhibits


Exhibits:

Exhibit ~~4.1 –~~			Indenture (including form of Global Note) with respect to The Middleby Corporation’s 1.00% Convertible Senior Notes due 2025, dated as of August 21, 2020, between The Middleby Corporation and U.S. Bank National Association, as trustee , ~~incorporated by reference to the company's Form 8-K Exhibit 4.1 filed on August 21, 2020.~~

~~Exhibit 4.2 –~~			~~Form of Global Note for the 1.00% Convertible Senior Notes due 2025 incorporated by reference to the company's Form 8-K Exhibit 4.1 filed on August 21, 2020.~~

~~Exhibit~~ 10.1 –			~~First Amendment to Seventh~~Eighth Amended and Restated Credit Agreement, dated as of ~~August 17, 2020,~~October 21, 2021, among Middleby Marshall Inc., ~~a subsidiary of~~The Middleby Corporation, the ~~Company,~~Subsidiary Borrowers named therein, the lenders named therein and Bank of America, N.A., as administrative agent ~~and certain~~for the lenders, ~~named therein~~ incorporated by reference to the ~~company's~~company Form 8-K Exhibit 10.1 filed on ~~August~~October 21, ~~2020.~~

~~Exhibit 10.2 –~~			~~Form of Capped Call Confirmation incorporated by reference to the company's Form 8-K Exhibit 10.2 filed on August 21, 2020.~~2021.

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

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

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

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

Exhibit 101 –			Financial statements on Form 10-Q for the quarter ended ~~September 26, 2020,~~October 2, 2021, filed on November ~~5, 2020,~~10, 2021, formatted in Inline Extensive Business Reporting Language (iXBRL); (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of earnings, (iii) condensed statements of cash flows, (iv) notes to the condensed consolidated financial statements.

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

4342

SIGNATURE

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

THE MIDDLEBY CORPORATION

(Registrant)

Date:

November ~~5, 2020~~10, 2021

By:

/s/ Bryan E. Mittelman

Bryan E. Mittelman

Chief Financial Officer

4443


	(as initially reported) April 1, 2019		Measurement Period Adjustments		(as adjusted) April 1, 2019
Cash	$	843	$	0	$	843
Current assets	33,666		(1,625)		32,041
Property, plant and equipment	15,959		(58)		15,901
Goodwill	31,207		6,330		37,537
Other intangibles	53,450		(5,850)		47,600
Other assets	0		1,470		1,470

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

Long-term deferred tax liability	(13,082)		2,553		(10,529)
Other non-current liabilities	0		(1,163)		(1,163)

Net assets acquired and liabilities assumed	$	106,913	$	74	$	106,987


	September 26, 2020					December 28, 2019
	Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization		Estimated Weighted Avg Remaining Life	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists	8.7	$	726,631	$	(331,670)	9.2	$	717,397	$	(283,846)
Backlog	0.5	31,336		(30,389)		1.3	29,426		(28,283)
Developed technology	7.3	36,351		(23,678)		5.2	32,999		(21,378)
		$	794,318	$	(385,737)		$	779,822	$	(333,507)
Indefinite-lived assets:
Trademarks and tradenames		$	1,012,019				$	997,066