MIDDLEBY Corp [MIDD] Filings

10-Q 1 midd-20220402.htm 10-Q midd-20220402

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended April 2, 2022


☐			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 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 May 6, 2022, there were 54,389,831 shares of the registrant's common stock outstanding.

THE MIDDLEBY CORPORATION

QUARTER ENDED APRIL 2, 2022

INDEX


DESCRIPTION		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS as of APRIL 2, 2022 and JANUARY 1, 2022	1

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three months ended APRIL 2, 2022 and APRIL 3, 2021	2

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three months ended APRIL 2, 2022 and APRIL 3, 2021	3

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the three months ended APRIL 2, 2022 and APRIL 3, 2021	4

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 6.	Exhibits	34

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)


ASSETS	Apr 2, 2022		Jan 1, 2022
Current assets:
Cash and cash equivalents	$	146,676	$	180,362
Accounts receivable, net of reserve for doubtful accounts of $17,436 and $18,770	629,855		577,142
Inventories, net	924,763		837,418
Prepaid expenses and other	108,721		92,269
Prepaid taxes	13,805		19,894
Total current assets	1,823,820		1,707,085
Property, plant and equipment, net of accumulated depreciation of $272,725 and $266,203	382,574		380,980
Goodwill	2,236,441		2,243,469
Other intangibles, net of amortization of $475,930 and $442,208	1,835,157		1,875,377
Long-term deferred tax assets	30,621		33,194
Other assets	165,552		143,493
Total assets	$	6,474,165	$	6,383,598

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	27,693	$	27,293
Accounts payable	305,344		304,740
Accrued expenses	585,364		582,855
Total current liabilities	918,401		914,888
Long-term debt	2,570,132		2,387,001
Long-term deferred tax liability	200,500		186,935
Accrued pension benefits	202,945		219,680
Other non-current liabilities	154,220		180,818
Stockholders' equity:
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 63,509,015 and 63,666,020 shares issued in 2022 and 2021, respectively	147		147
Paid-in capital	363,741		357,309
Treasury stock, at cost; 9,117,274 and 8,170,276 shares in 2022 and 2021	(736,412)		(566,399)
Retained earnings	3,148,058		3,062,303
Accumulated other comprehensive loss	(347,567)		(359,084)
Total stockholders' equity	2,427,967		2,494,276
Total liabilities and stockholders' equity	$	6,474,165	$	6,383,598

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended
		Apr 2, 2022		Apr 3, 2021
Net sales		$	994,676	$	758,058
Cost of sales		664,166		482,184
Gross profit		330,510		275,874
Selling, general and administrative expenses		206,071		154,957
Restructuring expenses		1,875		794

Gain on sale of plant		—		(1,050)

Income from operations		122,564		121,173
Interest expense and deferred financing amortization, net		17,654		16,067
Net periodic pension benefit (other than service costs)		(11,516)		(11,373)
Other expense (income), net		4,061		(1,691)
Earnings before income taxes		112,365		118,170
Provision for income taxes		26,610		28,907
Net earnings		$	85,755	$	89,263

Net earnings per share:
Basic		$	1.57	$	1.62
Diluted		$	1.52	$	1.59
Weighted average number of shares
Basic		54,669		55,213
Dilutive common stock equivalents		1,694		753
Diluted		56,363		55,966
Comprehensive income		$	97,272	$	87,091

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, January 1, 2022	$	147	$	357,309	$	(566,399)	$	3,062,303	$	(359,084)	$	2,494,276
Net earnings	—		—		—		85,755		—		85,755
Currency translation adjustments	—		—		—		—		(27,191)		(27,191)
Change in unrecognized pension benefit costs, net of tax of $987	—		—		—		—		6,244		6,244
Unrealized gain on interest rate swap, net of tax of $10,892	—		—		—		—		31,116		31,116
Unrealized gain on certain investments, net of tax of $449	—		—		—		—		1,348		1,348
Stock compensation	—		13,723		—		—		—		13,723

Purchase of treasury stock	—		—		(170,013)		—		—		(170,013)
Purchase of capped calls, net of tax of $(2,364)	—		(7,291)		—		—		—		(7,291)
Balance, April 2, 2022	$	147	$	363,741	$	(736,412)	$	3,148,058	$	(347,567)	$	2,427,967


	Common Stock		Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income/(loss)		Total Stockholders' Equity












Balance, January 2, 2021	$	147	$	433,308	$	(537,134)	$	2,568,756	$	(488,428)	$	1,976,649
Net earnings	—		—		—		89,263		—		89,263
Adoption of 2020-06 (1)	—		(79,430)		—		5,055		—		(74,375)
Currency translation adjustments	—		—		—		—		(10,614)		(10,614)
Change in unrecognized pension benefit costs, net of tax of $(877)	—		—		—		—		(3,970)		(3,970)
Unrealized gain on interest rate swap, net of tax of $4,327	—		—		—		—		12,412		12,412
Stock compensation	—		7,609		—		—		—		7,609

Purchase of treasury stock	—		—		(1,762)		—		—		(1,762)

Balance, April 3, 2021	$	147	$	361,487	$	(538,896)	$	2,663,074	$	(490,600)	$	1,995,212

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

See accompanying notes

THE MIDDLEBY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)


	Three Months Ended
	Apr 2, 2022		Apr 3, 2021
Cash flows from operating activities--
Net earnings	$	85,755	$	89,263
Adjustments to reconcile net earnings to net cash provided by operating activities--
Depreciation and amortization	46,742		30,432
Non-cash share-based compensation	13,723		7,609
Deferred income taxes	8,586		1,913
Net periodic pension benefit (other than service costs)	(11,516)		(11,373)
Gain on sale of plant	—		(1,050)


Other non-cash items	(6,173)		—
Changes in assets and liabilities, net of acquisitions
Accounts receivable, net	(55,305)		(66,666)
Inventories, net	(88,474)		(33,266)
Prepaid expenses and other assets	(3,926)		27,407
Accounts payable	1,235		31,662
Accrued expenses and other liabilities	(5,991)		(16,236)
Net cash (used in) provided by operating activities	(15,344)		59,695
Cash flows from investing activities--
Net additions to property, plant and equipment	(14,497)		(8,725)
Proceeds on sale of property, plant and equipment	—		3,354
Purchase of intangible assets	(240)		—
Acquisitions, net of cash acquired	(9,389)		(1,667)
Net cash used in investing activities	(24,126)		(7,038)
Cash flows from financing activities--
Proceeds under Credit Facility	365,000		18,995
Repayments under Credit Facility	(177,250)		(23,683)

Premiums paid for capped call	(9,655)		—
Net proceeds (repayments) under international credit facilities	756		(1,757)


Repurchase of treasury stock	(170,013)		(1,762)

Other, net	(117)		(78)

Net cash provided by (used in) financing activities	8,721		(8,285)
Effect of exchange rates on cash and cash equivalents	(2,937)		(3,144)
Changes in cash and cash equivalents--
Net (decrease) increase in cash and cash equivalents	(33,686)		41,228
Cash and cash equivalents at beginning of year	180,362		268,103
Cash and cash equivalents at end of period	$	146,676	$	309,331

See accompanying notes

THE MIDDLEBY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL 2, 2022

(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 2021 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2022.

In the opinion of management, the financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the company as of April 2, 2022 and January 1, 2022, the results of operations for the three months ended April 2, 2022 and April 3, 2021, cash flows for the three months ended April 2, 2022 and April 3, 2021 and statement of stockholders' equity for the three months ended April 2, 2022 and April 3, 2021.

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 $13.7 million and $7.6 million for the three months period ended April 2, 2022 and April 3, 2021, respectively.

c)Income Taxes

A tax provision of $26.6 million, at an effective rate of 23.7%, was recorded during the three months period ended April 2, 2022, as compared to a $28.9 million tax provision at a 24.5% effective rate in the prior year period. The effective tax rate for the three months period ended April 2, 2022 is lower than the comparable year rate primarily due to excess tax benefits from share-based compensation award vesting.

d)Fair Value Measures

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

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

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

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

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


	Fair Value Level 1		Fair Value Level 2		Fair Value Level 3		Total
As of April 2, 2022
Financial Assets:
Interest rate swaps	$	—	$	26,124	$	—	$	26,124

Financial Liabilities:
Interest rate swaps	$	—	$	2,106	$	—	$	2,106
Contingent consideration	$	—	$	—	$	35,108	$	35,108
Foreign exchange derivative contracts	$	—	$	3,033	$	—	$	3,033

As of January 1, 2022
Financial Assets:
Interest rate swaps	$	—	$	3,645	$	—	$	3,645
Foreign exchange derivative contracts	$	—	$	1,095	$	—	$	1,095

Financial Liabilities:
Interest rate swaps	$	—	$	21,635	$	—	$	21,635
Contingent consideration	$	—	$	—	$	34,983	$	34,983

The contingent consideration as of April 2, 2022 and January 1, 2022, relates to the earnout provisions recorded in conjunction with various purchase agreements. The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase 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 $18.1 million and $16.6 million for the three months ended April 2, 2022 and April 3, 2021, respectively. Cash payments totaling $7.9 million and $12.8 million were made for income taxes for the three months ended April 2, 2022 and April 3, 2021, 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 5,653 and 8,269 for the three months ended April 2, 2022, and April 3, 2021, respectively. For the three months ended April 2, 2022 and April 3, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes (as defined below) resulting in 1,688,402 and 744,334 diluted common stock equivalents to be included in the diluted net earnings per share, respectively. There have been no conversions to date. See Note 12, Financing Arrangements for further details on the Convertible Notes. There were no anti-dilutive restricted stock grants excluded from common stock equivalents in any period presented.

2) Acquisitions and Purchase Accounting

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

The company completed no material acquisitions during the three months ended April 2, 2022.

Novy Invest NV

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

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


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	16,152	$	—	$	16,152

Current assets	23,762		328		24,090
Property, plant and equipment	17,058		(969)		16,089
Goodwill	142,741		(17,414)		125,327
Other intangibles	126,557		22,966		149,523

Other assets	26		173		199

Current liabilities	(23,440)		591		(22,849)

Long-term deferred tax liability	(33,918)		(5,482)		(39,400)
Other non-current liabilities	(1,930)		(193)		(2,123)






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

The long-term deferred tax liability amounted to $39.4 million. The deferred tax liability is comprised of $37.4 million related to the difference between the book and tax basis of identifiable intangible assets and $2.0 million related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $105.7 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $40.0 million allocated to customer relationships, $2.7 million allocated to developed technology and $1.1 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively. Goodwill of $125.3 million and other intangibles of $149.5 million from this acquisition are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Goodwill and other intangibles are not expected to be deductible for tax purposes.

The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for all acquisitions completed during 2021. The intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and qualitative assessment of the business at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Kamado Joe and Masterbuilt

On December 27, 2021, the company completed its acquisition of Masterbuilt Holdings, LLC, including its residential outdoor brands ("Kamado Joe and Masterbuilt"), a leader in outdoor residential cooking located in the Atlanta, Georgia area, for a purchase price of approximately $400.8 million, net of cash acquired. The purchase price was comprised of $403.6 million in cash and 12,921 shares of Middleby common stock valued at $2.5 million. The purchase price is subject to adjustment as provided in the purchase agreement. The company expects to finalize this adjustment in the second quarter of 2022.


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	5,381	$	(70)	$	5,311

Current assets	137,826		(1,964)		135,862
Property, plant and equipment	7,773		—		7,773
Goodwill	110,052		4,746		114,798
Other intangibles	215,577		—		215,577

Other assets	2,143		—		2,143

Current liabilities	(54,865)		(2,747)		(57,612)

Long-term deferred tax liability	(15,907)		—		(15,907)
Other non-current liabilities	(1,914)		35		(1,879)






Net assets acquired and liabilities assumed	$	406,066	$	—	$	406,066

The long-term deferred tax liability amounted to $15.9 million. The net deferred tax liability is comprised of $2.3 million of deferred tax asset related to tax loss carryforwards and $18.2 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $158.8 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $50.3 million allocated to customer relationships and $6.5 million allocated to backlog, which are being amortized over periods of 7 years and 3 months, respectively. Goodwill of $114.8 million and other intangibles of $215.6 million of the company are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Of these assets, goodwill of $71.7 million and intangibles of $164.3 million are expected to be deductible for tax purposes.

Other 2021 Acquisitions

During the year ended January 1, 2022, the company completed various acquisitions that were not individually material. The following estimated fair values of assets acquired and liabilities assumed are based on the information that was available as of the acquisition dates for the other 2021 acquisitions and are summarized as follows (in thousands):


	Preliminary Opening Balance Sheet		Preliminary Measurement Period Adjustments		Adjusted Opening Balance Sheet
Cash	$	6,414	$	—	$	6,414

Current assets	76,077		726		76,803
Property, plant and equipment	19,561		(187)		19,374
Goodwill	85,270		9,514		94,784
Other intangibles	158,725		(9,193)		149,532

Other assets	2,101		31		2,132

Current liabilities	(33,910)		144		(33,766)

Long-term deferred tax asset (liability)	(3,010)		3,381		371
Other non-current liabilities	(7,092)		(3,397)		(10,489)

Consideration paid at closing	$	304,136	$	1,019	$	305,155


Contingent consideration	9,404		—		9,404

Net assets acquired and liabilities assumed	$	313,540	$	1,019	$	314,559

The long-term deferred tax asset amounted to $0.4 million. The net deferred tax asset is comprised of $0.7 million of deferred tax asset related to tax loss carryforwards and $0.3 million of deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability accounts.

The goodwill and $97.1 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $41.1 million allocated to customer relationships, $3.4 million allocated to developed technology, and $7.9 million allocated to backlog, which are being amortized over periods of 7 years, 7 years, and 3 months, respectively. Goodwill of $30.0 million and other intangibles of $89.0 million are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. Goodwill of $64.8 million and other intangibles of $60.6 million are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Of these assets, goodwill of $92.8 million and intangibles of $148.4 million are expected to be deductible for tax purposes.

One purchase agreement includes earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded and upon the achievement of product rollout targets. One earnout is payable upon the achievement of product rollout targets. The second earnout is payable during 2026 if the company exceeds certain earnings targets. The contractual obligation associated with the contingent earnout provisions recognized on the acquisition date amount to $9.4 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 all acquisitions completed during 2021. Certain intangible assets are pending external valuation and are preliminarily valued using historical information from the Residential Kitchen Equipment Group and Commercial Foodservice Equipment Group and qualitative assessments of the individual businesses at acquisition date. Specifically, the company estimated the fair values of the intangible assets based on the percentage of purchase price assigned to similar intangible assets in previous acquisitions. Thus, the provisional measurements of fair values set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

The following unaudited pro forma results of operations for the three months ended April 2, 2022 and April 3, 2021, assumes the 2021 and 2022 acquisitions described above were completed on January 3, 2021 (first day of fiscal year 2021). The pro forma results include adjustments to reflect amortization of intangibles associated with the acquisition and the effects of adjustments made to the carrying value of certain assets (in thousands, except per share data):


	Three Months Ended
	April 2, 2022		April 3, 2021
Net sales	$	994,676	$	887,876
Net earnings	112,840		66,300

Net earnings per share:
Basic	$	2.06	$	1.20
Diluted	$	2.00	$	1.18

The historical consolidated financial information of the company and the acquisitions have been adjusted in the pro forma information to give effect to 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

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The company adopted this standard in the first quarter of 2022 and it did not have a material impact on its Consolidated Financial Statements and disclosures.

Accounting Pronouncements - To be adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standard is effective for the company on January 2, 2022 and only impacts annual financial statement footnote disclosures. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard should be applied prospectively, and it allows for a modified retrospective transition method resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. The new standard expands and clarifies the use of the portfolio layer method for fair value hedges of interest rate risk. The new standard allows non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The new guidance on hedging multiple layers in a closed portfolio should be applied prospectively and the guidance on the accounting for fair value basis adjustments should be applied on a modified retrospective basis. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements and disclosures.

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 April 2, 2022
United States and Canada	$	374,909	$	94,797	$	229,599	$	699,305
Asia	52,016		3,743		6,005		61,764
Europe and Middle East	100,291		14,200		93,583		208,074
Latin America	16,437		7,203		1,893		25,533
Total	$	543,653	$	119,943	$	331,080	$	994,676

Three Months Ended April 3, 2021
United States and Canada	$	338,837	$	79,650	$	108,574	$	527,061
Asia	49,719		4,003		3,032		56,754
Europe and Middle East	82,017		20,425		51,844		154,286
Latin America	10,582		8,416		959		19,957
Total	$	481,155	$	112,494	$	164,409	$	758,058

Contract Balances

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

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

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


	Apr 2, 2022		Jan 1, 2022
Contract assets	$	34,012	$	21,592
Contract liabilities	$	160,204	$	133,315
Non-current contract liabilities	$	11,089	$	11,602

During the three months period ended April 2, 2022, the company reclassified $4.8 million to receivables, which was included in the contract asset balance at the beginning of the period. During the three months period ended April 2, 2022, the company recognized revenue of $79.6 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 $119.9 million during the three months period ended April 2, 2022. Substantially, all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during the three months period ended April 2, 2022.

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		Unrealized Gain Certain Investments		Total
Balance as of January 1, 2022	$	(97,654)	$	(249,696)	$	(13,064)	$	1,330	$	(359,084)
Other comprehensive income before reclassification	(27,191)		6,244		27,155		1,348		7,556
Amounts reclassified from accumulated other comprehensive income	—		—		3,961		—		3,961
Net current-period other comprehensive income	$	(27,191)	$	6,244	$	31,116	1,348		$	11,517
Balance as of April 2, 2022	$	(124,845)	$	(243,452)	$	18,052	2,678		$	(347,567)

Balance as of January 2, 2021	$	(49,961)	$	(400,919)	$	(37,548)	$	—	$	(488,428)
Other comprehensive income before reclassification	(10,614)		(3,970)		7,389		—		(7,195)
Amounts reclassified from accumulated other comprehensive income	—		—		5,023		—		5,023
Net current-period other comprehensive income	$	(10,614)	$	(3,970)	$	12,412	$	—	$	(2,172)
Balance as of April 3, 2021	$	(60,575)	$	(404,889)	$	(25,136)	$	—	$	(490,600)

(1) As of April 2, 2022, pension, interest rate swap, and gain on investment amounts are net of tax of $(38.5) million, $6.4 million, and $0.9 million, respectively. During the three months ended April 2, 2022, the adjustments to pension, interest rate swap, and gain on investments were net of tax of $1.0 million, $10.9 million, and $0.5 million, respectively. As of April 3, 2021 pension and interest rate swap amounts are net of tax of $(90.0) million and $(8.8) million, respectively. During the three months ended April 3, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $(0.9) million and $4.3 million, respectively.

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


	Three Months Ended
		Apr 2, 2022		Apr 3, 2021
Net earnings		$	85,755	$	89,263
Currency translation adjustment		(27,191)		(10,614)
Pension liability adjustment, net of tax		6,244		(3,970)
Unrealized gain on interest rate swaps, net of tax		31,116		12,412
Unrealized gain on certain investments, net of tax		1,348		—
Comprehensive income		$	97,272	$	87,091

7) Inventories

Inventories are composed of material, labor and overhead and are stated at the lower of cost or net realizable value. Costs for inventory have been determined using the first-in, first-out ("FIFO") method. The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization. Inventories at April 2, 2022 and January 1, 2022 are as follows (in thousands):


	Apr 2, 2022		Jan 1, 2022
Raw materials and parts	$	491,213	$	421,361
Work-in-process	74,325		65,581
Finished goods	359,225		350,476
	$	924,763	$	837,418

8) Goodwill

Changes in the carrying amount of goodwill for the three months ended April 2, 2022 are as follows (in thousands):

Commercial
Foodservice

Food
Processing

Residential Kitchen

Total

Balance as of January 1, 2022