What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-02 · 145 added, 120 removed, 265 unchanged (50% of the section changed)

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Risk Factors" of this filing and discussion of risks included in the company's SEC filings.

COVID-19 Update

The global coronavirus ("COVID-19") pandemic and associated counteracting measures implemented by governments and businesses around the world, as well as subsequent accelerated recovery in global business activity, have increased uncertainty in the global business environment and led to supply chain disruptions and shortages in global markets for commodities, logistics and labor, as well as input cost inflation.

More recently, the war in Ukraine has further contributed to some of the disruptive factors.

Activity in most of our end markets we serve improved through 2021 and into 2022, although demand in certain businesses, most notably in our residential segment, have faced recent demand headwinds.

While facing headwinds, including a highly inflationary environment, we remain committed to executing productivity and profitability initiatives to address margin challenges, combined with diligent pricing actions where possible.

The limited availability of certain product components has resulted in lengthened lead times and higher input costs, including labor, energy, freight, logistics, and in some cases, has impacted our ability to meet customer demand.

The company expects input costs to remain elevated for some period of time, which we are working to mitigate.

The availability of resources and inflationary costs have resulted in heightened inventory levels, impacts margins and placed constraints on our operating cash flows.

Heightened backlog levels have also resulted.

Our teams are actively evaluating options for alternative suppliers, dual sourcing and collaborating across the organization, where appropriate, without materially presenting new risks or increasing current risks around quality and reliability.

We expect our cash flows to continue to improve as we manage inventory levels to fulfill the backlog and provide for future demand.

Our capital resources have been sufficient to address these challenges and are expected to continue to be.

We remain focused on delivering strong financial results and executing on our long-term strategy and profitability objectives.

The lingering effects of the COVID-19 pandemic, global response measures and corresponding impacts on various markets remain fluid and uncertain and may lead to sudden changes in trajectory and outlook.

The company plans to continue to proactively respond to the situation and may take further actions that alter our operations as may be required by governmental authorities, or that we determine are in the best interests of our employees and operations.

Termination of Welbilt Merger

As previously disclosed, on April 20, 2021, Middleby entered into a Merger Agreement with Welbilt, Inc.

Following Welbilt's receipt of an alternative acquisition proposal, on July 13, 2021, Middleby announced that, under the terms of the Merger Agreement, it would not exercise its right to propose any modifications to the terms of the Merger Agreement and would allow the match period to expire.

Accordingly, on July 14, 2021, Welbilt delivered to Middleby a written notice terminating the Merger Agreement and, concurrently with Middleby’s receipt of the termination fee of $110.0 million in cash from Welbilt, the Merger Agreement was terminated on July 14, 2021.

The termination fee received is reflected in the Condensed Consolidated Statements of Comprehensive Income as the "merger termination fee" and $19.7 million of deal costs associated with the transaction are reflected in selling, general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Income.

NET SALES SUMMARY

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Merger termination fee — (3.4) —

Gain on litigation settlement — — (0.5)

Gain on sale of plant — — (0.1)

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

Fiscal Year Ended December 31, 2022 as Compared to January 1, 2022

Net sales in fiscal 2022 increased by $782.1 million, or 24.1%, to $4,032.9 million as compared to $3,250.8 million in fiscal 2021.

Net sales increased by $433.6 million, or 13.3%, from the fiscal 2021 acquisitions of Novy, Imperial, Newton CFV, Char-Griller, Kamado Joe and Masterbuilt and the fiscal 2022 acquisitions of Kloppenberg, Proxaut, Icetro, CP Packaging, Colussi, Escher, and Marco.

Excluding acquisitions, net sales increased $348.5 million, or 10.7%, from the prior year.

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

Dollars for fiscal 2022 decreased net sales by approximately $85.0 million.

Excluding the impact of foreign exchange and acquisitions, sales increased 13.3% for the year, including a net sales increase of 16.4% at the Commercial Foodservice Equipment Group, a net sales increase of 14.3% at the Food Processing Equipment Group and a net sales increase of 4.3% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group increased by $377.5 million, or 18.6%, to $2,410.3 million in fiscal 2022 as compared to $2,032.8 million in fiscal 2021.

Net sales from the acquisitions of Imperial, Newton CFV, Kloppenberg, Icetro, and Marco, which were acquired on September 24, 2021, November 16, 2021, April 25, 2022, June 30, 2022, and December 20, 2022, respectively, accounted for an increase of $84.6 million during fiscal 2022.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $292.9 million, or 14.4%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $333.2 million, or 16.4% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales increase of $331.2 million, or 23.1%, to $1,766.3 million, as compared to $1,435.1 million in the prior year.

This includes an increase of $70.7 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $260.5 million, or 18.2%.

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

International sales increased $46.3 million, or 7.7%, to $644.0 million, as compared to $597.7 million in the prior year.

This includes the increase of $13.9 million from recent acquisitions and a decrease of $40.3 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $72.7 million, or 12.2%.

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

• Net sales of the Food Processing Equipment Group increased by $93.8 million, or 19.5%, to $574.5 million in fiscal 2022, as compared to $480.7 million in fiscal 2021.

Net sales from the acquisitions of Proxaut, CP Packaging, Colussi, and Escher, which were acquired on June 29, 2022, July 12, 2022, July 27, 2022, and November 10, 2022, respectively, accounted for an increase of $41.3 million during fiscal 2022.

Excluding the impact of acquisitions, net sales of the Food processing Equipment Group increased $52.5 million, or 10.9%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $68.7 million, or 14.3% at the Food Processing Equipment Group.

Domestically, the company realized a sales increase of $63.6 million, or 18.3%, to $410.9 million, as compared to $347.3 million in the prior year.

This includes an increase of $11.3 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $52.3 million, or 15.1%.

The increase in domestic sales reflects growth primarily driven by protein products.

International sales increased $30.2 million, or 22.6%, to $163.6 million, as compared to $133.4 million in the prior year.

This includes the increase of $30.0 million from recent acquisitions and a decrease of $16.2 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $16.4 million, or 12.3%.

The increase in international sales reflects growth primarily driven by protein products.

• Net sales of the Residential Kitchen Equipment Group increased by $310.8 million, or 42.2%, to $1,048.1 million in fiscal 2022, as compared to $737.3 million in fiscal 2021.

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 $307.7 million during fiscal 2022.

Excluding the impact of acquisitions, net sales of the Residential Kitchen Equipment Group increased $3.1 million, or 0.4%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $31.6 million, or 4.3% at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales increase of $247.5 million, or 54.5%, to $701.9 million, as compared to $454.4 million in the prior year.

This includes an increase of $204.2 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $43.3 million, or 9.5%.

The increase in domestic sales reflects the strong demand for our premium appliance brands.

International sales increased $63.3 million, or 22.4% to $346.2 million, as compared to $282.9 million in the prior year.

This includes an increase of $103.5 million from recent acquisitions and a decrease of $28.5 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $11.7 million, or 4.1%.

The decrease in international sales was primarily driven by challenging market conditions in the European market.

GROSS PROFIT .

Gross profit increased by $251.7 million to $1,446.6 million in fiscal 2022 from $1,194.9 million in fiscal 2021, primarily reflecting higher sales volumes related to improvements in market conditions and consumer demand, partially offset by the unfavorable impact of foreign exchange rates of $33.1 million.

The gross profit margin rate decreased to 35.9% in 2022 as compared to 36.8% in 2021.

The gross margin rate in fiscal 2022 excluding acquisitions and impact of foreign exchange was 37.5%.

Gross profit margins have been negatively impacted by acquisitions, including $17.4 million of acquisition related inventory step-up charges, along with rising costs of many raw materials and inputs, higher labor rates, and logistics costs.

• Gross profit at the Commercial Foodservice Equipment Group increased by $161.7 million, or 21.5%, to $914.6 million in fiscal 2022 as compared to $752.9 million in fiscal 2021.

Gross profit from acquisitions increased gross profit by $29.8 million.

Excluding acquisitions, gross profit increased by $131.9 million related to higher sales volumes.

The impact of foreign exchange rates decreased gross profit by approximately $15.2 million.

The gross profit margin rate increased to 37.9% in fiscal 2022 as compared to 37.0% in the prior year.

The gross profit margin rate in fiscal 2022 excluding acquisitions and the impact of foreign exchange was 38.0%.

• Gross profit at the Food Processing Equipment Group increased by $33.2 million, or 19.1%, to $207.4 million in fiscal 2022 as compared to $174.2 million in fiscal 2021.

Gross profit from acquisitions increased gross profit by $12.2 million.

Excluding acquisitions, gross profit increased by $21.0 million related to higher sales volumes.

The impact of foreign exchange rates decreased gross profit by approximately $7.3 million.

The gross profit margin rate decreased to 36.1% in fiscal 2022 as compared to 36.2% in the prior year.

The gross profit margin rate in fiscal 2022 excluding the impact of foreign exchange was 36.9%.

• Gross profit at the Residential Kitchen Equipment Group increased by $57.2 million, or 21.3%, to $325.8 million in fiscal 2022 as compared to $268.6 million in fiscal 2021.

Gross profit from acquisitions increased gross profit by $54.8 million.

Excluding acquisitions, gross profit increased by $2.4 million.

The impact of foreign exchange rates decreased gross profit by approximately $10.6 million.

The gross margin rate decreased to 31.1% in fiscal 2022 as compared to 36.4% in the prior year.

Gross profit margins have been negatively impacted by acquisitions, including $15.1 million of acquisition related inventory step-up charges.

The gross profit margin rate in fiscal 2022 excluding acquisitions and the impact of foreign exchange was 36.6%.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

Combined selling, general, and administrative expenses increased by $129.2 million to $797.2 million in fiscal 2022 from $668.0 million in 2021.

As a percentage of net sales, selling, general and administrative expenses amounted to 19.8% in fiscal 2022 and 20.5% in fiscal 2021.

Selling, general and administrative expenses reflect increased costs of $88.1 million associated with acquisitions, including $22.7 million of non-cash intangible amortization expense.

Selling, general and administrative expenses increased from compensation, selling and commissions expenses, partially offset by lower professional fees and intangible amortization expense.

Foreign exchange rates had a favorable impact of $15.1 million.

RESTRUCTURING EXPENSES.

Restructuring expenses increased $2.0 million to $9.7 million from $7.7 million in the prior year period.

In fiscal 2022, restructuring expenses related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group and non-cash restructuring valuation allowances on balances associated with activities in Russia.

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

INCOME FROM OPERATIONS .

Income from operations increased $9.6 million to $639.6 million in fiscal 2022 from $630.0 million in fiscal 2021.

Operating income as a percentage of net sales amounted to 15.9% in 2022 as compared to 19.4% in 2021.

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

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

Income from operations in 2022 included $189.3 million of non-cash expenses, including $44.6 million of depreciation expense, $86.3 million of intangible amortization related to acquisitions and $58.4 million of stock based compensation.

This compares to $160.8 million of non-cash expenses in the prior year, including $42.7 million of depreciation expense, $75.8 million of intangible amortization related to acquisitions and $42.3 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Non-operating expenses increased $64.7 million to $75.2 million of expense in fiscal 2022 from $10.5 million of expense in fiscal 2021.

Net interest expense and deferred financing increased $31.8 million to $89.0 million in fiscal 2022 from $57.2 million in fiscal 2021 reflecting the increase in interest rates and borrowing levels under our current credit facility.

Net periodic pension benefit (other than service costs and curtailment) decreased $2.4 million to $42.7 million in fiscal 2022 from $45.1 million in fiscal 2021.

Other expense was $28.9 million during fiscal 2022 as compared to other income of $1.6 million during fiscal 2021, consisting mainly of foreign exchange losses and gains.

INCOME TAXES .

A tax provision of $127.8 million, at an effective rate of 22.7%, was recorded for fiscal 2022 as compared to $131.0 million at an effective rate of 21.1%, in fiscal 2021.

The fiscal 2022 tax provision includes a deferred tax benefit of approximately $13 million associated with legal entity restructuring the company undertook to integrate and simplify the company’s business operations.

The fiscal 2022 tax provision also reflects higher non-deductible stock compensation expense, where the prior year included favorable impacts from tax rate changes, tax refunds and adjustments for the finalization of 2020 tax returns.

The effective rates in 2022 and 2021 are higher than the federal tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

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

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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 profit 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%.

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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.

Excluding acquisitions, 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%.

The gross profit 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.

1 unchanged sentence

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%.

The gross profit 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.

Excluding acquisitions, 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%.

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

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

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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

Net sales in fiscal 2020 decreased by $446.1 million, or 15.1%, to $2,513.3 million as compared to $2,959.4 million in fiscal 2019.

Net sales increased by $72.3 million, or 2.4%, from the fiscal 2019 acquisitions of Cooking Solutions Group, Powerhouse, Ss Brewtech, Pacproinc, Brava, and Synesso and the fiscal 2020 acquisitions of RAM, Deutsche, Wild Goose, and United Foodservice Equipment Zhuhai.

Excluding acquisitions, net sales decreased $518.4 million, or 17.5%, from the prior year.

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

Dollars for fiscal 2020 increased net sales by approximately $0.2 million.

Excluding the impact of foreign exchange and acquisitions, sales decreased 17.5% for the year, including a net sales decrease of 26.5% at the Commercial Foodservice Equipment Group, a net sales increase of 5.9% at the Food Processing Equipment Group and a net sales decrease of 2.9% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group decreased by $474.0 million, or 23.9%, to $1,510.3 million in fiscal 2020 as compared to $1,984.3 million in fiscal 2019.

Net sales from the acquisitions of Cooking Solutions Group, Powerhouse, Ss Brewtech, Synesso, RAM, Deutsche, Wild Goose, and United Foodservice Equipment Zhuhai, which were acquired on April 1, 2019, April 1, 2019, June 15, 2019, November 27, 2019, January 13, 2020, March 2, 2020, December 7, 2020, and December 18, 2020, respectively, accounted for an increase of $53.1 million during fiscal 2020.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group decreased $527.1 million, or 26.6%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales decreased $525.6 million, or 26.5% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales decrease of $266.9 million, or 20.0%, to $1,067.9 million, as compared to $1,334.8 million in the prior year.

This includes an increase of $43.0 million from recent acquisitions.

Excluding acquisitions, the net decrease in domestic sales was $309.9 million, or 23.2%.

International sales decreased $207.1 million, or 31.9%, to $442.4 million, as compared to $649.5 million in the prior year.

This includes the increase of $10.1 million from recent acquisitions and a decrease of $1.5 million related to the unfavorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales decrease in international sales was $215.7 million, or 33.2%.

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 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.

Excluding the impact of foreign exchange and the acquisition of Pacproinc, acquired July 16, 2019, net sales increased $23.8 million, or 5.9% at the Food Processing Equipment Group.

Domestically, the company realized a sales increase of $64.5 million, or 26.2%, to $311.1 million, as compared to $246.6 million in the prior year.

Excluding the acquisition, net sales increased $51.8 million, or 21.0%.

The increase in domestic sales reflects growth in protein equipment sales.

International sales decreased $28.2 million, or 18.3%, to $126.2 million, as compared to $154.4 million in the prior year.

This includes a decrease of $1.1 million related to the unfavorable impact of exchange rates.

Excluding the acquisition and foreign exchange, the net sales decrease in international sales was $28.0 million, or 18.1%.

The decrease in international revenues reflects declines in sales primarily due to the disruptive impact of COVID-19 on our customers' operations.

• Net sales of the Residential Kitchen Equipment Group decreased by $8.4 million, or 1.5%, to $565.7 million in fiscal 2020, as compared to $574.1 million in fiscal 2019.

Excluding the impact of foreign exchange, the acquisition of Brava, acquired November, 19, 2019, net sales decreased $16.8 million, or 2.9% at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales increase of $11.2 million, or 3.1%, to $373.9 million, as compared to $362.7 million in the prior year.

Excluding the acquisition, net sales increased $5.6 million, or 1.5%.

The increase in domestic sales is primarily related to strong consumer demand in the last six months of the year, offset by the impacts of COVID-19 in the first half of the year.

International sales decreased $19.6 million, or 9.3% to $191.8 million, as compared to $211.4 million in the prior year.

This includes an increase of $2.8 million related to the favorable impact of exchange rates.

Excluding foreign exchange, the net sales decrease in international sales was $22.4 million, or 10.6%, primarily in the European market, reflecting the impacts of Brexit and the outbreak of COVID-19 partially offset by strong consumer demand in the last six months of the year.

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 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.

The gross margin rate in fiscal 2020 excluding acquisitions and impact of foreign exchange was 35.3%.

• Gross profit at the Commercial Foodservice Equipment Group decreased by $224.4 million, or 30.1%, to $522.2 million in fiscal 2020 as compared to $746.6 million in fiscal 2019.

Gross profit from the acquisitions of Cooking Solutions Group, Powerhouse, Ss Brewtech, Synesso, RAM, Deutsche, Wild Goose, and United Foodservice Equipment Zhuhai, accounted for an approximately $13.0 million increase in gross profit during fiscal 2020.

Excluding acquisitions, the gross profit decreased by approximately $237.4 million largely due to lower sales volumes.

The impact of foreign exchange rates increased gross profit by approximately $0.1 million.

The gross profit margin rate decreased to 34.6% as compared to 37.6% in the prior year, primarily due to lower margins at recent acquisitions.

The gross margin rate in fiscal 2020 excluding acquisitions and the impact of foreign exchange was 34.9%.

• Gross profit at the Food Processing Equipment Group increased by $14.9 million, or 10.5%, to $157.1 million in fiscal 2020 as compared to $142.2 million in fiscal 2019.

Excluding the acquisition, gross profit increased by approximately $10.6 million.

The impact of foreign exchange rates increased gross profit by approximately $0.4 million.

The gross profit margin rate increased to 35.9% in fiscal 2020 as compared to 35.5% in the prior year.

The gross margin rate in fiscal 2020 excluding the acquisition and the impact of foreign exchange was 35.9%.

• Gross profit at the Residential Kitchen Equipment Group decreased by $12.5 million, or 5.8%, to $204.3 million in fiscal 2020 as compared to $216.8 million in fiscal 2019.

The impact of foreign exchange rates increased gross profit by approximately $1.2 million.

The gross margin rate decreased to 36.1% in fiscal 2020 as compared to 37.8% in the prior year, primarily related to lower sales volumes and the impact of facility consolidations.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

Combined selling, general, and administrative expenses decreased by $61.9 million to $531.9 million in fiscal 2020 from $593.8 million in 2019.

As a percentage of net sales, selling, general and administrative expenses amounted to 21.2% in fiscal 2020 and 20.1% in fiscal 2019.

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 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.

The decreases were partially offset by a $11.5 million increase related to higher non-cash share-based compensation and $5.8 million related to increased allowances for doubtful accounts given the current market conditions.

The prior year expenses also included $10.1 million related to transition costs with the former Chairman and CEO upon his retirement in February 2019.

RESTRUCTURING EXPENSES.

Restructuring expenses increased $1.9 million to $12.4 million from $10.5 million in the prior year period.

In fiscal 2020, restructuring expenses related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group.

During 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.

GAIN ON LITIGATION SETTLEMENT.

In fiscal 2019, the company 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.

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.

INCOME FROM OPERATIONS .

Income from operations decreased $189.6 million to $324.4 million in fiscal 2020 from $514.0 million in fiscal 2019.

Operating income as a percentage of net sales amounted to 12.9% in 2020 as compared to 17.4% in 2019.

The decrease in operating income resulted from the impacts of COVID-19.

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

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

Income from operations in 2020 included $127.7 million of non-cash expenses, including $39.1 million of depreciation expense, $69.0 million of intangible amortization related to acquisitions and $19.6 million of stock based compensation.

This compares to $110.0 million of non-cash expenses in the prior year, including $37.9 million of depreciation expense, $64.0 million of intangible amortization related to acquisitions and $8.1 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Non-operating expenses increased $5.0 million to $56.4 million of expense in fiscal 2020 from $51.4 million of income in fiscal 2019.

Net interest expense and deferred financing decreased $4.0 million to $78.6 million in fiscal 2020 from $82.6 million in fiscal 2019 reflecting the reduction in the average interest rates under the Credit Facility and benefit from the Convertible Notes, offset by higher non-cash interest from the lower interest rate on Convertible Notes.

Net periodic pension benefit (other than service costs and curtailment) increased $10.3 million to $40.0 million in fiscal 2020 from $29.7 million in fiscal 2019, 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.

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 $60.8 million, at an effective rate of 22.7%, was recorded for fiscal 2020 as compared to $110.4 million at an effective rate of 23.9%, in fiscal 2019.

In comparison to the prior year, the tax provision reflects favorable tax adjustments for deferred tax rate changes and adjustments for the finalization of 2019 tax returns.

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.

Financial Condition and Liquidity

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.

Total cash and cash equivalents decreased by $18.4 million to $162.0 million at December 31, 2022 from $180.4 million at January 1, 2022.

Total debt increased to $2.7 billion at December 31, 2022 from $2.4 billion at January 1, 2022.

OPERATING ACTIVITIES .

Net cash provided by operating activities after changes in assets and liabilities amounted to $332.6 million as compared to $423.4 million in the prior year.

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.

During fiscal 2022, working capital changes meaningfully impacted operating cash flows primarily driven by increased inventory of $196.3 million related to the seasonality of acquired businesses, efforts to mitigate supply chain risks and inflationary impacts.

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 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.

During 2022, net cash used for investing activities amounted to $348.3 million.

Cash used to fund acquisitions and investments amounted to $278.8 million .

Additionally, $67.3 million was expended, primarily for upgrades of production equipment and manufacturing facilities.

FINANCING ACTIVITIES.

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

Net cash flows provided by financing activities amounted to $7.6 million in 2022.

The company’s borrowing activities during 2022 included $314.8 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 $264.8 million of Middleby common shares during 2022.

This was comprised of $15.8 million to repurchase 90,243 shares of Middleby common stock that were surrendered to the company for withholding taxes related to restricted stock vestings and $249.0 million used to repurchase 1,553,961 shares of its common stock under a repurchase program.

At January 1, 2022, the company was in compliance with all covenants pursuant to its borrowing agreements.

At December 31, 2022, the company was in compliance with all covenants pursuant to its borrowing agreements.

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.

The company's material cash requirements from contractual obligations primarily consist of long-term debt obligations, operating lease obligations, tax obligations and 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.

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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 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.

The company performed a qualitative assessment as of October 2, 2022.

As a result of the financial performance indicators for the Residential Kitchen reporting unit, the company completed a quantitative analysis.

The fair value of the reporting unit exceeded its carrying value by nearly 20% and no impairment of goodwill was recognized.

As a result of the qualitative assessment for the other two reporting units, 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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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 October 2, 2022, the company identified several trademarks and trade names with indicators of potential risk for impairment and performed quantitative assessments.

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.

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.

As a result of the quantitative testing the company determined there were no impairments of trademarks.

The gross value of the trademarks tested was approximately $220 million.

The fair values of the trademarks exceeded their carrying values by 10% or more.

The company believes the assumptions utilized within the quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants.

Kamado Joe and Masterbuilt trademarks

The Kamado Joe and Masterbuilt trademarks are at risk at October 2, 2022.

The fair value exceeded their carrying value of approximately $145.0 million by approximately 10%.

The company believes the assumptions utilized within the quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants.

Such assumptions are, however, inherently uncertain, and different assumptions could lead to a different assessment for the trademarks that could result in a material impairment that would adversely affect our results of operations.

The fair values of all other trademarks exceeded their carrying values by an amount sufficient to not be deemed "at risk." The company performed a qualitative assessment as of October 2, 2022 for all other trademarks and trade names and determined it is more like 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 impacts from the COVID-19 pandemic and subsequent accelerated recovery, along with inflationary impacts from the war in Ukraine 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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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