What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-02 compared with 2021-03-03 · 129 added, 157 removed, 256 unchanged (53% of the section changed)

43 unchanged sentences

Restructuring 0.3 0.5 0.3

Merger termination fee (3.4) — —

Gain on litigation settlement — — (0.5)

10 unchanged sentences

(1) The company's fiscal year ends on the Saturday nearest to December 31.

Fiscal Year Ended January 1, 2022 as Compared to January 2, 2021

Net sales in fiscal 2021 increased by $737.5 million, or 29.3%, to $3,250.8 million as compared to $2,513.3 million in fiscal 2020.

Net sales increased by $124.8 million, or 5.0%, from the fiscal 2020 acquisitions of Deutsche, Wild Goose, United Foodservice Equipment Zhuhai and the fiscal 2021 acquisitions of Novy, Newton CFV, Imperial, Char-Griller, and Kamado Joe and Masterbuilt.

Excluding acquisitions and a disposition, net sales increased $631.8 million, or 25.3%, from the prior year.

The impact of foreign exchange rates on foreign sales translated into U.S.

Dollars for fiscal 2021 increased net sales by approximately $39.5 million.

Excluding the impact of foreign exchange, acquisitions and the disposition, sales increased 23.7% for the year, including a net sales increase of 28.2% at the Commercial Foodservice Equipment Group, a net sales increase of 9.1% at the Food Processing Equipment Group and a net sales increase of 23.2% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group increased by $522.5 million, or 34.6%, to $2,032.8 million in fiscal 2021 as compared to $1,510.3 million in fiscal 2020.

Net sales from the acquisitions of Deutsche, Wild Goose, United Foodservice Equipment Zhuhai, Newton CFV, and Imperial which were acquired on March 2, 2020, December 7, 2020, December 18, 2020, November 16, 2021 and September 24, 2021, respectively, accounted for an increase of $77.4 million during fiscal 2021.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $445.1 million, or 29.5%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $426.1 million, or 28.2% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales increase of $367.2 million, or 34.4%, to $1,435.1 million, as compared to $1,067.9 million in the prior year.

This includes an increase of $61.3 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $305.9 million, or 28.6%.

The increase in domestic sales is related to improvements in market conditions and consumer demand.

International sales increased $155.3 million, or 35.1%, to $597.7 million, as compared to $442.4 million in the prior year.

This includes the increase of $16.1 million from recent acquisitions and an increase of $19.0 million related to the favorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $120.2 million, or 27.2%.

The increase in international sales is related to improvements in market conditions, primarily in the European and Asian markets.

• Net sales of the Food Processing Equipment Group increased by $43.4 million, or 9.9%, to $480.7 million in fiscal 2021, as compared to $437.3 million in fiscal 2020.

Excluding the impact of foreign exchange, net sales increased $39.6 million, or 9.1% at the Food Processing Equipment Group.

Domestically, the company realized a sales increase of $36.2 million, or 11.6%, to $347.3 million, as compared to $311.1 million in the prior year.

The increase in domestic sales reflects growth driven by both protein and bakery products.

International sales increased $7.2 million, or 5.7%, to $133.4 million, as compared to $126.2 million in the prior year.

This includes an increase of $3.8 million related to the favorable impact of exchange rates.

Excluding foreign exchange, the net sales increase in international sales was $3.4 million, or 2.7%.

The increase in international revenues is primarily driven by protein projects.

• Net sales of the Residential Kitchen Equipment Group increased by $171.6 million, or 30.3%, to $737.3 million in fiscal 2021, as compared to $565.7 million in fiscal 2020.

Net sales from the acquisitions of Novy, Char-Griller, and Kamado Joe and Masterbuilt, which were acquired on July 12, 2021, December 27, 2021, and December 27, 2021, respectively, accounted for an increase of $47.4 million during fiscal 2021.

Excluding the impact of acquisitions and the disposition, net sales of the Residential Kitchen Equipment Group increased $143.3 million, or 26.2%, as compared to the prior year.

Excluding the impact of foreign exchange, acquisitions, and the disposition, net sales increased $126.6 million, or 23.2% at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales increase of $80.5 million, or 21.5%, to $454.4 million, as compared to $373.9 million in the prior year.

This includes an increase of $3.5 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $77.0 million, or 20.6%.

International sales increased $91.1 million, or 47.5% to $282.9 million, as compared to $191.8 million in the prior year.

This includes an increase of $43.9 million from recent acquisitions and an increase of $16.7 million related to the favorable impact of exchange rates.

Excluding acquisitions, the disposition, and foreign exchange, the net sales increase in international sales was $49.6 million, or 28.7%.

The increase in domestic and international sales reflects the strong demand for our premium appliance brands and strength in the European market.

GROSS PROFIT .

Gross profit increased by $312.9 million to $1,194.9 million in fiscal 2021 from $882.0 million in fiscal 2020, primarily reflecting higher sales volumes related to improvements in market conditions and consumer demand and the favorable impact of foreign exchange rates of $14.0 million.

The gross margin rate increased to 36.8% in 2021 as compared to 35.1% in 2020.

The gross margin rate in fiscal 2021 excluding acquisitions and impact of foreign exchange was 37.0%.

• Gross profit at the Commercial Foodservice Equipment Group increased by $230.7 million, or 44.2%, to $752.9 million in fiscal 2021 as compared to $522.2 million in fiscal 2020.

Gross profit from acquisitions increased gross profit by $27.1 million.

Excluding acquisitions, the gross profit increased by approximately $203.6 million related to higher sales volumes.

The impact of foreign exchange rates increased gross profit by approximately $6.7 million.

The gross profit margin rate increased to 37.0% in fiscal 2021 as compared to 34.6% in the prior year.

The gross margin rate in fiscal 2021 excluding acquisitions and the impact of foreign exchange was 37.1%.

• Gross profit at the Food Processing Equipment Group increased by $17.1 million, or 10.9%, to $174.2 million in fiscal 2021 as compared to $157.1 million in fiscal 2020.

The impact of foreign exchange rates increased gross profit by approximately $2.0 million.

The gross profit margin rate increased to 36.2% in fiscal 2021 as compared to 35.9% in the prior year.

The gross margin rate in fiscal 2021 excluding the impact of foreign exchange was 36.1%.

• Gross profit at the Residential Kitchen Equipment Group increased by $64.3 million, or 31.5%, to $268.6 million in fiscal 2021 as compared to $204.3 million in fiscal 2020.

Gross profit from acquisitions increased gross profit by $11.0 million.

Excluding acquisitions, the gross profit increased by approximately $53.3 million related to higher sales volumes.

The impact of foreign exchange rates increased gross profit by approximately $5.3 million.

The gross margin rate increased to 36.4% in fiscal 2021 as compared to 36.1% in the prior year.

The gross margin rate in fiscal 2021 excluding acquisitions and the impact of foreign exchange was 37.5%.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

Combined selling, general, and administrative expenses increased by $136.1 million to $668.0 million in fiscal 2021 from $531.9 million in 2020.

As a percentage of net sales, selling, general and administrative expenses amounted to 20.5% in fiscal 2021 and 21.2% in fiscal 2020.

Selling, general and administrative expenses reflect increased costs of $33.0 million associated with acquisitions, including $11.8 million of non-cash intangible amortization expense.

Selling, general and administrative expenses increased approximately $90.0 million related to compensation costs, professional fees, and commission expense.

Increases in professional fees were driven by the costs associated with our proposed and subsequently terminated acquisition of Welbilt, as well as overall increased deal activity.

Foreign exchange rates had a favorable impact of $6.7 million.

RESTRUCTURING EXPENSES.

Restructuring expenses decreased $4.7 million to $7.7 million from $12.4 million in the prior year period.

In fiscal 2021, restructuring expenses related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group.

During fiscal 2020, restructuring charges related primarily to headcount reductions and cost reduction initiatives related to facility consolidations at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

In fiscal 2020, the company recognized impairment of $11.6 million associated with several trade names in conjunction with the diminution of value as we assessed current market conditions and future business plans.

See Note 3 (f) to the Consolidated Financial Statements for further information on the annual impairment testing.

In addition the company recorded an impairment charge of approximately $2.9 million to reflect the fair market value of assets held for sale for a non-core business within the Residential Kitchen Equipment Group.

See Note 13, Restructuring and Acquisition Integration Initiatives, in the Notes to the Consolidated Financial Statements for further information on restructuring initiatives.

In fiscal 2021, there were no impairments recognized in the Consolidated Financial Statements.

INCOME FROM OPERATIONS .

Income from operations increased $305.6 million to $630.0 million in fiscal 2021 from $324.4 million in fiscal 2020.

Operating income as a percentage of net sales amounted to 19.4% in 2021 as compared to 12.9% in 2020.

The increase in operating income resulted from improved market conditions and increased sales volumes.

In addition, during fiscal 2021, the company received approximately $67.7 million in a termination fee, net of deal costs and taxes.

Operating income in fiscal 2020 included impairment charges related to intangible assets, fixed assets, and assets held for sale.

Income from operations in 2021 included $160.8 million of non-cash expenses, including $42.7 million of depreciation expense, $75.8 million of intangible amortization related to acquisitions and $42.3 million of stock based compensation.

This compares to $127.7 million of non-cash expenses in the prior year, including $39.1 million of depreciation expense, $69.0 million of intangible amortization related to acquisitions and $19.6 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Non-operating expenses decreased $45.9 million to $10.5 million of expense in fiscal 2021 from $56.4 million of expense in fiscal 2020.

Net interest expense and deferred financing decreased $21.5 million to $57.2 million in fiscal 2021 from $78.6 million in fiscal 2020 reflecting a reduction in borrowing levels and lower borrowing costs on our current debt structure.

Net periodic pension benefit (other than service costs and curtailment) increased $5.1 million to $45.1 million in fiscal 2021 from $40.0 million in fiscal 2020, related to the decrease in discount rate used to calculate the interest cost.

During fiscal 2020 a curtailment cost of approximately $14.7 million was recognized as a result of closing the AGA Group Pension Scheme to future pension accruals.

INCOME TAXES .

A tax provision of $131.0 million, at an effective rate of 21.1%, was recorded for fiscal 2021 as compared to $60.8 million at an effective rate of 22.7%, in fiscal 2020.

In comparison to the prior year, the tax provision reflects favorable tax adjustments for deferred tax rate changes, tax refunds and adjustments for the finalization of 2020 tax returns.

The effective rates in 2021 and 2020 are higher than the federal tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

Fiscal Year Ended January 2, 2021 as Compared to December 28, 2019

16 unchanged sentences

The decline in both domestic and international sales reflects the impacts of COVID-19.

This was most prevalent in the second quarter of 2020 and despite decline over prior year gradually recovered in the second half of the year.

This was most prevalent in the second quarter of 2020 and despite the decline over the prior year, gradually recovered in the second half of the year.

• Net sales of the Food Processing Equipment Group increased by $36.3 million, or 9.1%, to $437.3 million in fiscal 2020, as compared to $401.0 million in fiscal 2019.

16 unchanged sentences

GROSS PROFIT .

Gross profit decreased by $221.5 million to $882.0 million in fiscal 2020 from $1,103.5 million in fiscal 2019, primarily reflecting the lower sales volumes related to COVID-19, lower margins at recent acquisitions, offset by the favorable impact of foreign exchange rates of $1.7 million.

Gross profit decreased by $221.5 million to $882.0 million in fiscal 2020 from $1,103.5 million in fiscal 2019, primarily reflecting the lower sales volumes related to COVID-19 and lower margins at recent acquisitions, offset by the favorable impact of foreign exchange rates of $1.7 million.

The gross margin rate decreased from 37.3% in 2019 to 35.1% in 2020.

18 unchanged sentences

Selling, general and administrative expenses reflect increased costs of $30.2 million associated with acquisitions, including $7.2 million of non-cash intangible amortization expense.

Selling, general and administrative expenses decreased $35.7 million related to compensation costs and commissions and $59.2 million due to controllable cost reductions primarily within professional fees, travel and entertainment, convention costs, and advertising.

Selling, general and administrative expenses decreased by $35.7 million related to compensation costs and commissions and $59.2 million due to controllable cost reductions primarily within professional fees, travel and entertainment, convention costs, and advertising.

Foreign exchange rates had a favorable impact of $0.5 million.

8 unchanged sentences

The gain associated with this settlement, which is net of the release of funds in escrow, is reflected in the consolidated statement of earnings.

In fiscal 2020, the company recognized impairment of $11.6 million associated with several tradenames in conjunction with the diminution of value as we assessed current market conditions and future business plans.

See Note 3 (f) to the Consolidated Financial Statements for further information on the annual impairment testing.

18 unchanged sentences

The effective rates in 2020 and 2019 are higher than the federal tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

Fiscal Year Ended December 28, 2019 as Compared to December 29, 2018

Net sales in fiscal 2019 increased by $236.5 million, or 8.7%, to $2,959.4 million as compared to $2,722.9 million in fiscal 2018.

The increase in net sales of $278.9 million, or 10.2%, was attributable to acquisition growth, resulting from the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper, Taylor, M-TEK, and Crown and the fiscal 2019 acquisitions of EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Synesso, and Brava.

Excluding acquisitions and closure of a non-core business, net sales decreased $33.3 million, or 1.2%, from the prior year.

The impact of foreign exchange rates on foreign sales translated into U.S.

Dollars for fiscal 2019 decreased net sales by approximately $36.1 million or 1.3%.

Excluding the impact of foreign exchange, acquisitions and closure of a non-core business, sales increased 0.1% for the year, including a net sales increase of 1.6% at the Commercial Foodservice Equipment Group, a net sales decrease of 3.3% at the Food Processing Equipment Group and a net sales decrease of 2.0% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group increased by $254.5 million, or 14.7%, to $1,984.3 million in fiscal 2019 as compared to $1,729.8 million in fiscal 2018.

Net sales from the acquisitions of Firex, Josper, Taylor, Crown, EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, and Synesso, which were acquired on April 27, 2018, May 10, 2018, June 22, 2018, December 3, 2018, December 31, 2018, April 1, 2019, April 1, 2019, June 15, 2019, and November 27, 2019, respectively, accounted for an increase of $247.1 million during fiscal 2019.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $7.4 million, or 0.4%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $27.2 million, or 1.6% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales increase of $158.8 million, or 13.5%, to $1,334.8 million, as compared to $1,176.0 million in the prior year.

This includes an increase of $158.3 million from recent acquisitions.

Excluding acquisitions, net sales were relatively flat.

International sales increased $95.7 million, or 17.3%, to $649.5 million, as compared to $553.8 million in the prior year.

This includes the increase of $88.8 million from recent acquisitions and a decrease of $19.8 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $26.7 million, or 4.8%.

The increase in international revenues reflects strengthening of sales in the Asian and Latin American markets.

• Net sales of the Food Processing Equipment Group increased by $11.4 million, or 2.9%, to $401.0 million in fiscal 2019, as compared to $389.6 million in fiscal 2018.

Net sales from the acquisitions of Hinds-Bock, Ve.Ma.C, M-TEK and Pacproinc, which were acquired on February 16, 2018, April 3, 2018, October 1, 2018, and July 16, 2019 respectively, accounted for an increase of $29.3 million.

Excluding the impact of acquisitions, net sales of the Food Processing Equipment Group decreased $17.9 million, or 4.6%.

Excluding the impact of foreign exchange and acquisitions net sales decreased $12.7 million, or 3.3% at the Food Processing Equipment Group.

Domestically, the company realized a sales decrease of $17.1 million, or 6.5%, to $246.6 million, as compared to $263.7 million in the prior year.

This includes an increase of $24.1 million from recent acquisitions.

Excluding acquisitions, net sales decreased $41.2 million, or 15.6%.

International sales increased $28.5 million, or 22.6%, to $154.4 million, as compared to $125.9 million in the prior year.

This includes the increase of $5.2 million from the recent acquisitions and a decrease of $5.2 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $28.5 million, or 22.6%.

Revenues for the Food Processing Equipment Group have been affected by the timing and deferral of certain larger projects.

• Net sales of the Residential Kitchen Equipment Group decreased by $29.4 million, or 4.9%, to $574.1 million in fiscal 2019, as compared to $603.5 million in fiscal 2018.

Excluding the impact of foreign exchange, the acquisition of Brava, acquired November, 19, 2019, and closure of a non-core business, net sales decreased $11.7 million, or 2.0% at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales decrease of $4.0 million, or 1.1%, to $362.7 million, as compared to $366.7 million in the prior year.

Excluding acquisitions and closure of a non-core business the net sales decrease in domestic sales was $4.7 million, or 1.3%.

International sales decreased $25.4 million, or 10.7% to $211.4 million, as compared to $236.8 million in the prior year.

This includes an unfavorable impact of exchange rates of $11.1 million.

Excluding the impact of foreign exchange, acquisition, and closure of a non-core business the net sales decrease in international sales was$7.0 million, or 3.1%.

The decrease in international revenues reflects decline of sales in the European market.

GROSS PROFIT .

Gross profit increased by $99.4 million to $1,103.5 million in fiscal 2019 from $1,004.1 million in fiscal 2018, reflecting the impact of increased sales from acquisitions and unfavorable impact of foreign exchange rates of $12.1 million.

The gross margin rate increased from 36.9% in 2018 to 37.3% in 2019.

The gross margin rate in fiscal 2019 excluding acquisitions and impact of foreign exchange was 37.9%.

• Gross profit at the Commercial Foodservice Equipment Group increased by $88.1 million, or 13.4%, to $746.6 million in fiscal 2019 as compared to $658.5 million in fiscal 2018.

Gross profit from the acquisitions of Firex, Josper, Taylor, Crown, EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, and Synesso accounted for approximately $73.3 million of the increase in gross profit during fiscal 2019.

Excluding acquisitions, the gross profit increased by approximately $14.8 million largely due to selling prices.

The impact of foreign exchange rates decreased gross profit by approximately $6.1 million.

The gross profit margin rate decreased to 37.6% as compared to 38.1% in the prior year, primarily due to lower margins at recent acquisitions.

The gross margin rate in fiscal 2019 excluding acquisitions and impact of foreign exchange was 38.7%.

• Gross profit at the Food Processing Equipment Group increased by $8.6 million, or 6.4%, to $142.2 million in fiscal 2019 as compared to $133.6 million in fiscal 2018.

Gross profit from the acquisitions of Hinds-Bock, Ve.Ma.C, M-TEK and Pacproinc accounted for approximately $12.8 million of the increase in gross profit during fiscal 2019.

Excluding acquisitions, the gross profit decreased by approximately $4.2 million based on lower sales volumes.

The impact of foreign exchange rates decreased gross profit by approximately $2.1 million.

The gross profit margin rate increased to 35.5% in fiscal 2019 as compared to 34.3% in the prior year, reflecting the impact of acquisitions.

The gross margin rate in fiscal 2019 excluding acquisitions and impact of foreign exchange was 34.9%.

• Gross profit at the Residential Kitchen Equipment Group decreased by $0.3 million, or 0.1%, to $216.8 million in fiscal 2019 as compared to $217.1 million in fiscal 2018.

Gross profit was offset by unfavorable foreign exchange rates of $3.9 million.

The gross margin rate increased to 37.8% in fiscal 2019 as compared to 36.0% in the prior year.

The gross margin rate in fiscal 2019 excluding acquisitions and impact of foreign exchange was 37.7%.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

Combined selling, general, and administrative expenses increased by $55.0 million to $593.8 million in fiscal 2019 from $538.8 million in 2018.

As a percentage of net sales, selling, general and administrative expenses amounted to 20.1% in fiscal 2019 and 19.8% in fiscal 2018.

Selling, general and administrative expenses reflect increased costs of $64.3 million associated with the fiscal 2018 acquisitions of Hinds-Bock, Ve.Ma.C, Firex, Josper, Taylor, M-TEK, and Crown and the fiscal 2019 acquisitions of EVO, Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Synesso, and Brava, including $19.6 million of non-cash intangible amortization expense.

Selling, general and administrative expenses increased by $10.0 million related to transition costs with the former Chairman and CEO upon his retirement in February 2019 and $5.6 million related to higher non-cash share based compensation.

The increase was offset by the favorable impact of foreign exchange rates of $7.6 million and $13.6 million related to lower compensation costs.

RESTRUCTURING EXPENSES.

Restructuring expenses decreased $8.8 million to $10.5 million from $19.3 million in the prior year period.

In fiscal 2019, restructuring charges related primarily to headcount reductions and cost reduction initiatives related to facility consolidations at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

During fiscal 2018, restructuring charges related primarily to exiting operations of a non-core business in the Residential Kitchen Equipment Group, as well as headcount reductions at the Commercial Foodservice Equipment Group and additional cost reduction initiatives related to the AGA Group.

GAIN ON LITIGATION SETTLEMENT.

During the fourth quarter, we reached a settlement with respect to a lawsuit filed by the Company arising from a prior acquisition included in the Residential Kitchen Equipment Group.

The gain associated with this settlement, which is net of the release of funds in escrow, is reflected in the consolidated statement of earnings.

INCOME FROM OPERATIONS .

Income from operations increased $68.0 million to $514.0 million in fiscal 2019 from

$446.0 million in fiscal 2018.

Operating income as a percentage of net sales amounted to 17.4% in 2019 as compared to 16.4% in 2018.

The increase in operating income resulted from the increase in net sales and gross profit, offset partially by increased operating expenses.

Operating income in fiscal 2019 included the gain on litigation settlement, offset by the transition costs related to the former Chairman and CEO.

Excluding the impact of restructuring expenses and gain on litigation settlement, offset by the transition costs related to the former Chairman and CEO, operating income increased $54.5 million to $519.8 million in fiscal 2019 from $465.3 million in fiscal 2018.

Operating income as a percentage of net sales, excluding those items, amounted to 17.6% in 2019 in comparison to 17.1% in 2018.

Income from operations in 2019 included $110.0 million of non-cash expenses, including $37.9 million of depreciation expense, $64.0 million of intangible amortization related to acquisitions and $8.1 million of stock based compensation.

This compares to $98.3 million of non-cash expenses in the prior year, including $35.8 million of depreciation expense, $60.0 million of intangible amortization related to acquisitions and $2.5 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Non-operating expenses increased $29.0 million to $51.4 million of expense in fiscal 2019 from $22.4 million of income in fiscal 2018.

Net interest expense and deferred financing increased $23.9 million to $82.6 million in fiscal 2019 from $58.7 million in fiscal 2018 reflecting higher interest rates and higher debt balances related to the funding of acquisitions.

Net periodic pension benefit (other than service costs) increased $9.2 million to $28.9 million in fiscal 2019 from $38.1 million in fiscal 2018, related to the increase in discount rate used to calculate the interest cost and lower expected returns on assets driven by lower asset values for fiscal 2019.

INCOME TAXES .

A tax provision of $110.4 million, at an effective rate of 23.9%, was recorded for fiscal 2019 as compared to $106.4 million at an effective rate of 25.1%, in fiscal 2018.

In comparison to the prior year the tax provision reflects favorable tax adjustments for a refund of foreign taxes, enacted tax rate changes in several foreign jurisdictions and adjustments for the finalization of 2018 tax returns.

The effective rates in 2019 and 2018 are higher than the federal tax rate of 21% primarily due to state taxes, non-deductible expenses and foreign tax rate differentials.

Financial Condition and Liquidity

Total cash and cash equivalents increased by $173.6 million to $268.1 million at January 2, 2021 from $94.5 million at December 28, 2019.

Total debt, excluding the unamortized debt discount associated with the Convertible Notes, decreased to $1.8 billion at January 2, 2021 from $1.9 billion at December 28, 2019.

Total cash and cash equivalents decreased by $87.7 million to $180.4 million at January 1, 2022 from $268.1 million at January 2, 2021.

Total debt increased to $2.4 billion at January 1, 2022 from $1.7 billion at January 2, 2021 related to the funding of acquisitions discussed below and the adoption of ASU 2020-06 as discussed in Note 3(r), Recently Issued Accounting Standards, in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

OPERATING ACTIVITIES .

Net cash provided by operating activities after changes in assets and liabilities amounted to $423.4 million as compared to $524.8 million in the prior year.

During fiscal 2020, sales volumes were significantly lower as compared to 2019 due to the impacts of the COVID-19 pandemic, primarily in the Commercial Foodservice Equipment Group.

Lower earnings generated less income and associated cash flows.

However, reductions in working capital requirements generated more than offsetting cash flow benefits.

Net cash used to fund changes in assets and liabilities amounted to $174.9 million in 2020, primarily related to lower receivables, reductions in inventory levels, the amount and timing of payments, as well as increases in employer payroll tax accruals from the CARES Act.

In connection with the company’s acquisition activities during the year, the company added assets and liabilities from the opening balance sheets of the acquired businesses in its consolidated balance sheets and accordingly these amounts are not reflected in the net change in working capital.

During fiscal 2021, the company received approximately $67.7 million in a termination fee, net of deal costs and taxes.

During fiscal 2020, we realized significant benefits from improvements in working capital as a result of COVID-19 pandemic-related market conditions on our business.

During fiscal 2021, working capital changes meaningfully impacted operating cash flows.

This included an increase in accounts receivable of $99.9 million due to improved market conditions and increased sales volumes.

Also, inventory increased $204.2 million and accounts payable increased $61.3 million to support increased demand and to manage challenges present in our supply chain.

In connection with the company’s acquisition activities, the company added assets and liabilities from the opening balance sheets of the acquired businesses in its consolidated balance sheets and accordingly these amounts are not reflected in the net changes in working capital.

INVESTING ACTIVITIES.

During 2020, net cash used for investing activities amounted to $106.8 million.

This included $79.6 million primarily for the 2020 acquisitions of RAM, Deutsche, Wild Goose and United Foodservice Equipment Zhuhai.

Additionally, $34.8 million was expended, primarily associated with additions and upgrades of production equipment, manufacturing facilities and residential and commercial showrooms, and was offset by $14.1 million in proceeds on the sale of properties following facility consolidations actions.

During 2021, net cash used for investing activities amounted to $1.0 billion.

Cash used to fund acquisitions and investments amounted to $963.6 million primarily for the acquisitions of Novy, Imperial, Kamado Joe and Masterbuilt and Char-Griller.

Additionally, $46.6 million was expended, primarily for upgrades of production equipment, manufacturing facilities and residential and commercial showrooms.

We received $6.3 million in proceeds on the sale of properties following facility consolidations actions.

FINANCING ACTIVITIES.

Net cash flows used for financing activities amounted to $502.8 million in 2021.

On January 31, 2020, the company entered into an amended and restated five-year, $3.5 billion multi-currency senior secured credit agreement (the "Credit Facility").

On August 21, 2020, the company issued $747.5 million aggregate principal amount of 1.00% Convertible Senior Notes due 2025, and incurred $17.6 million of issuance costs.

The company then entered into privately negotiated capped call transactions (the "Capped Call Transactions") in an aggregate amount of $104.7 million.

A portion of the net proceeds from the offering of the Convertible Notes was used to prepay $400.0 million aggregate principal amount of its term loan obligations and to execute an amendment to the Credit Facility.

The company incurred approximately $11.0 million of debt issuance costs, in aggregate, for amendments to the Credit Facility.

The company’s borrowing activities during 2020 included $48.5 million of net repayments under its Credit Facility.

The company’s borrowing activities during 2021 included $604.0 million of net proceeds under its Credit Facility.

On October 21, 2021, the company entered into an amended and restated five-year, $4.5 billion multi-currency senior secured credit agreement (the "Credit Facility").

The company incurred approximately $9.2 million of debt issuance costs for the amendment to the Credit Facility.

In December 2021, the company then entered into privately negotiated capped call transactions (the "Capped Call Transactions") in an aggregate amount of $54.6 million.

Additionally, the company repurchased $29.3 million of Middleby common shares during 2021.

1 unchanged sentence

At January 1, 2022, 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.

Contractual Obligations

The company's contractual cash payment obligations are set forth below (dollars in thousands):

Acquisition Debt Estimated

on Debt Operating

Less than 1 year $ 13,787 $ 22,944 $ 55,755 $ 24,675 $ 117,161

1-3 years 17,972 38,317 99,712 37,880 193,881

4-5 years 1,137 1,668,091 57,556 22,529 1,749,313

After 5 years 1,875 244 580 23,446 26,145

$ 34,771 $ 1,729,596 $ 213,603 $ 108,530 $ 2,086,500

The company has obligations to make $34.8 million of estimated contingent purchase price payments to the sellers that were deferred in conjunction with various acquisitions.

As of January 2, 2021, the company had $1.1 billion outstanding under its Credit Facility.

The average interest rate on this debt, inclusive of hedging instruments, amounted to 3.97% at the end of the period.

As of January 2, 2021, the company also has $4.4 million of debt outstanding under various foreign credit facilities and $1.4 million of other debt arrangements.

The estimated interest payments reflected in the table above assume that the level of debt and average interest rate on the company’s revolving credit line under its Credit Facility does not change until the facility reaches maturity.

The estimated payments also assume that relative to the company’s foreign borrowings and other debt arrangements:

all scheduled term loan payments are made;

the level of borrowings does not change;

and the average interest rates remain at their January 2, 2021 rates.

As of January 2, 2021, the company has $747.5 million aggregate principal amount of Convertible Notes outstanding that bear interest semi-annually in arrears at a rate of 1.00% per annum.

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.

Also reflected in the table above is $17.4 million of payments to be made related to the company’s interest rate swap agreements in 2021.

As indicated in Note 11 to the consolidated financial statements, the company’s projected benefit obligation under its defined benefit plans exceeded the plans’ assets by $469.5 million at the end of 2020 as compared to $289.1 million at the end of 2019.

The unfunded benefit obligations were comprised of a $21.4 million underfunding of the company's U.S.

Plans and $448.1 million underfunding of the company’s Non-U.S.

The company made minimum contributions required by the Employee Retirement Income Security Act of 1974 (“ERISA”) of $1.6 million and $1.2 million in 2020 and 2019, respectively, to the company’s U.S.

The company expects to continue to make minimum contributions to the U.S.

Plans as required by ERISA, of $0.6 million in 2021.

The company expects to contribute $4.7 million to the Non-U.S.

Plans in 2021.

The company places purchase orders with its suppliers in the ordinary course of business.

These purchase orders are generally to fulfill short-term manufacturing requirements of less than 90 days and most are cancelable with a restocking penalty.

The company has no material long-term purchase contracts or minimum purchase obligations with any supplier.

Off-Balance Sheet Arrangements

The company has no activities, obligations or exposures associated with off-balance sheet arrangements.

The company believes that its current capital resources, including cash and cash equivalents, cash expected to be generated from operations, 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.

Material Cash Requirements

The company's material cash requirements from contractual obligations primarily consist of long-term debt obligations, operating lease obligations, tax obligations and continent contingent purchase price payments to the sellers that were deferred in conjunction with various acquisitions.

See Notes 3, 5 and 7 to the Consolidated Financial Statements for further information.

Related Party Transactions

From December 29, 2019 through the date hereof, there were no transactions between the company, its directors and executive officers that are required to be disclosed pursuant to Item 404 of Regulation S-K, promulgated under the Securities and Exchange Act of 1934, as amended.

From January 3, 2021 through the date hereof, there were no transactions between the company, its directors and executive officers that are required to be disclosed pursuant to Item 404 of Regulation S-K, promulgated under the Securities and Exchange Act of 1934, as amended.

Critical Accounting Policies and Estimates

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The company considers the implied control premium and conclude whether it is reasonable based on other recent market transactions.

The company performed a qualitative assessment as of September 27, 2020 over all three reporting units and determined it is more likely than not that the fair value of our reporting units are greater than the carrying amounts.

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.

As a result of the qualitative assessment for the other two segments, the company determined it is more likely than not that the fair value of our reporting units are greater than the carrying amounts.

The company performed a qualitative assessment as of October 3, 2021 over all three reporting units and as a result of the qualitative assessments, the company determined it is more likely than not that the fair value of our reporting units are greater than the carrying amounts.

In estimating the fair value of its reporting units, management relies on a number of factors, including operating results, business plans, economic projections, anticipated future cash flows, comparable transactions and other market data.

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Indefinite-Life Intangible Valuations

In performing a quantitative assessment of indefinite-life intangible assets other than goodwill, primarily trademarks and trade names, we estimate the fair value of these intangible assets using the relief-from-royalty method which requires assumptions related to projected revenues from our long-range plans;

In performing a quantitative assessment of indefinite-life intangible assets other than goodwill, primarily trademarks and trade names, we analyze the variety of events or factors that may impact the fair value of the indefinite-life intangible, including, but not limited to:

macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant factors.

We estimate the fair value of these intangible assets using the relief-from-royalty method which requires assumptions related to projected revenues from our long-range plans;

assumed royalty rates that could be payable if we did not own the trademark;

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If the estimated fair value of the indefinite-life intangible asset is less than its carrying value, we would recognize an impairment loss.

Based on the qualitative assessment as of September 27, 2020, the company identified several trademarks and trade names with indicators of potential risk for impairment and performed quantitative assessment.

In performing the quantitative analysis on these trademark assets, significant assumptions used in our relief-from-royalty model included revenue growth rates, assumed royalty rates and the discount rate, which are discussed further below.

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• In developing discount rates for the valuation of our trademarks, we used the market based weighted average cost of capital, adjusted for higher relative level of risks associated with doing business in other countries, as applicable, as well as the higher relative levels of risks associated with intangible assets.

Based on the qualitative assessment as of October 3, 2021, the company determined it is more likely than not that the fair value of its other indefinite-life intangible assets are greater than the carrying amounts and no quantitative analyses were required.

As of September 27, 2020, the company identified several trademarks and trade names with indicators of potential risk for impairment and performed quantitative assessment.

As a result of quantitative testing the company recognized $ 11.6 million of impairment charges associated with several trademarks, none of which were individually material.

The gross value of the trademarks tested, including the impaired trademarks, was approximately $ 90.0 million.

The fair values of the other trademarks tested with no impairment per the analyses, exceeded their carrying values by more than 20%.

The company believes the assumptions utilized within the quantitative analysis are reasonable.

The company performed a qualitative assessment as of September 27, 2020 over all the other trademarks and trade names and determined it is more likely than not that the fair value of its other indefinite-life intangible assets are greater than the carrying amounts.

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.

There were no other impairments in fiscal 2020 or 2021.

The company continues to monitor the global impacts of the COVID-19 pandemic to assess the outlook for demand of its products and the impact on its business and financial performance.

If actual results are not consistent with management's estimate and assumptions, a material impairment charge of our trademarks and trade names could occur, which could have an adverse effect on the company's financial condition and results of operations.

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When an equity instrument is identified, proceeds from issuance are allocated between debt and equity by measuring first the liability component and then determining the equity component as a residual amount.

The liability component is measured as the fair value of a similar nonconvertible debt, which results in the recognition of a debt discount.

In subsequent periods, the company will amortize the debt discount to interest expense, net within the Consolidated Statements of Earnings, using the effective interest method based on the expected maturity of the debt.

Prior to January 3, 2021, the liability component was measured as the fair value of a similar nonconvertible debt, which results in the recognition of a debt discount.

The debt discount amortizes to interest expense, net within the Consolidated Statements of Earnings, using the effective interest method based on the expected maturity of the debt.

The equity component is reported in additional paid-in capital within the Consolidated Statement of Changes in Stockholders' Equity and is not remeasured as long as it continues to meet the conditions for equity classification.

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Transaction costs attributable to the equity component are netted within additional paid-in capital within the Consolidated Statement of Stockholders' Equity.

Effective January 3, 2021, the company early adopted ASU 2020-06 using the modified retrospective approach.

The convertible debt is now accounted for as a single liability and therefore the company no longer recognized any amortization of debt discounts as non-cash interest expense.

For additional information regarding the company's convertible debt, see Note 5, Financing Arrangements, in the Notes to the Consolidated Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis