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Financing Arrangements | 9 Months Ended
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Oct. 02, 2021
Notes To Financial Statements [Abstract] |
Financing Arrangements | Financing Arrangements
| Oct 2, 2021 |  | Jan 2, 2021
| (in thousands)
Senior secured revolving credit line | $ | 827,856 |  |  | $ | 755,000 |
Term loan facility | 321,875 |  |  | 335,938 |
Convertible senior notes | 733,825 |  |  | 632,847 |
Foreign loans | 2,833 |  |  | 4,421 |
Other debt arrangement | 1,186 |  |  | 1,390 |
Total debt | 1,887,575 |  |  | 1,729,596 |
Less: Current maturities of long-term debt | 21,553 |  |  | 22,944 |
Long-term debt | $ | 1,866,022 |  |  | $ | 1,706,652 |
Credit Facility On January 31, 2020, the company entered into an amended and restated five-year, $3.5 billion multi-currency senior secured credit agreement (as amended as described below, the "Credit Facility"). On August 21, 2020, the company entered into an amendment to the Credit Facility, prepaying $400.0 million aggregate principal amount of its term loan obligations owed. The Credit Facility, as amended, is in an aggregate principal amount of $3.1 billion, consisting of (i) a $350 million term loan facility and (ii) a $2.75 billion multi-currency revolving credit facility. The Credit Facility matures on January 31, 2025. The term loan facility amortizes in equal quarterly installments due on the last day of each fiscal quarter in an aggregate annual amount equal to 2.50% of the original aggregate principal amount of the term loan facility, with the balance, plus any accrued interest, due and payable on January 31, 2025. As of October 2, 2021, the company had $1.1 billion of borrowings outstanding under the Credit Facility, including $566.5 million of borrowings in U.S. Dollars, $261.3 million of borrowings denominated in Euro, and $321.9 million outstanding under the term loan. The company also had $2.7 million in outstanding letters of credit as of October 2, 2021, which reduces the borrowing availability under the Credit Facility. At October 2, 2021, borrowings under the Credit Facility accrued interest at a rate of 1.375% above LIBOR per annum or 1.00% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The average interest rate per annum, inclusive of hedging instruments, on the debt under the Credit Facility was equal to 2.78% at the end of the period. The interest rates on borrowings under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt less Unrestricted Cash to Pro Forma EBITDA (the “Leverage Ratio”) on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio is charged on the unused portion of the commitments under the Credit Facility. This variable commitment fee was equal to 0.20% per annum as of October 2, 2021. The term loan facility had an average interest rate per annum, inclusive of hedging instruments, of 2.60% as of October 2, 2021. In addition, the company has other international credit facilities to fund working capital needs outside the United States. At October 2, 2021, these foreign credit facilities amounted to $2.8 million in U.S. Dollars with a weighted average per annum interest rate of approximately 7.80%. The company’s debt is reflected on the balance sheet at cost. The fair values of the Credit Facility, term debt and foreign and other debt is based on the amount of future cash flows associated with each instrument discounted using the company's incremental borrowing rate. The company believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying value of debt reflects the fair value. The interest rate margin is based on the company's Leverage Ratio. The carrying value and estimated aggregate fair value, a level 2 measurement, based primarily on market prices, of debt excluding the Convertible Notes is as follows (in thousands):
| Oct 2, 2021 |  | Jan 2, 2021
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Total debt excluding convertible senior notes | $ | 1,153,750 |  |  | $ | 1,153,750 |  |  | $ | 1,096,749 |  |  | $ | 1,096,749 |
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit Facility. At October 2, 2021, the company had outstanding floating-to-fixed interest rate swaps totaling $60.0 million notional amount carrying an average interest rate of 1.31% maturing in less than 12 months and $802.0 million notional amount carrying an average interest rate of 1.91% that mature in more than 12 months but less than 66 months. The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operation, funds available from its current lenders and access to the credit and capital markets will be sufficient to finance its operations, debt service obligations, capital expenditures, product development and expenditures for the foreseeable future. The terms of the Credit Facility, as amended, limit the ability of the company and its subsidiaries to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make restricted payments; enter into certain transactions with affiliates; and requires, among other things, the company to satisfy certain financial covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00, (ii) a maximum Total Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 5.50 to 1.00, and (iii) a maximum Secured Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 3.50 to 1.00; which may be adjusted to 4.25 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified acquisitions, subject to the terms and conditions contained in the Credit Facility. 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 October 2, 2021, the company was in compliance with all covenants pursuant to its borrowing agreements. Convertible Notes The following table summarizes the outstanding principal amount and carrying value of the Convertible Notes:
| Oct 2, 2021 |  | Jan 2, 2021 |  |
| (in thousands)
Principal amounts: |  |  |  |  |
Principal | $ | 747,500 |  |  | $ | 747,500 |  |  |
Unamortized debt discounts | — |  |  | (98,358) |  |  |
Unamortized issuance costs | (13,675) |  |  | (16,295) |  |  |
Net carrying amount | $ | 733,825 |  |  | $ | 632,847 |  |  |
The following table summarizes total interest expense recognized related to the Convertible Notes:
| Three Months Ended |  | Nine Months Ended
| Oct 2, 2021 |  | Sep 26, 2020 |  | Oct 2, 2021 |  | Sep 26, 2020
Contractual interest expense | $ | 1,848 |  |  | $ | 726 |  |  | $ | 5,607 |  |  | $ | 726 |
Interest cost related to amortization of issuance costs | 864 |  |  | 2,130 |  |  | 2,620 |  |  | 2,130 |
Total interest expense | $ | 2,712 |  |  | $ | 2,856 |  |  | $ | 8,227 |  |  | $ | 2,856 |
On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes maturing on September 1, 2025 (the "Convertible Notes") in a private offering pursuant to an indenture, dated August 21, 2020 (the "Indenture"), between the company and U.S. Bank National Association, as trustee. The Convertible Notes are general unsecured obligations of the company and bear interest semi-annually in arrears. The estimated fair value of the Convertible Notes was $1.1 billion as of October 2, 2021 and was determined through consideration of quoted market prices. The fair value is classified as Level 2, as defined in Note 1 (d), Fair Value Measurements of this Quarterly Report on Form 10-Q. The if-converted value of the Convertible Notes exceeded their respective principal value by $262.8 million as of October 2, 2021. The annual effective interest rate of the Convertible Notes following adoption of ASU 2020-06 is 1.5%. 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. 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. As of October 2, 2021, there have been no conversions to date. For the nine months ended October 2, 2021, the average market price of the company's common stock exceeded the exercise price of the Convertible Notes resulting in 1,284,381 diluted common stock equivalents to be included in the diluted net earnings per share for the period. The Indenture includes customary terms and covenants, including certain events of default after which the Convertible Notes may become due and payable immediately. Capped Call Transactions In conjunction with the pricing of the Convertible Notes, the company entered into privately negotiated capped call transactions in the aggregate amount of $104.7 million ("Capped Call Transactions"). The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the company is required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of the company's common stock is greater than the strike price of the Capped Call Transactions (which initially corresponds to the initial conversion price of the Convertible Notes and is subject to certain adjustments under the terms of the Capped Call Transactions), with such reduction and/or offset subject to a cap based on the cap price of the Capped Call Transactions. 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. As of October 2, 2021, there have been no conversions to date. The Capped Call Transactions cover 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.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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