NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2021, DECEMBER 28, 2019
AND DECEMBER 29, 2018
(1)NATURE OF OPERATIONS
The Middleby Corporation (the "company") is engaged in the design, manufacture and sale of commercial foodservice, food processing equipment and residential kitchen equipment. The company manufactures and assembles this equipment at forty U.S. and twenty-nine international manufacturing facilities. The company operates in three business segments: 1) the Commercial Foodservice Equipment Group, 2) the Food Processing Equipment Group and 3) the Residential Kitchen Equipment Group.
The Commercial Foodservice Equipment Group has a broad portfolio of foodservice equipment, which enable it to serve virtually any cooking, warming, refrigeration, freezing and beverage application within a commercial kitchen or foodservice operation. This equipment is used across all types of foodservice operations, including quick-service restaurants, full-service restaurants, convenience stores, retail outlets, hotels and other institutions. The products offered by this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, food warming equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment, toasters, griddles, charcoal grills, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers, coldrooms, ice machines, freezers, soft serve ice cream equipment, coffee and beverage dispensing equipment, home and professional craft brewing equipment, fry dispensers, bottle filling and canning equipment, and IoT solutions.
The Food Processing Equipment Group offers a broad portfolio of processing solutions for customers producing pre-cooked meat products, such as hot dogs, dinner sausages, poultry and lunchmeats and baked goods such as muffins, cookies and bread. Through its broad line of products, the company is able to deliver a wide array of cooking solutions to service a variety of food processing requirements demanded by its customers. The company can offer highly integrated solutions that provide a food processing operation a uniquely integrated solution providing for the highest level of food quality, product consistency, and reduced operating costs resulting from increased product yields, increased capacity and greater throughput and reduced labor costs through automation. The products offered by this group include a wide array of cooking and baking solutions, including batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing ovens, frying systems and automated thermal processing systems. The company also provides a comprehensive portfolio of complementary food preparation equipment such as grinders, slicers, reduction and emulsion systems, mixers, blenders, formers, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, filling and depositing solutions, and forming equipment, as well as a variety of automated loading and unloading systems, food safety, food handling, freezing, defrosting and packaging equipment. This portfolio of equipment can be integrated to provide customers a highly efficient and customized solution.
The Residential Kitchen Equipment Group has a broad portfolio of innovative and professional-style residential kitchen equipment. The products offered by this group include ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, ventilation equipment and outdoor equipment.
(2) ACQUISITIONS AND PURCHASE ACCOUNTING
The following represents the company's significant acquisitions in 2020 and 2019 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 and purchase price allocation 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Opening Balance Sheet
|
|
Measurement
Period
Adjustments
|
|
Adjusted Opening Balance Sheet
|
Cash
|
$
|
843
|
|
|
$
|
—
|
|
|
$
|
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
|
—
|
|
|
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
|
—
|
|
|
(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 is 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 Acquisitions
During 2019 the company completed various other acquisitions that were not individually material. The final allocation of consideration paid for the other 2019 acquisitions is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Opening Balance Sheet
|
|
Measurement
Period
Adjustments
|
|
Adjusted Opening Balance Sheet
|
Cash
|
$
|
2,683
|
|
|
$
|
(10)
|
|
|
$
|
2,673
|
|
|
|
|
|
|
|
Current assets
|
21,525
|
|
|
920
|
|
|
22,445
|
|
Property, plant and equipment
|
8,920
|
|
|
(166)
|
|
|
8,754
|
|
Goodwill
|
99,838
|
|
|
(11,117)
|
|
|
88,721
|
|
Other intangibles
|
64,019
|
|
|
11,363
|
|
|
75,382
|
|
Long-term deferred tax asset
|
1,288
|
|
|
1,428
|
|
|
2,716
|
|
Other assets
|
137
|
|
|
854
|
|
|
991
|
|
Current liabilities
|
(20,437)
|
|
|
(348)
|
|
|
(20,785)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
(6,170)
|
|
|
(4,129)
|
|
|
(10,299)
|
|
|
|
|
|
|
|
Consideration paid at closing
|
$
|
171,803
|
|
|
$
|
(1,205)
|
|
|
$
|
170,598
|
|
|
|
|
|
|
|
Deferred payments
|
2,404
|
|
|
—
|
|
|
2,404
|
|
Contingent consideration
|
4,258
|
|
|
3,600
|
|
|
7,858
|
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
178,465
|
|
|
$
|
2,395
|
|
|
$
|
180,860
|
|
The long-term deferred tax asset amounted to $2.7 million. The net deferred tax asset 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 and liability accounts.
The goodwill and $33.8 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 million allocated to customer relationships, $12.3 million allocated to developed technology and $1.4 million allocated to backlog, which are being amortized over periods of 5 to 10 years, 5 to 12 years, and 3 months, respectively. Goodwill of $42.5 million and other intangibles of $35.5 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 $11.3 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 $77.9 million and intangibles of $64.8 million are expected to be deductible for tax purposes.
Two purchase agreements include deferred payments 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 and 2022. The contractual obligations associated with the deferred payments on the acquisition dates amount to $2.4 million. The earnouts are payable between 2021 and 2030, if the companies exceed certain sales and earnings targets. The contractual obligations associated with the contingent earnout provisions recognized on the acquisition dates amount to $7.9 million.
2020 Acquisitions
For the year ended January 2, 2021, the company has 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 acquisitions and are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary Opening Balance Sheet
|
|
Preliminary Measurement
Period
Adjustments
|
|
Adjusted Opening Balance Sheet
|
Cash
|
$
|
14,647
|
|
|
$
|
—
|
|
|
$
|
14,647
|
|
|
|
|
|
|
|
Current assets
|
43,670
|
|
|
(13,674)
|
|
|
29,996
|
|
Property, plant and equipment
|
3,014
|
|
|
(241)
|
|
|
2,773
|
|
Goodwill
|
55,335
|
|
|
1,438
|
|
|
56,773
|
|
Other intangibles
|
63,201
|
|
|
—
|
|
|
63,201
|
|
|
|
|
|
|
|
Other assets
|
6,121
|
|
|
—
|
|
|
6,121
|
|
Current liabilities
|
(54,478)
|
|
|
12,477
|
|
|
(42,001)
|
|
|
|
|
|
|
|
Long-term deferred tax liability
|
(123)
|
|
|
—
|
|
|
(123)
|
|
Other non-current liabilities
|
(21,902)
|
|
|
—
|
|
|
(21,902)
|
|
|
|
|
|
|
|
Consideration paid at closing
|
$
|
109,485
|
|
|
$
|
—
|
|
|
$
|
109,485
|
|
|
|
|
|
|
|
Deferred payments
|
8,666
|
|
|
—
|
|
|
8,666
|
|
Contingent consideration
|
16,144
|
|
|
—
|
|
|
16,144
|
|
|
|
|
|
|
|
Net assets acquired and liabilities assumed
|
$
|
134,295
|
|
|
$
|
—
|
|
|
$
|
134,295
|
|
The long-term deferred tax liability amounted to $0.1 million and is related to the difference between the book and tax basis on other assets and liability accounts.
The goodwill and $23.1 million of other intangibles associated with the trade names are subject to the non-amortization provisions of ASC 350. Other intangibles also include $14.0 million allocated to customer relationships, $20.7 million allocated to developed technology and $5.4 million allocated to backlog, which are being amortized over periods of 7 years, 7 to 12 years, and 3 to 9 months, respectively. Goodwill of $56.8 million and other intangibles of $63.2 million of the companies are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. Of these assets, goodwill of $20.0 million and all other intangibles are expected to be deductible for tax purposes.
Several purchase agreements include deferred payment and earnout provisions providing for contingent payments due to the sellers to the extent certain financial targets are exceeded. The deferred payments are payable between 2020 and 2022. The contractual obligations associated with the deferred payments on the acquisition date amount to $8.7 million. The earnouts are payable between 2021 and 2023, if the company exceeds certain sales and earnings targets. The contractual obligations associated with the contingent earnout provisions recognized on the acquisition date amount to $16.1 million.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the company is waiting for additional information necessary to finalize those fair values for substantially all 2020 acquisitions to date. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
Pro Forma Financial Information
In accordance with ASC 805 Business Combinations, the following unaudited pro forma results of operations for the twelve months ended January 2, 2021 and December 28, 2019, assumes the 2019 and 2020 acquisitions described above were completed on December 30, 2018 (first day of fiscal year 2019). 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
January 2, 2021
|
|
December 28, 2019
|
Net sales
|
$
|
2,563,195
|
|
|
$
|
3,119,550
|
|
Net earnings
|
213,866
|
|
|
338,343
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
Basic
|
$
|
3.88
|
|
|
$
|
6.08
|
|
Diluted
|
$
|
3.88
|
|
|
$
|
6.08
|
|
The historical consolidated financial information of the Company and the acquisitions have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has incurred or may incur to integrate the acquired businesses.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Basis of Presentation
The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The company's consolidated financial statements 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 estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. Significant items that are subject to such estimates and judgments include allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, warranty reserves, insurance reserves, income tax reserves and post-retirement obligations. On an ongoing basis, the company evaluates its estimates and assumptions 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.
The company's fiscal year ends on the Saturday nearest December 31. Fiscal years 2020, 2019, and 2018 ended on January 2, 2021, December 28, 2019 and December 29, 2018, respectively, and included 53, 52 and 52 weeks, respectively.
(b)Cash and Cash Equivalents
The company considers all short-term investments with original maturities of three months or less when acquired to be cash equivalents. The company’s policy is to invest its excess cash in interest-bearing deposits with major banks that are subject to minimal credit and market risk.
(c)Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of $19.2 million and $14.9 million at January 2, 2021 and December 28, 2019, respectively. At January 2, 2021, all accounts receivable are expected to be collected within one year.
(d) 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 January 2, 2021 and December 28, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Raw materials and parts
|
$
|
263,200
|
|
|
$
|
277,394
|
|
Work in process
|
55,104
|
|
|
58,663
|
|
Finished goods
|
221,894
|
|
|
249,642
|
|
|
$
|
540,198
|
|
|
$
|
585,699
|
|
(e)Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Land
|
$
|
40,707
|
|
|
$
|
43,467
|
|
Building and improvements
|
245,435
|
|
|
229,025
|
|
Furniture and fixtures
|
68,063
|
|
|
67,992
|
|
Machinery and equipment
|
220,148
|
|
|
209,290
|
|
|
574,353
|
|
|
549,774
|
|
Less accumulated depreciation
|
(229,871)
|
|
|
(197,629)
|
|
|
$
|
344,482
|
|
|
$
|
352,145
|
|
Property, plant and equipment are depreciated or amortized on a straight-line basis over their useful lives based on management's estimates of the period over which the assets will be utilized to benefit the operations of the company. The useful lives are estimated based on historical experience with similar assets, taking into account anticipated technological or other changes. The company periodically reviews these lives relative to physical factors, economic factors and industry trends. If there are changes in the planned use of property and equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization expense in future periods.
Following is a summary of the estimated useful lives:
|
|
|
|
|
|
|
|
|
Description
|
|
Life
|
Building and improvements
|
|
20 to 40 years
|
Furniture and fixtures
|
|
3 to 7 years
|
Machinery and equipment
|
|
3 to 10 years
|
Depreciation expense amounted to $39.1 million, $37.9 million and $35.8 million in fiscal 2020, 2019 and 2018, respectively.
Expenditures which significantly extend useful lives are capitalized. Maintenance and repairs are charged to expense as incurred. Asset impairments are recorded whenever events or changes in circumstances indicate that the recorded value of an asset is greater than the sum of its expected future undiscounted cash flows.
(f)Goodwill and Other Intangibles
The company’s business acquisitions result in the recognition of goodwill and other intangible assets, which are a significant portion of the company’s total assets. Goodwill represents the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a business combination. Identifiable intangible assets are recognized separately from goodwill and include trademarks and trade names, technology, customer relationships and other specifically identifiable assets. Trademarks and trade names are deemed to be indefinite-lived. Goodwill and indefinite-lived intangible assets are not amortized, but are subject to impairment testing.
The company performs the annual impairment assessment for goodwill and indefinite-lived intangible assets as of first day of the fourth quarter and more frequently if indicators of impairment exist. The goodwill impairment test is performed at the reporting unit level. The company initially performs a qualitative analysis to determine if it is more likely than not that the goodwill balance or indefinite-life intangible asset is impaired. In conducting a qualitative assessment, the company analyzes a variety of events or factors that may influence the fair value of the reporting unit or indefinite-life intangible, including, but not limited to: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, share price and other relevant factors.
If an indicator of impairment is determined from the qualitative analysis, then the company will perform a quantitative analysis. The fair value of each reporting unit is compared to its carrying value. If the fair value of the reporting unit is less than its carrying value, the resulting difference will be a charge to impairment of goodwill in the Consolidated Statements of Earnings in the period in which the determination is made. Fair value is determined using a combination of present value techniques and market prices of comparable businesses.
The company completed its annual impairment test for goodwill as of September 27, 2020. The company performed a qualitative assessment to evaluate goodwill for all reporting units. As a result of the financial performance indicators for the Commercial Foodservice reporting unit, the company completed a quantitative analysis. The fair value of the reporting unit exceeded its carrying value by more than 100% and no impairment of goodwill was recognized. Based on the qualitative assessment for all other reporting units it was determined there was no impairment of goodwill. The company has not recognized any goodwill impairments and therefore there are no accumulated impairment losses.
Goodwill is allocated to the business segments as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Foodservice
|
|
Food
Processing
|
|
Residential Kitchen
|
|
Total
|
Balance as of December 29, 2018
|
$
|
1,102,067
|
|
|
$
|
219,054
|
|
|
$
|
422,054
|
|
|
$
|
1,743,175
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during the year
|
81,339
|
|
|
43,613
|
|
|
9,503
|
|
|
134,455
|
|
Measurement period adjustments to goodwill acquired in prior year
|
(27,929)
|
|
|
(3,722)
|
|
|
—
|
|
|
(31,651)
|
|
Exchange effect
|
(1,925)
|
|
|
(1,266)
|
|
|
6,959
|
|
|
3,768
|
|
|
|
|
|
|
|
|
|
Balance as of December 28, 2019
|
$
|
1,153,552
|
|
|
$
|
257,679
|
|
|
$
|
438,516
|
|
|
$
|
1,849,747
|
|
|
|
|
|
|
|
|
|
Goodwill acquired during the year
|
56,773
|
|
|
—
|
|
|
—
|
|
|
56,773
|
|
Measurement period adjustments to goodwill acquired in prior year
|
(56)
|
|
|
(8,732)
|
|
|
1,770
|
|
|
(7,018)
|
|
Exchange effect
|
18,167
|
|
|
6,851
|
|
|
9,741
|
|
|
34,759
|
|
|
|
|
|
|
|
|
|
Balance as of January 2, 2021
|
$
|
1,228,436
|
|
|
$
|
255,798
|
|
|
$
|
450,027
|
|
|
$
|
1,934,261
|
|
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
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 relationships
|
8.5
|
|
$
|
735,264
|
|
|
$
|
(347,029)
|
|
|
9.2
|
|
$
|
717,397
|
|
|
$
|
(283,846)
|
|
Backlog
|
0.3
|
|
34,729
|
|
|
(31,924)
|
|
|
1.3
|
|
29,426
|
|
|
(28,283)
|
|
Developed technology
|
10.0
|
|
56,931
|
|
|
(24,394)
|
|
|
5.2
|
|
32,999
|
|
|
(21,378)
|
|
|
|
|
$
|
826,924
|
|
|
$
|
(403,347)
|
|
|
|
|
$
|
779,822
|
|
|
$
|
(333,507)
|
|
Indefinite-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
$
|
1,026,804
|
|
|
|
|
|
|
$
|
997,066
|
|
|
|
The company completed its annual impairment for other intangibles as of September 27, 2020. We identified indicators of impairment associated with certain tradenames within all three of our business segments based on the qualitative assessment, which required the completion of a quantitative impairment assessment. The primary indicators of impairment were lower than expected revenue performance in the current year, forecasted revenues for future periods and market conditions. Based on the results of the quantitative assessment, the company recorded impairment charges of $11.6 million associated with several tradenames, none of which were individually material. The company recorded charges of $5.3 million associated with trademarks within the Commercial Foodservice Equipment Group, $5.4 million for the Food Processing Equipment Group and $0.9 million for the Residential Kitchen Equipment Group. The gross value of the trademarks tested was approximately $90.0 million and the fair values of the other trademarks tested with no impairment per the analyses, exceeded their carrying values by more than 20%.
In performing the quantitative assessment of indefinite-life intangible assets, primarily tradenames, the company estimated the fair value using the relief-from-royalty method which requires assumptions related to projected revenues; assumed royalty rates that could be payable if we did not own the brand; and a market participant discount rate based on a weighted-average cost of capital.
The company elected to perform a qualitative assessment on the other indefinite-life intangible assets noting no events that indicated that the fair value was less than carrying value that would require a quantitative impairment assessment.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions.
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 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. The potential negative demand effect on revenues is also uncertain given the volatile environment, but demand and production levels are anticipated to continue to recover.
The aggregate intangible amortization expense was $69.0 million, $64.0 million and $60.0 million in 2020, 2019 and 2018, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
|
|
|
|
|
|
2021
|
$
|
68,413
|
|
2022
|
62,050
|
|
2023
|
56,058
|
|
2024
|
44,587
|
|
2025
|
38,226
|
|
2026 and thereafter
|
154,243
|
|
|
$
|
423,577
|
|
(g) Accrued Expenses
Accrued expenses consist of the following at January 2, 2021 and December 28, 2019, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Accrued payroll and related expenses
|
$
|
93,926
|
|
|
$
|
80,621
|
|
Contract liabilities
|
93,871
|
|
|
74,511
|
|
Accrued warranty
|
69,667
|
|
|
66,374
|
|
Accrued customer rebates
|
43,703
|
|
|
51,709
|
|
Accrued short-term leases
|
22,493
|
|
|
21,827
|
|
Accrued liabilities held for sale
|
22,313
|
|
|
—
|
|
Accrued sales and other tax
|
22,030
|
|
|
19,862
|
|
Accrued interest rate swaps
|
14,075
|
|
|
—
|
|
Accrued product liability and workers compensation
|
12,909
|
|
|
15,164
|
|
Accrued professional fees
|
12,133
|
|
|
13,368
|
|
Accrued agent commission
|
11,105
|
|
|
13,816
|
|
Accrued restructuring
|
2,686
|
|
|
1,121
|
|
Other accrued expenses
|
73,630
|
|
|
58,177
|
|
|
|
|
|
|
$
|
494,541
|
|
|
$
|
416,550
|
|
(h)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 such matter will have a material adverse effect on its financial condition, results of operations or cash flows of the company.
During 2019, we reached a settlement with respect to a lawsuit filed by the company arising from a prior acquisition included our Residential Kitchen Equipment Segment. The gain associated with this settlement, which is net of the release of funds in escrow, is reflected in the consolidated statement of earnings.
(i)Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of accumulated other comprehensive income (loss) as reported in the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Unrecognized pension benefit costs, net of tax of $(89,059) and $(48,633)
|
$
|
(400,919)
|
|
|
$
|
(228,336)
|
|
Unrealized gain on interest rate swap, net of tax of $(13,120) and $(5,973)
|
(37,548)
|
|
|
(16,892)
|
|
Currency translation adjustments
|
(49,961)
|
|
|
(105,705)
|
|
|
|
|
|
|
$
|
(488,428)
|
|
|
$
|
(350,933)
|
|
Changes in accumulated other comprehensive income (loss) (1) were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
|
Pension Benefit Costs
|
|
Unrealized Gain/(Loss) Interest Rate Swap
|
|
Total
|
Balance as of December 29, 2018
|
$
|
(112,771)
|
|
|
$
|
(170,938)
|
|
|
$
|
7,233
|
|
|
$
|
(276,476)
|
|
Adoption of ASU 2017-12 (2)
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
Other comprehensive income before reclassification
|
7,066
|
|
|
(59,238)
|
|
|
(22,880)
|
|
|
(75,052)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
1,840
|
|
|
(1,256)
|
|
|
584
|
|
Net current-period other comprehensive income
|
$
|
7,066
|
|
|
$
|
(57,398)
|
|
|
$
|
(24,125)
|
|
|
$
|
(74,457)
|
|
Balance as of December 28, 2019
|
$
|
(105,705)
|
|
|
$
|
(228,336)
|
|
|
$
|
(16,892)
|
|
|
$
|
(350,933)
|
|
Other comprehensive income before reclassification
|
55,744
|
|
|
(174,826)
|
|
|
(36,170)
|
|
|
(155,252)
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
2,243
|
|
|
15,514
|
|
|
17,757
|
|
Net current-period other comprehensive income
|
$
|
55,744
|
|
|
$
|
(172,583)
|
|
|
$
|
(20,656)
|
|
|
$
|
(137,495)
|
|
Balance as of January 2, 2021
|
$
|
(49,961)
|
|
|
$
|
(400,919)
|
|
|
$
|
(37,548)
|
|
|
$
|
(488,428)
|
|
(1) As of January 2, 2021 pension and interest rate swap amounts are net of tax of $(89.1) million and $(13.1) million, respectively. During the twelve months ended January 2, 2021, the adjustments to pension benefit costs and unrealized gain/(loss) interest rate swap were net of tax of $(40.4) million and $(7.1) 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.
(j) Fair Value Measures
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 on our own assumptions
The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at January 2, 2021 and December 28, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Level 1
|
|
Fair Value
Level 2
|
|
Fair Value
Level 3
|
|
Total
|
As of January 2, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
51,093
|
|
|
$
|
—
|
|
|
$
|
51,093
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,558
|
|
|
$
|
25,558
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
2,191
|
|
|
$
|
—
|
|
|
$
|
2,191
|
|
|
|
|
|
|
|
|
|
As of December 28, 2019
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
1,830
|
|
|
$
|
—
|
|
|
$
|
1,830
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
25,120
|
|
|
$
|
—
|
|
|
$
|
25,120
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,697
|
|
|
$
|
6,697
|
|
Foreign exchange derivative contracts
|
$
|
—
|
|
|
$
|
901
|
|
|
$
|
—
|
|
|
$
|
901
|
|
The contingent consideration, as of January 2, 2021 and December 28, 2019, relates to the earnout provisions recorded in conjunction with various purchase agreements.
The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreements. On a quarterly basis, the company assesses the projected results for each of the acquisitions in comparison to the earnout targets and adjusts the liability accordingly. During fiscal 2020 the increase in contingent consideration was associated with 2020 acquisitions and there were no material performance assumption adjustments.
(k)Foreign Currency
The income statements of the company’s foreign operations are translated at the monthly average rates. Assets and liabilities of the company’s foreign operations are translated at exchange rates at the balance sheet date. These translation adjustments are not included in determining net income for the period but are disclosed and accumulated in a separate component of stockholders’ equity. Exchange gains and losses on foreign currency transactions are included in determining net income for the period in which they occur. These transactions amounted to a loss of $2.9 million, gain of $0.9 million and a loss of $2.6 million in 2020, 2019 and 2018, respectively, and are included in other expense on the statements of earnings.
(l)Shipping and Handling Costs
Fees billed to the customer for shipping and handling are classified as a component of net revenues. Shipping and handling costs are included in cost of products sold.
(m)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, 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 for the fiscal years 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
66,374
|
|
|
$
|
59,451
|
|
Warranty reserve related to acquisitions
|
1,485
|
|
|
7,353
|
|
Warranty expense
|
58,047
|
|
|
68,842
|
|
Warranty claims paid
|
(56,239)
|
|
|
(69,272)
|
|
Ending balance
|
$
|
69,667
|
|
|
$
|
66,374
|
|
(n)Research and Development Costs
Research and development costs, included in cost of sales in the consolidated statements of earnings, are charged to expense when incurred. These costs were $35.3 million, $41.2 million and $35.3 million in fiscal 2020, 2019 and 2018, respectively.
(o)Non-Cash Share-Based Compensation
The company estimates the fair value of restricted share grants and stock options at the time of grant and recognizes compensation costs over the vesting period of the awards and options. Non-cash share-based compensation expense of $19.6 million, $8.1 million and $2.5 million was recognized for fiscal 2020, 2019 and 2018, respectively, associated with restricted share grants. The company recorded a related tax benefit of $2.7 million, $0.5 million and less than $0.1 million in fiscal 2020, 2019 and 2018, respectively.
As of January 2, 2021, there was $44.3 million of total unrecognized compensation cost related to nonvested restricted share grant compensation arrangements, if all performance conditions are fully achieved. The remaining weighted average life is 1.24 years.
Share grant awards not subject to market conditions for vesting are valued at the closing share price of the company’s stock as of the date of the grant. The company issued 389,993 and 537,059 restricted share grant awards in 2020 and 2019, respectively, with a fair value of $22.5 million and $60.8 million, respectively. Share grant awards issued in 2020 and 2019 are generally performance based and were not subject to market conditions. The weighted average fair value of $57.74 and $113.26 per share for the awards for 2020 and 2019, respectively, represent the closing share price of the company’s stock as of the date of grant.
On December 31, 2020, the company issued restricted stock units, which entitle the holder to shares of common stock subject to time vesting and the achievement of certain market and performance goals. Compensation expense is recognized over the performance measurement period of the units in accordance with ASC 718 Stock Compensation for awards with market and performance vesting conditions. The fair value of restricted stock units granted during 2020 was $135.31 and no restricted stock units have vested.
As of January 2, 2021, there was $10.7 million of total unrecognized compensation cost related to nonvested restricted stock unit compensation arrangements, if all performance conditions are fully achieved. The remaining weighted average life is 2.18 years.
(p)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 exercise of outstanding options and vesting of restricted stock grants computed using the treasury method and amounted to 43,000, 9,000, and 28,000 for fiscal 2020, 2019 and 2018, respectively. During fiscal 2020, the average market price of the company's common stock has not exceeded the exercise price of the Convertible Notes and there have been no conversions to date, and as a result there is no impact to the diluted earnings per share. See Note 5, Financing Arrangements, in these Notes to the Consolidated Financial Statements for further details on the Convertible Notes. There were no anti-dilutive equity awards excluded from common stock equivalents for 2020, 2019 or 2018.
(q)Consolidated Statements of Cash Flows
Cash paid for interest was $65.6 million, $80.9 million and $55.3 million in fiscal 2020, 2019 and 2018, respectively. Cash payments totaling $41.2 million, $91.5 million, and $79.0 million were made for income taxes during fiscal 2020, 2019 and 2018, respectively.
(r)New Accounting Pronouncements
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 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 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 Consolidated Financial Statements.
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. The company adopted this guidance on December 29, 2019 on a retrospective basis for all periods presented. The adoption of this guidance did not have an impact on the company's 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 Consolidated Financial Statements.
Accounting Pronouncements - To be adopted
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 intends to adopt this guidance on January 3, 2021, and does not expect a material impact on the company's Consolidated Financial Statements upon adoption.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". Subject to meeting certain criteria, ASU 2020-04 provides optional expedients and exceptions to applying contract modification accounting under existing generally accepted accounting principles, for contracts that are modified to address the expected phase out of the London Inter-bank Offered Rate (“LIBOR”) by the end of 2021. Some of the Company’s contracts with respect to its borrowings and interest rate swap contracts already contain comparable alternative reference rates that would automatically take effect upon the phasing out of LIBOR, while for others, the company anticipates negotiating comparable replacement rates with its counterparties. In January 2021, the FASB issued ASU 2021-01 to provide supplemental guidance and to further clarify the scope. This guidance is effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The company is currently evaluating the impacts the adoption of this guidance will have on its Consolidated Financial Statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging- Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. This guidance is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2021 with early adoption permitted. The amendments are required to be adopted on either a modified retrospective method or a fully retrospective method. Upon adoption, the Company expects a decrease to additional paid in capital, an increase in the carrying value of the Convertible Notes and an increase to retained earnings. After adoption, the Company expects a reduction in its reported interest expense. The company is anticipating early adoption and will continue to evaluate the impact this guidance will have on its Consolidated Financial Statements.
(4) REVENUE RECOGNITION
Revenue is recognized when the control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and represents the unit of account. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The company’s contracts can have multiple performance obligations or just a single performance obligation. The company treats shipping and handling activities performed after the customer obtains control of the good as a contract fulfillment activity. The company generally expenses sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses.
For contracts with multiple performance obligations, the contracts transaction price is allocated to each performance obligation using the company’s best estimate of the standalone selling price of each distinct good or service in the contract. As the company’s standard payment terms are less than one year, the company does not assess whether a contract has a significant financing component. Sales, use and value added taxes assessed by governmental authorities are excluded from the measurement of the transaction price within the company’s contracts with its customers. The company generally expenses sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses.
Within the Commercial Foodservice Equipment and Residential Foodservice Equipment Groups, the estimated standalone selling price of equipment is based on observable prices. Within the Food Processing Equipment Group, the company estimates the standalone selling price based on expected cost to manufacture the good or complete the service plus an appropriate profit margin.
Control may pass to the customer over time or at a point in time. 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 our long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. Installation services provided in connection with the delivery of the equipment are also generally recognized as those services are rendered. Over time transfer of control is measured using an appropriate input measure (e.g., costs incurred or direct labor hours incurred in relation to total estimate). These measures include forecasts based on the best information available and therefore reflect the company's judgment to faithfully depict the transfer of the goods.
Contract Estimates
Accounting for long-term contracts within the Food Processing Equipment group involves the use of various techniques to estimate total contract revenue and costs. For the company’s long-term contracts, estimated profit for the equipment performance obligations is recognized as the equipment is manufactured and assembled. Profit on the equipment performance obligations is estimated as the difference between the total estimated revenue and expected costs to complete a contract. Contract cost estimates are based on labor productivity and availability, the complexity of the work to be performed; the cost and availability of materials and labor, and the performance of subcontractors. The company does not disclose information about remaining performance obligations that have original expected durations of one year or less.
Contracts within the Commercial Foodservice and Residential Foodservice Equipment groups may contain variable consideration in the form of volume rebate programs. The company’s estimate of variable consideration is based on its experience with similarly situated customers using the portfolio approach.
Disaggregation of Revenue
We disaggregate our net sales by reportable operating segment and geographical location as we believe it best depicts how the nature, timing and uncertainty of our 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 our long-term contracts within the Food Processing Equipment group is recognized over time as the equipment is manufactured and assembled. The following table summarizes our net sales by reportable operating segment and geographical location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Foodservice
|
|
Food Processing
|
|
Residential Kitchen
|
|
Total
|
Twelve Months Ended January 2, 2021
|
|
|
|
|
|
|
|
United States and Canada
|
$
|
1,067,872
|
|
|
$
|
311,042
|
|
|
$
|
373,864
|
|
|
$
|
1,752,778
|
|
Asia
|
155,742
|
|
|
26,778
|
|
|
6,711
|
|
|
189,231
|
|
Europe and Middle East
|
246,845
|
|
|
78,690
|
|
|
182,919
|
|
|
508,454
|
|
Latin America
|
39,820
|
|
|
20,762
|
|
|
2,212
|
|
|
62,794
|
|
Total
|
$
|
1,510,279
|
|
|
$
|
437,272
|
|
|
$
|
565,706
|
|
|
$
|
2,513,257
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 28, 2019
|
|
|
|
|
|
|
|
United States and Canada
|
$
|
1,334,776
|
|
|
$
|
246,572
|
|
|
$
|
362,753
|
|
|
$
|
1,944,101
|
|
Asia
|
221,422
|
|
|
31,250
|
|
|
5,760
|
|
|
258,432
|
|
Europe and Middle East
|
349,613
|
|
|
98,814
|
|
|
198,672
|
|
|
647,099
|
|
Latin America
|
78,534
|
|
|
24,315
|
|
|
6,965
|
|
|
109,814
|
|
Total
|
$
|
1,984,345
|
|
|
$
|
400,951
|
|
|
$
|
574,150
|
|
|
$
|
2,959,446
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 29, 2018
|
|
|
|
|
|
|
|
United States and Canada
|
$
|
1,176,006
|
|
|
$
|
263,743
|
|
|
$
|
366,679
|
|
|
$
|
1,806,428
|
|
Asia
|
180,409
|
|
|
36,578
|
|
|
7,155
|
|
|
224,142
|
|
Europe and Middle East
|
315,935
|
|
|
64,666
|
|
|
221,126
|
|
|
601,727
|
|
Latin America
|
57,464
|
|
|
24,607
|
|
|
8,563
|
|
|
90,634
|
|
Total
|
$
|
1,729,814
|
|
|
$
|
389,594
|
|
|
$
|
603,523
|
|
|
$
|
2,722,931
|
|
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 Consolidated Balance Sheet. Contract assets are transferred to receivables when the right to consideration becomes unconditional.
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 Consolidated Balance Sheet. Non-current contract liabilities are recorded in other non-current liabilities in the 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
Contract assets
|
$
|
20,328
|
|
|
$
|
22,675
|
|
Contract liabilities
|
$
|
93,871
|
|
|
$
|
74,511
|
|
Non-current contract liabilities
|
$
|
13,523
|
|
|
$
|
12,870
|
|
During the twelve months period ended January 2, 2021, the company reclassified $15.7 million to accounts receivable which was included in the contract asset balance at the beginning of the period. During the twelve months period ended January 2, 2021, the company recognized revenue of $67.4 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 $87.2 million during the twelve months period ended January 2, 2021. Substantially all of the company's outstanding performance obligations will be satisfied within 12 to 36 months. There were no contract asset impairments during twelve months period ended January 2, 2021.
(5) FINANCING ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
(in thousands)
|
Senior secured revolving credit line
|
$
|
755,000
|
|
|
$
|
1,869,402
|
|
Term loan facility
|
335,938
|
|
|
—
|
|
Convertible senior notes
|
632,847
|
|
|
—
|
|
Foreign loans
|
4,421
|
|
|
3,622
|
|
Other debt arrangement
|
1,390
|
|
|
116
|
|
Total debt
|
1,729,596
|
|
|
1,873,140
|
|
Less: Current maturities of long-term debt
|
22,944
|
|
|
2,894
|
|
Long-term debt
|
$
|
1,706,652
|
|
|
$
|
1,870,246
|
|
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"). The Credit Facility amended the company's pre-existing $3.0 billion credit facility, which had an original maturity of July 2021, to provide for (i) a $750.0 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). The Credit Facility matures on January 31, 2025. 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 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 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 and the company used the net proceeds of the offering of the Convertible Notes to pay the aggregate amount of $104.7 million for them. 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 is using 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 January 2, 2021, the company had $1.1 billion of borrowings outstanding under the Credit Facility, including $335.9 million outstanding under the term loan. The company also had $10.9 million in outstanding letters of credit as of January 2, 2021, which reduces the borrowing availability under the Credit Facility. Remaining borrowing capacity under this facility was $2.0 billion at January 2, 2021.
At January 2, 2021, borrowings under the Credit Facility accrued interest at a rate of 2.00% above LIBOR per annum or 1.00% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The 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. 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%. The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 3.97% at the end of the period and the variable commitment fee was equal to 0.35% per annum as of January 2, 2021.
The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of 3.25% as of January 2, 2021.
In addition, the company has international credit facilities to fund working capital needs outside the United States. At January 2, 2021, these foreign credit facilities amounted to $4.4 million in U.S. Dollars with a weighted average per annum interest rate of approximately 5.91%.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan 2, 2021
|
|
Dec 28, 2019
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Total debt excluding convertible senior notes
|
$
|
1,096,749
|
|
|
$
|
1,096,749
|
|
|
$
|
1,873,140
|
|
|
$
|
1,873,140
|
|
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. At January 2, 2021, the company had outstanding floating-to-fixed interest rate swaps totaling $260.0 million notional amount carrying an average interest rate of 2.36% maturing in less than 12 months and $802.0 million notional amount carrying an average interest rate of 1.92% that mature in more than 12 months but less than 74 months.
The terms of the Credit Facility, as amended, limit the ability of the company and its subsidiaries to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make restricted payments; enter into certain transactions with affiliates; and requires, among other things, the company to satisfy certain financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00, (ii) a maximum Total Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 5.50 to 1.00, and (iii) a maximum Secured Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 3.50 to 1.00; which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified acquisitions, subject to the terms and conditions contained in the Credit Facility. 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 January 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:
|
|
|
|
|
|
|
|
|
Jan 2, 2021
|
|
|
|
(in thousands)
|
Principal amounts:
|
|
|
|
Principal
|
$
|
747,500
|
|
|
|
Unamortized debt discount
|
(114,653)
|
|
|
|
Net carrying amount
|
$
|
632,847
|
|
|
|
The following table summarizes total interest expense recognized related to the Convertible Notes:
|
|
|
|
|
|
|
Twelve Months Ended
|
|
Jan 2, 2021
|
Contractual interest expense
|
$
|
2,720
|
|
Interest cost related to amortization of the debt discount and issuance costs
|
7,971
|
|
Total interest expense
|
$
|
10,691
|
|
The estimated fair value of the Convertible Notes was $910.1 million as of January 2, 2021 and was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 3 (j), Fair Value Measurements, in these Notes to the Consolidated Financial Statements included in this Part II, Item 8 of this Annual Report on Form 10-K. The if-converted value of the Convertible Notes exceeded their respective principal value by $1.7 million as of January 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 Consolidated Balance Sheets and amortized to interest expense using the effective interest method over the term of the Convertible Notes. The effective interest rate of the Convertible Notes is 4.7%. The equity component of the Convertible Notes of approximately $105.0 million is included in the additional paid-in capital in the 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 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 stockholders' equity.
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 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 the twelve months period ended January 2, 2021 and none have been converted to date. Also given the average market price of the company's common stock has not exceeded the exercise price since inception, 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 Notes to be redeemed, plus accrued and unpaid interest thereon, if the last reported sales price of the company's common stock has been at least 130.0% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the company provides written notice of redemption.
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
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 Capped Call Transactions have an initial cap price of $207.93 per share of the company's common stock. The Capped Call Transactions cover, initially, the number of shares of the company's common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.
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.
The aggregate amount of debt payable during each of the next five years is as follows (in thousands):
|
|
|
|
|
|
2021
|
$
|
22,944
|
|
2022
|
19,261
|
|
2023
|
19,056
|
|
2024
|
19,069
|
|
2025 and thereafter
|
1,649,266
|
|
|
|
|
$
|
1,729,596
|
|
(6) COMMON AND PREFERRED STOCK
(a) Shares Authorized
At January 2, 2021 and December 28, 2019, the company had 95,000,000 authorized shares of common stock and 2,000,000 authorized shares of non-voting preferred stock.
(b) Treasury Stock
In November 2017, the company's Board of Directors approved a stock repurchase program authorizing the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. 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 January 2, 2021, 1,023,165 shares had been purchased under the 2017 stock repurchase program and 1,476,835 remain authorized for repurchase.
The company also treats shares withheld for tax purposes on behalf of employees in connection with the vesting of restricted share grants as common stock repurchases because they reduce the number of shares that would have been issued upon vesting. During 2020, the company repurchased 176,242 shares of its common stock that were surrendered to the company for withholding taxes related to restricted stock vestings for $16.2 million.
(c) Share-Based Awards
The company maintains several stock incentive plans under which the company's Board of Directors issues restricted share grants to key employees. Restricted share grants issued to employees are transferable upon certain vesting requirements being met. The 2011 Stock Incentive Plan (the "2011 Plan") was adopted on April 1, 2011, under which the company's Board of Directors issues stock grants to key employees. On July 11, 2017 the company increased the maximum amount of shares reserved for issuance under the 2011 Plan by 1,000,000. A maximum amount of 2,650,000 shares can be issued under the 2011 Plan. Stock grants issued to employees are transferable upon certain vesting requirements. As of January 2, 2021, a total of 2,137,168 share-based awards have been issued under the 2011 Plan. This includes 2,042,168 restricted share grants, of which 433,065 remain outstanding and unvested. For fiscal year ended January 2, 2021, the approximate fair value of restricted shares vested were $44.8 million. This also includes 95,000 restricted stock units, of which 95,000 remain unvested. For fiscal year ended January 2, 2021, no restricted stock units have vested.
A summary of the company’s nonvested restricted share grant activity and their corresponding fair value on the date of grant for fiscal years ended January 2, 2021 and December 28, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant-Date
Fair Value
|
Nonvested shares at December 29, 2018
|
125,842
|
|
|
$
|
103.29
|
|
|
|
|
|
Granted
|
537,059
|
|
|
113.26
|
|
Vested
|
(135,816)
|
|
|
105.81
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Nonvested shares at December 28, 2019
|
527,085
|
|
|
$
|
112.60
|
|
|
|
|
|
Granted
|
389,993
|
|
|
57.74
|
|
Vested
|
(476,261)
|
|
|
68.54
|
|
Forfeited
|
(7,752)
|
|
|
66.01
|
|
|
|
|
|
Nonvested shares at January 2, 2021
|
433,065
|
|
|
$
|
112.54
|
|
A summary of the company’s nonvested restricted stock unit activity and their corresponding fair value (based upon the Monte Carlo Methodology) on the date of grant for fiscal years ended January 2, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted
Average
Grant-Date
Fair Value
|
Nonvested shares at December 28, 2019
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
95,000
|
|
|
135.31
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Nonvested shares at January 2, 2021
|
95,000
|
|
|
$
|
135.31
|
|
(7) INCOME TAXES
Earnings before taxes is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
$
|
178,813
|
|
|
$
|
336,688
|
|
|
$
|
328,870
|
|
Foreign
|
89,244
|
|
|
125,931
|
|
|
94,643
|
|
Total
|
$
|
268,057
|
|
|
$
|
462,619
|
|
|
$
|
423,513
|
|
The provision for income taxes is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Federal
|
$
|
36,908
|
|
|
$
|
69,074
|
|
|
$
|
66,359
|
|
State and local
|
8,815
|
|
|
16,203
|
|
|
16,035
|
|
Foreign
|
15,040
|
|
|
25,102
|
|
|
23,967
|
|
Total
|
$
|
60,763
|
|
|
$
|
110,379
|
|
|
$
|
106,361
|
|
|
|
|
|
|
|
Current
|
$
|
44,342
|
|
|
$
|
88,167
|
|
|
$
|
85,872
|
|
Deferred
|
16,421
|
|
|
22,212
|
|
|
20,489
|
|
Total
|
$
|
60,763
|
|
|
$
|
110,379
|
|
|
$
|
106,361
|
|
Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
3.2
|
|
|
3.2
|
|
|
3.0
|
|
Permanent differences
|
(0.4)
|
|
|
0.6
|
|
|
0.2
|
|
Foreign income tax rate at rates other than U.S. statutory
|
0.5
|
|
|
0.2
|
|
|
1.3
|
|
Deferred tax changes
|
(0.7)
|
|
|
—
|
|
|
0.2
|
|
Tax Cuts and Jobs Act of 2017 transition tax
|
—
|
|
|
—
|
|
|
(0.1)
|
|
Change in valuation allowances (1)
|
(0.1)
|
|
|
0.1
|
|
|
(0.5)
|
|
Tax on unremitted earnings
|
1.2
|
|
|
0.3
|
|
|
—
|
|
Other
|
(2.0)
|
|
|
(1.5)
|
|
|
—
|
|
Consolidated effective tax
|
22.7
|
%
|
|
23.9
|
%
|
|
25.1
|
%
|
(1) Net of changes in related tax attributes.
The company’s effective tax rate for 2020 was 22.7% as compared to 23.9% in 2019. The effective tax rate for 2020 reflects favorable tax adjustments for deferred tax rate changes and adjustments for the finalization of 2019 tax returns. The effective tax rate is higher than the federal tax rate of 21.0% primarily due to state taxes and foreign tax rate differentials.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the coronavirus ("COVID-19") pandemic. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the company’s Consolidated Financial Statements for the year ended January 2, 2021. On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic, in combination with omnibus spending for the 2021 federal fiscal year. The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the company’s Consolidated Financial Statements for the year ended January 2, 2021.
At January 2, 2021 and December 28, 2019, the company had recorded the following deferred tax assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Compensation related
|
$
|
12,328
|
|
|
$
|
4,744
|
|
Pension and post-retirement benefits
|
88,709
|
|
|
48,716
|
|
Inventory reserves
|
14,732
|
|
|
15,166
|
|
Accrued liabilities and reserves
|
22,049
|
|
|
17,321
|
|
Warranty reserves
|
17,890
|
|
|
16,550
|
|
Operating lease liability
|
16,180
|
|
|
17,521
|
|
Interest rate swaps
|
12,997
|
|
|
6,075
|
|
Net operating loss carryforwards
|
20,747
|
|
|
17,873
|
|
Other
|
17,187
|
|
|
16,504
|
|
Gross deferred tax assets
|
222,819
|
|
|
160,470
|
|
Valuation allowance
|
(11,731)
|
|
|
(7,754)
|
|
Deferred tax assets
|
$
|
211,088
|
|
|
$
|
152,716
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
$
|
(226,598)
|
|
|
$
|
(203,721)
|
|
Depreciable assets
|
(26,916)
|
|
|
(18,020)
|
|
Operating lease right-of-use assets
|
(15,921)
|
|
|
(17,542)
|
|
Other
|
(12,825)
|
|
|
(10,001)
|
|
|
|
|
|
Deferred tax liabilities
|
$
|
(282,260)
|
|
|
$
|
(249,284)
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
$
|
(71,172)
|
|
|
$
|
(96,568)
|
|
|
|
|
|
Long-term deferred asset
|
76,052
|
|
|
36,932
|
|
Long-term deferred liability
|
(147,224)
|
|
|
(133,500)
|
|
Net deferred tax assets (liabilities)
|
$
|
(71,172)
|
|
|
$
|
(96,568)
|
|
The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $7.5 million and $5.6 million at January 2, 2021 and December 28, 2019, respectively. No further provisions were made for income taxes that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be permanently reinvested, which were $433.0 million on January 2, 2021. Determination of the total amount of unrecognized deferred income taxes on undistributed earnings net of foreign subsidiaries is not practicable.
The company has a deferred tax asset on net operating loss carryforwards totaling $20.7 million as of January 2, 2021. These net operating losses are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States federal loss carryforwards total $15.7 million of which $10.0 million will expire through 2036 and $5.7 million have no expiration date. State loss carryforwards total $102.4 million and expire through 2040 and international loss carryforwards total $56.5 million and expire through 2038; however, some have no expiration date. Of these carryforwards, $11.4 million are subject to full valuation allowance.
As of January 2, 2021, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $30.3 million (of which $30.2 million would impact the effective tax rate if recognized) plus approximately $6.3 million of accrued interest and $7.0 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2020, 2019 and 2018 was $0.8 million, $0.4 million and $0.6 million, respectively. Penalties recognized in fiscal years 2020, 2019 and 2018 was $(0.2) million, $(0.9) million and $0.6 million, respectively.
Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns. In the opinion of management, adequate tax provisions have been made for the years subject to examination.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 29, 2018, December 28, 2019 and January 2, 2021 (in thousands):
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
31,912
|
|
|
|
Increases to current year tax positions
|
4,216
|
|
Increase to prior year tax positions
|
254
|
|
|
|
|
|
Lapse of statute of limitations
|
(4,823)
|
|
|
|
Balance at December 28, 2019
|
$
|
31,559
|
|
|
|
Increases to current year tax positions
|
3,657
|
|
Increase to prior year tax positions
|
183
|
|
Settlements and other adjustments
|
(586)
|
|
Lapse of statute of limitations
|
(4,484)
|
|
|
|
Balance at January 2, 2021
|
$
|
30,329
|
|
It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit. The company believes that it is reasonably possible that $4.4 million of its remaining unrecognized tax benefits may be recognized by the end of 2021 as a result of settlements with taxing authorities or lapses of statutes of limitations.
In the normal course of business, income tax authorities in various income tax jurisdictions both in the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax years are open from 2017 through the current year for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2014 through the current year.
(8) FINANCIAL INSTRUMENTS
Derivatives are measured at fair value and recognized as either assets or liabilities. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If a derivative does qualify, 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.
(a)Foreign Exchange
The company periodically enters into derivative instruments, principally forward contracts to reduce exposures pertaining to fluctuations in foreign exchange rates. The fair value of these forward contracts was an unrealized loss of $2.2 million at the end of the year.
(b)Interest Rate
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. The fair value of these instruments was a liability of $51.1 million and a liability of $23.3 million as of January 2, 2021 and December 28, 2019, respectively. The change in fair value of these swap agreements in 2020 was a loss of $20.7 million, net of taxes.
A summary of the company’s interest rate swaps is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
Location
|
|
Jan 2, 2021
|
|
Dec 28, 2019
|
Fair value
|
Other assets
|
|
$
|
—
|
|
|
$
|
1,830
|
|
Fair value
|
Accrued expenses
|
|
$
|
14,075
|
|
|
$
|
—
|
|
Fair value
|
Other non-current liabilities
|
|
$
|
37,018
|
|
|
$
|
25,120
|
|
Amount of gain/(loss) recognized in other comprehensive income
|
Other comprehensive income
|
|
$
|
(43,317)
|
|
|
$
|
(31,396)
|
|
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)
|
Interest expense
|
|
$
|
(15,514)
|
|
|
$
|
1,256
|
|
|
|
|
|
|
|
Interest rate swaps are subject to default risk to the extent the counterparty is unable to satisfy its 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 agreement.
(9) LEASE COMMITMENTS
Accounting Policy
At the commencement date of a lease, the company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. The lease liability is measured at the present value of lease payments over the lease term, including variable fees that are known or subject to a minimum floor. The lease liability includes lease component fees, while non-lease component fees are expensed as incurred for all asset classes. The company's lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When a contract excludes an implicit rate, the company utilizes an incremental borrowing rate based on information available at the lease commencement date including lease term and geographic region. The initial valuation of the right-of-use (“ROU”) asset includes the initial measurement of the lease liability, lease payments made in advance of the lease commencement date and initial direct costs incurred by the Company and excludes lease incentives. Operating lease ROU assets are included in other assets and operating lease liabilities are included accrued expenses and other non-current liabilities.
Leases with an initial term of 12 months or less are classified as short-term leases and are not recorded on the Consolidated Balance Sheets. The lease expense for short-term leases is recognized on a straight-line basis over the lease term.
Leases
The company leases warehouse space, office facilities and equipment under operating leases. The company has operating lease costs of $31.2 million, $31.0 million and $30.2 million in fiscal 2020, 2019 and 2018 respectively, including short-term lease expense and variable lease costs, which were immaterial in the year.
|
|
|
|
|
|
|
|
|
|
|
|
Leases (in thousands)
|
January 2, 2021
|
|
December 28, 2019
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
97,193
|
|
|
$
|
96,655
|
|
|
|
|
|
|
|
|
|
Operating Lease Liability:
|
|
|
|
Current
|
22,493
|
|
|
21,827
|
|
Non-current
|
76,529
|
|
|
75,018
|
|
Total Liability
|
$
|
99,022
|
|
|
$
|
96,845
|
|
|
|
|
|
|
|
Total Lease Commitments (in thousands)
|
Operating Leases
|
2021
|
$
|
24,675
|
|
2022
|
21,230
|
|
2023
|
16,650
|
|
2024
|
13,214
|
|
2025
|
9,315
|
|
2026 and thereafter
|
23,446
|
|
Total future lease commitments
|
108,530
|
|
Less imputed interest
|
9,508
|
|
Total
|
$
|
99,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Lease Information (in thousands, except lease term and discount rate)
|
Twelve Months Ended January 2, 2021
|
|
Twelve Months Ended December 28, 2019
|
Supplemental cash flow information
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases
|
$
|
26,024
|
|
|
$
|
24,794
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
25,433
|
|
|
25,306
|
|
|
|
|
|
|
January 2, 2021
|
|
December 28, 2019
|
|
|
|
|
Weighted-average remaining lease terms leases - Operating
|
6.0 years
|
|
6.3 years
|
|
|
|
|
Weighted-average discount rate - Operating
|
3.0
|
%
|
|
3.4
|
%
|
(10) 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, Michigan, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, 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, soft serve ice cream equipment, coffee and beverage dispensing equipment, home and professional craft brewing equipment, fry dispensers, bottle filling and canning equipment, and IoT solutions. These products are sold and marketed under the brand names: Anets, APW Wyott, Bakers Pride, Beech, BKI, Blodgett, Blodgett Combi, Bloomfield, Britannia, Carter-Hoffmann, Celfrost, Concordia, CookTek, Crown, CTX, Desmon, Deutsche Beverage, Doyon, Eswood, EVO, Firex, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, 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, Southbend, Ss Brewtech, Star, Starline, Sveba Dahlen, 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, CV-Tek, Danfotech, Deutsche Process, Drake, Glimek, Hinds-Bock, Maurer-Atmos, MP Equipment, 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, Wisconsin, France and the United Kingdom. Principal product lines of this group are ranges, cookers, stoves, cooktops, microwaves, ovens, refrigerators, dishwashers, undercounter refrigeration, wine cellars, ice machines, ventilation equipment and outdoor equipment. These products are sold and marketed under the brand names: AGA, AGA Cookshop, Brava, EVO, La Cornue, Leisure Sinks, Lynx, Marvel, Mercury, 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. Management believes that intersegment sales are made at established arm's length transfer prices.
The following table summarizes the results of operations for the company’s business segments(1) (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Foodservice
|
|
Food
Processing
|
|
Residential Kitchen
|
|
Corporate
and Other(2)
|
|
Total
|
2020
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,510,279
|
|
|
$
|
437,272
|
|
|
$
|
565,706
|
|
|
$
|
—
|
|
|
$
|
2,513,257
|
|
Operating income (3,4)
|
239,625
|
|
|
78,008
|
|
|
67,046
|
|
|
(60,248)
|
|
|
324,431
|
|
Depreciation expense
|
21,768
|
|
|
5,507
|
|
|
11,691
|
|
|
120
|
|
|
39,086
|
|
Amortization expense (5)
|
51,985
|
|
|
7,319
|
|
|
9,657
|
|
|
2,485
|
|
|
71,446
|
|
Net capital expenditures
|
25,463
|
|
|
3,427
|
|
|
4,801
|
|
|
1,158
|
|
|
34,849
|
|
Total assets
|
3,249,441
|
|
|
617,171
|
|
|
1,221,229
|
|
|
114,633
|
|
|
5,202,474
|
|
Long-lived assets (6)
|
279,481
|
|
|
55,069
|
|
|
192,940
|
|
|
19,849
|
|
|
547,339
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,984,345
|
|
|
$
|
400,951
|
|
|
$
|
574,150
|
|
|
$
|
—
|
|
|
$
|
2,959,446
|
|
Operating income (3,4)
|
429,946
|
|
|
68,935
|
|
|
89,312
|
|
|
(74,150)
|
|
|
514,043
|
|
Depreciation expense
|
21,054
|
|
|
4,944
|
|
|
11,742
|
|
|
112
|
|
|
37,852
|
|
Amortization expense (5)
|
45,906
|
|
|
8,162
|
|
|
9,896
|
|
|
1,612
|
|
|
65,576
|
|
Net capital expenditures
|
29,353
|
|
|
6,683
|
|
|
9,168
|
|
|
1,405
|
|
|
46,609
|
|
Total assets
|
3,188,304
|
|
|
621,619
|
|
|
1,157,211
|
|
|
35,009
|
|
|
5,002,143
|
|
Long-lived assets (6)
|
261,466
|
|
|
57,403
|
|
|
176,834
|
|
|
4,116
|
|
|
499,819
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,729,814
|
|
|
$
|
389,594
|
|
|
$
|
603,523
|
|
|
$
|
—
|
|
|
$
|
2,722,931
|
|
Operating income (3)
|
393,380
|
|
|
62,435
|
|
|
53,959
|
|
|
(63,808)
|
|
|
445,966
|
|
Depreciation expense
|
17,374
|
|
|
5,207
|
|
|
12,838
|
|
|
363
|
|
|
35,782
|
|
Amortization expense (5)
|
35,224
|
|
|
7,527
|
|
|
17,226
|
|
|
1,479
|
|
|
61,456
|
|
Net capital expenditures
|
17,444
|
|
|
7,373
|
|
|
11,721
|
|
|
(498)
|
|
|
36,040
|
|
Total assets
|
2,906,373
|
|
|
513,189
|
|
|
1,089,103
|
|
|
41,116
|
|
|
4,549,781
|
|
Long-lived assets (6)
|
181,636
|
|
|
33,127
|
|
|
146,897
|
|
|
22,328
|
|
|
383,988
|
|
(1)Non-operating expenses are not allocated to the reportable 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.
(2)Includes corporate and other general company assets and operations.
(3)Restructuring expenses and impairments are included in operating income of the segment to which they pertain. See note 3(f) and 13 for further details.
(4)Gain on litigation settlement is included in Residential Kitchen and gain on sale of plant is included in Commercial Foodservice.
(5)Includes amortization of deferred financing costs.
(6)Long-lived assets consist of property, plant and equipment, long-term deferred tax assets and other assets.
Geographic Information
Long-lived assets, not including goodwill and other intangibles (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
United States and Canada
|
$
|
331,688
|
|
|
$
|
305,207
|
|
|
$
|
262,482
|
|
|
|
|
|
|
|
Asia
|
28,018
|
|
|
22,312
|
|
|
12,136
|
|
Europe and Middle East
|
181,242
|
|
|
165,781
|
|
|
108,001
|
|
Latin America
|
6,391
|
|
|
6,519
|
|
|
1,369
|
|
Total International
|
215,651
|
|
|
194,612
|
|
|
121,506
|
|
|
|
|
|
|
|
|
$
|
547,339
|
|
|
$
|
499,819
|
|
|
$
|
383,988
|
|
(11) 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 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 plan became open to new entrants on a defined contribution basis of pension provision in 2002, but was generally closed to new entrants on this basis during 2014. In December 2020, it was agreed that the Group Pension Scheme will be closed to future pension accruals effective April 5, 2021 and as a result, a curtailment loss has been recognized in fiscal 2020.
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.
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet position is as follows (dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
|
Fiscal 2019
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
Net Periodic Pension Cost (Benefit):
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
2,581
|
|
|
$
|
—
|
|
|
$
|
2,457
|
|
Interest cost
|
1,043
|
|
|
25,966
|
|
|
1,253
|
|
|
33,490
|
|
Expected return on assets
|
(999)
|
|
|
(72,795)
|
|
|
(868)
|
|
|
(67,542)
|
|
Amortization of net loss
|
763
|
|
|
3,449
|
|
|
664
|
|
|
721
|
|
Amortization of prior service cost
|
—
|
|
|
2,577
|
|
|
—
|
|
|
2,560
|
|
Curtailment loss
|
—
|
|
|
14,682
|
|
|
—
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
$
|
807
|
|
|
$
|
(23,540)
|
|
|
$
|
1,049
|
|
|
$
|
(27,449)
|
|
|
|
|
|
|
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
Benefit obligation – beginning of year
|
$
|
35,395
|
|
|
$
|
1,501,616
|
|
|
$
|
31,559
|
|
|
$
|
1,377,575
|
|
Service cost
|
—
|
|
|
2,581
|
|
|
—
|
|
|
2,457
|
|
Prior service cost
|
—
|
|
|
2,309
|
|
|
—
|
|
|
—
|
|
Interest on benefit obligations
|
1,043
|
|
|
25,966
|
|
|
1,253
|
|
|
33,490
|
|
Member contributions
|
—
|
|
|
312
|
|
|
—
|
|
|
313
|
|
Actuarial loss
|
4,146
|
|
|
186,945
|
|
|
4,173
|
|
|
102,377
|
|
|
|
|
|
|
|
|
|
Net benefit payments
|
(1,687)
|
|
|
(62,878)
|
|
|
(1,590)
|
|
|
(62,355)
|
|
Curtailment loss
|
—
|
|
|
14,682
|
|
|
—
|
|
|
865
|
|
Exchange effect
|
—
|
|
|
73,041
|
|
|
—
|
|
|
46,894
|
|
Benefit obligation – end of year
|
$
|
38,897
|
|
|
$
|
1,744,574
|
|
|
$
|
35,395
|
|
|
$
|
1,501,616
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
Plan assets at fair value – beginning of year
|
$
|
16,744
|
|
|
$
|
1,231,181
|
|
|
$
|
14,634
|
|
|
$
|
1,141,381
|
|
Company contributions
|
1,587
|
|
|
5,745
|
|
|
1,191
|
|
|
5,934
|
|
Investment gain
|
811
|
|
|
69,824
|
|
|
2,509
|
|
|
107,368
|
|
Member contributions
|
—
|
|
|
312
|
|
|
—
|
|
|
313
|
|
|
|
|
|
|
|
|
|
Benefit payments and plan expenses
|
(1,687)
|
|
|
(62,878)
|
|
|
(1,590)
|
|
|
(62,355)
|
|
Exchange effect
|
—
|
|
|
52,332
|
|
|
—
|
|
|
38,540
|
|
Plan assets at fair value – end of year
|
$
|
17,455
|
|
|
$
|
1,296,516
|
|
|
$
|
16,744
|
|
|
$
|
1,231,181
|
|
|
|
|
|
|
|
|
|
Funded Status:
|
|
|
|
|
|
|
|
Unfunded benefit obligation
|
$
|
(21,442)
|
|
|
$
|
(448,058)
|
|
|
$
|
(18,651)
|
|
|
$
|
(270,435)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in balance sheet at year end:
|
|
|
|
|
|
|
|
Accrued pension benefits
|
$
|
(21,442)
|
|
|
$
|
(448,058)
|
|
|
$
|
(18,651)
|
|
|
$
|
(270,435)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
|
Fiscal 2019
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
Pre-tax components in accumulated other comprehensive income at period end:
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
10,424
|
|
|
$
|
479,554
|
|
|
$
|
6,853
|
|
|
$
|
270,116
|
|
|
|
|
|
|
|
|
|
Pre-tax components recognized in other comprehensive income for the period:
|
|
|
|
|
|
|
|
Current year actuarial loss
|
$
|
4,334
|
|
|
$
|
211,494
|
|
|
$
|
2,532
|
|
|
$
|
69,228
|
|
Actuarial loss recognized
|
(763)
|
|
|
(3,841)
|
|
|
(664)
|
|
|
(798)
|
|
Prior service cost
|
—
|
|
|
3,335
|
|
|
—
|
|
|
—
|
|
Prior service cost recognized
|
—
|
|
|
(1,550)
|
|
|
—
|
|
|
(986)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized
|
$
|
3,571
|
|
|
$
|
209,438
|
|
|
$
|
1,868
|
|
|
$
|
67,444
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
$
|
38,897
|
|
|
$
|
1,744,536
|
|
|
$
|
35,395
|
|
|
$
|
1,501,589
|
|
|
|
|
|
|
|
|
|
Salary growth rate
|
n/a
|
|
0.8
|
%
|
|
n/a
|
|
0.8
|
%
|
Assumed discount rate
|
2.2
|
%
|
|
1.2
|
%
|
|
3.0
|
%
|
|
2.0
|
%
|
Expected return on assets
|
6.0
|
%
|
|
6.2
|
%
|
|
6.0
|
%
|
|
6.2
|
%
|
The company has engaged non-affiliated third party professional investment advisors to assist the company in developing its investment policy and establishing asset allocations. The company's overall investment objective is to provide a return, that along with company contributions, is expected to meet future benefit payments. Investment policy is established in consideration of anticipated future timing of benefit payments under the plans. The anticipated duration of the investment and the potential for investment losses during that period are carefully weighed against the potential for appreciation when making investment decisions. The company routinely monitors the performance of investments made under the plans and reviews investment policy in consideration of changes made to the plans or expected changes in the timing of future benefit payments.
The assets of the plans were invested in the following classes of securities (none of which were securities of the company):
U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Percentage of Plan Assets
|
|
|
|
2020
|
|
2019
|
Equity
|
48
|
%
|
|
48
|
%
|
|
51
|
%
|
Fixed income
|
40
|
|
|
39
|
|
|
37
|
|
Money market
|
4
|
|
|
3
|
|
|
2
|
|
Other (real estate investment trusts & commodities contracts)
|
8
|
|
|
10
|
|
|
10
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Non-U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Percentage of Plan Assets
|
|
|
|
2020
|
|
2019
|
Equity
|
17
|
%
|
|
12
|
%
|
|
22
|
%
|
Fixed income
|
38
|
|
|
57
|
|
|
39
|
|
Alternatives/Other
|
32
|
|
|
15
|
|
|
22
|
|
Real Estate
|
13
|
|
|
13
|
|
|
13
|
|
Cash and cash equivalents
|
—
|
|
|
3
|
|
|
4
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
In accordance with ASC 820 Fair Value Measurements and Disclosures, the company has measured its defined benefit pension plans at fair value. In accordance with ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets", the company has elected to measure the pension plan assets and obligations as of the calendar month end closest to the fiscal year end. The following tables summarize the basis used to measure the pension plans’ assets at fair value as of January 2, 2021and December 28, 2019 (in thousands):
U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
|
Fiscal 2019
|
Asset Category
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Net Asset Value
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Investment Fund (a)
|
|
$
|
533
|
|
|
$
|
—
|
|
|
$
|
533
|
|
|
$
|
347
|
|
|
$
|
—
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Large Cap
|
|
3,443
|
|
|
3,443
|
|
|
—
|
|
|
3,957
|
|
|
3,957
|
|
|
—
|
|
Mid Cap
|
|
407
|
|
|
407
|
|
|
—
|
|
|
417
|
|
|
417
|
|
|
—
|
|
Small Cap
|
|
489
|
|
|
489
|
|
|
—
|
|
|
418
|
|
|
418
|
|
|
—
|
|
International
|
|
4,198
|
|
|
4,198
|
|
|
—
|
|
|
3,657
|
|
|
3,657
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government/Corporate
|
|
5,517
|
|
|
5,517
|
|
|
—
|
|
|
4,992
|
|
|
4,992
|
|
|
—
|
|
High Yield
|
|
1,211
|
|
|
1,211
|
|
|
—
|
|
|
1,260
|
|
|
1,260
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative:
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Real Estate Investment Trust
|
|
1,063
|
|
|
1,063
|
|
|
—
|
|
|
1,358
|
|
|
1,358
|
|
|
—
|
|
Commodities Contracts
|
|
594
|
|
|
594
|
|
|
—
|
|
|
338
|
|
|
338
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,455
|
|
|
$
|
16,922
|
|
|
$
|
533
|
|
|
$
|
16,744
|
|
|
$
|
16,397
|
|
|
$
|
347
|
|
(a)Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.
Non-U.S. Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020
|
Asset Category
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,537
|
|
|
$
|
9,653
|
|
|
$
|
832
|
|
|
$
|
—
|
|
|
$
|
26,052
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
8,615
|
|
|
1,747
|
|
|
—
|
|
|
—
|
|
|
6,868
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
110,718
|
|
|
3,076
|
|
|
—
|
|
|
—
|
|
|
107,642
|
|
Emerging
|
|
34,417
|
|
|
418
|
|
|
—
|
|
|
—
|
|
|
33,999
|
|
Unquoted/Private Equity
|
|
1,792
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
Government/Corporate:
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
264,703
|
|
|
16,330
|
|
|
—
|
|
|
—
|
|
|
248,373
|
|
International
|
|
141,030
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
141,030
|
|
Index Linked
|
|
330,360
|
|
|
2,945
|
|
|
—
|
|
|
—
|
|
|
327,415
|
|
Other
|
|
8,296
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,296
|
|
Convertible Bonds
|
|
214
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
156,588
|
|
|
—
|
|
|
156,588
|
|
|
—
|
|
|
—
|
|
Indirect
|
|
9,283
|
|
|
52
|
|
|
4,485
|
|
|
—
|
|
|
4,746
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Fund Strategy:
|
|
|
|
|
|
|
|
|
|
|
Equity Long/Short
|
|
44,097
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,097
|
|
Arbitrage & Event
|
|
16,594
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,594
|
|
Directional Trading & Fixed Income
|
|
9,721
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,721
|
|
Cash & Other
|
|
196,952
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
196,952
|
|
Direct Sourcing
|
|
2,397
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged Loans
|
|
28,720
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,720
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative/Other
|
|
(104,518)
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
(104,523)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,296,516
|
|
|
$
|
34,227
|
|
|
$
|
161,905
|
|
|
$
|
—
|
|
|
$
|
1,100,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
Asset Category
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,748
|
|
|
$
|
18,142
|
|
|
$
|
2,874
|
|
|
$
|
—
|
|
|
$
|
23,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
101,922
|
|
|
88,830
|
|
|
—
|
|
|
—
|
|
|
13,092
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
165,709
|
|
|
13,170
|
|
|
—
|
|
|
—
|
|
|
152,539
|
|
Emerging
|
|
11,653
|
|
|
650
|
|
|
—
|
|
|
—
|
|
|
11,003
|
|
Unquoted/Private Equity
|
|
123
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
Government/Corporate:
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
189,513
|
|
|
14,245
|
|
|
2,867
|
|
|
—
|
|
|
172,401
|
|
International
|
|
86,208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86,208
|
|
Index Linked
|
|
189,463
|
|
|
2,085
|
|
|
—
|
|
|
—
|
|
|
187,378
|
|
Other
|
|
6,367
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,367
|
|
Convertible Bonds
|
|
177
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
154,494
|
|
|
—
|
|
|
154,494
|
|
|
—
|
|
|
—
|
|
Indirect
|
|
8,155
|
|
|
137
|
|
|
7,603
|
|
|
—
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Fund Strategy:
|
|
|
|
|
|
|
|
|
|
|
Equity Long/Short
|
|
21,683
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,683
|
|
Arbitrage & Event
|
|
29,284
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,284
|
|
Directional Trading & Fixed Income
|
|
9,361
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,361
|
|
Cash & Other
|
|
163,058
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
163,058
|
|
Direct Sourcing
|
|
2,269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged Loans
|
|
21,635
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,635
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative/Other
|
|
25,359
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
25,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,231,181
|
|
|
$
|
137,260
|
|
|
$
|
167,838
|
|
|
$
|
—
|
|
|
$
|
926,083
|
|
The fair value of the Level 1 assets is based on observable, quoted market prices of the identical underlying security in an active market. The fair value of the Level 2 assets is primarily based on market observable inputs to quoted market prices, benchmark yields and broker/dealer quotes. Level 3 inputs, as applicable, represent unobservable inputs that reflect assumptions developed by management to measure assets at fair value.
The expected return on assets is developed in consideration of the anticipated duration of investment period for assets held by the plan, the allocation of assets in the plan, and the historical returns for plan assets.
Estimated future benefit payments under the plans are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
2021
|
$
|
1,794
|
|
|
$
|
64,476
|
|
2022
|
1,789
|
|
|
64,905
|
|
2023
|
1,792
|
|
|
65,805
|
|
2024
|
1,807
|
|
|
65,551
|
|
2025 through 2030
|
11,446
|
|
|
402,537
|
|
Expected contributions to the U.S. Plans and Non-U.S. Plans to be made in 2021 are $0.6 million and $4.7 million, respectively.
(b)Defined Contribution Plans
As of January 2, 2021, the company maintained two separate defined contribution 401(k) savings plans covering all employees in the United States. These two plans separately cover the union employees at the Elgin, Illinois facility and all other remaining union and non-union employees in the United States. The company also maintained defined contribution plans for its UK based employees.
(12) QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total Year
|
|
|
(dollars in thousands, except per share data)
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
677,459
|
|
|
$
|
471,977
|
|
|
$
|
634,525
|
|
|
$
|
729,296
|
|
|
$
|
2,513,257
|
|
Gross profit
|
|
250,190
|
|
|
153,126
|
|
|
222,749
|
|
|
255,983
|
|
|
882,048
|
|
Income from operations
|
|
105,414
|
|
|
39,118
|
|
|
86,672
|
|
|
93,227
|
|
|
324,431
|
|
Net earnings
|
|
$
|
73,779
|
|
|
$
|
21,162
|
|
|
$
|
60,516
|
|
|
$
|
51,837
|
|
|
$
|
207,294
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (1)
|
|
$
|
1.33
|
|
|
$
|
0.39
|
|
|
$
|
1.10
|
|
|
$
|
0.94
|
|
|
$
|
3.76
|
|
Diluted earnings per share (1)
|
|
$
|
1.33
|
|
|
$
|
0.39
|
|
|
$
|
1.10
|
|
|
$
|
0.94
|
|
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
686,802
|
|
|
$
|
761,004
|
|
|
$
|
724,014
|
|
|
$
|
787,626
|
|
|
$
|
2,959,446
|
|
Gross profit
|
|
257,312
|
|
|
286,479
|
|
|
270,028
|
|
|
289,678
|
|
|
1,103,497
|
|
Income from operations
|
|
101,061
|
|
|
139,607
|
|
|
121,345
|
|
|
152,030
|
|
|
514,043
|
|
Net earnings
|
|
$
|
69,013
|
|
|
$
|
92,210
|
|
|
$
|
82,020
|
|
|
$
|
108,997
|
|
|
$
|
352,240
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (1)
|
|
$
|
1.24
|
|
|
$
|
1.66
|
|
|
$
|
1.47
|
|
|
$
|
1.96
|
|
|
$
|
6.33
|
|
Diluted earnings per share (1)
|
|
$
|
1.24
|
|
|
$
|
1.66
|
|
|
$
|
1.47
|
|
|
$
|
1.96
|
|
|
$
|
6.33
|
|
(1)Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding during the year.
(13) RESTRUCTURING AND ACQUISITION INTEGRATION INITIATIVES
Commercial Foodservice Equipment Group:
During the fiscal years 2020, 2019 and 2018, the company undertook cost reduction initiatives related to the Commercial Foodservice Equipment Group including headcount reductions and facility consolidations. These actions resulted in expenses of $10.1 million, $6.4 million and $3.5 million in the twelve months ended January 2, 2021, December 28, 2019 and December 29, 2018 respectively, primarily for severance related to headcount reductions and facility consolidations. These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings. The realization of cost savings from the restructuring initiatives began in 2020 with an expected annual savings of approximately $20.0 million. At January 2, 2021, the restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year year 2021.
Residential Kitchen Equipment Group:
During the fiscal years 2020, 2019 and 2018, the company has completed various restructuring initiatives for the AGA Group, including headcount reductions and consolidation and disposition of certain facilities and business operations. During 2018, the company undertook restructuring efforts related to Grange, a non-core business within the AGA Group, and elected to cease its operations. During fiscal 2019 and 2020, the initiatives within the AGA Group were primarily related to headcount reductions. The company recorded expense of $1.6 million, $2.3 million and $15.1 million, respectively in the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.
Additionally within the Residential Kitchen Equipment Group, the company incurred restructuring costs, primarily for severance related to headcount reductions and facility consolidations. The company recorded expense of $0.2 million and $1.7 million, respectively in the years ended January 2, 2021 and December 28, 2019, respectively.
These expenses are reflected in restructuring expenses in the Consolidated Statements of Earnings and no material future expenses associated with these actions are anticipated. The restructuring obligations accrued for these initiatives are immaterial and will be substantially complete by the end of fiscal year 2021.
The costs and corresponding reserve balances for restructuring within the Residential Kitchen Equipment Group are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance/Benefits
|
|
Facilities/Operations
|
|
Other
|
|
Total
|
Balance as of December 30, 2017
|
|
$
|
3,698
|
|
|
$
|
1,467
|
|
|
$
|
157
|
|
|
$
|
5,322
|
|
Expenses
|
|
6,367
|
|
|
3,771
|
|
|
5,001
|
|
|
15,139
|
|
Exchange Effect
|
|
(49)
|
|
|
(11)
|
|
|
23
|
|
|
(37)
|
|
Payments
|
|
(9,150)
|
|
|
(5,171)
|
|
|
(4,394)
|
|
|
(18,715)
|
|
Balance as of December 29, 2018
|
|
$
|
866
|
|
|
$
|
56
|
|
|
$
|
787
|
|
|
$
|
1,709
|
|
Expenses
|
|
3,766
|
|
|
684
|
|
|
(476)
|
|
|
3,974
|
|
Exchange Effect
|
|
24
|
|
|
(7)
|
|
|
(55)
|
|
|
(38)
|
|
Payments/Utilization
|
|
(3,990)
|
|
|
(632)
|
|
|
(256)
|
|
|
(4,878)
|
|
Balance as of December 28, 2019
|
|
$
|
666
|
|
|
$
|
101
|
|
|
$
|
—
|
|
|
$
|
767
|
|
Expenses
|
|
899
|
|
|
907
|
|
|
—
|
|
|
1,806
|
|
Exchange Effect
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
Payments/Utilization
|
|
(1,368)
|
|
|
(922)
|
|
|
—
|
|
|
(2,290)
|
|
Balance as of January 2, 2021
|
|
$
|
197
|
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
309
|
|
The restructuring expenses for the other segment of the company were not material during fiscal years 2020, 2019 and 2018.
In December 2020, the company recorded an impairment of approximately $2.9 million associated to reflect the fair market value of assets held for sale of a non-core business within the Residential Kitchen Equipment Group. This charge was reflected in impairments in the Consolidated Statements of Earnings. As a result approximately $17.4 million of current assets have been classified as held for sale, within prepaid expenses and other current assets and approximately $22.3 million of liabilities have been classified as held for sale within accrued expenses on the Consolidated Balance Sheets.