What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 127 added, 134 removed, 276 unchanged (49% 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.

Current Events

Inflation and Interest Rate Environment

The company has been negatively impacted by inflation in wages, logistics, energy, raw materials and component costs.

Price increases and pricing strategies have been implemented to mitigate the impact of cost inflation on margins and the company continues to actively monitor costs.

High inflation led to increased interest rates throughout 2022 and through the first six months of 2023, which combined with global macroeconomic uncertainty has and may continue to impact customer demand.

Most notably in our residential segment, we have faced recent demand headwinds due to macroeconomic conditions.

Even in light of such headwinds, we remain focused on delivering strong financial results and executing on our long-term strategy and profitability objectives.

Supply Chain, Labor and Logistics Constraints

The company continues to actively monitor global supply chain, labor and logistics constraints, which have had a negative impact on the company's ability to source parts and complete and ship units.

While the company is seeing improvement on certain supply chain and logistics constraints, supply chains for certain key components remain distressed.

The decreased availability of resources and inflationary costs have resulted in heightened inventory levels.

To combat these pressures, the company has evaluated alternative sourcing, dual sourcing and collaborated across the organization, where appropriate, without materially presenting new risks or increasing current risks around quality and reliability.

Our capital resources have been and the company expects they will continue to be sufficient to address these challenges.

NET SALES SUMMARY

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Restructuring 0.4 0.2 0.3

Merger termination fee — (3.4) —

Gain on sale of plant — — (0.1)

Impairments 1.9 — —

Merger termination fee — — (3.4)

Income from operations 15.7 15.9 19.4

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Net periodic pension benefit (other than service cost & curtailment) (0.2) (1.0) (1.4)

Curtailment loss — — 0.6

Other expense (income), net 0.1 0.7 —

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

Fiscal Year Ended December 30, 2023 as Compared to December 31, 2022

Net sales in fiscal 2023 increased by $3.7 million, or 0.1%, to $4,036.6 million as compared to $4,032.9 million in fiscal 2022.

Net sales increased by $121.3 million, or 3.0%, from the fiscal 2022 acquisitions of Kloppenberg, Proxaut, Icetro, CP Packaging, Colussi Ermes, Escher, Marco, and the fiscal 2023 acquisitions of Flavor Burst, Blue Sparq, Filtration Automation, Terry, and Trade-Wind.

Excluding acquisitions, net sales decreased $117.6 million, or 2.9%, from the prior year.

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

Dollars for fiscal 2023 increased net sales by approximately $12.3 million.

Excluding the impact of foreign exchange and acquisitions, sales decreased 3.2% for the year, including a net sales increase of 2.7% at the Commercial Foodservice Equipment Group, a net sales increase of 10.7% at the Food Processing Equipment Group and a net sales decrease of 24.7% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group increased by $126.7 million, or 5.3%, to $2,521.5 million in fiscal 2023 as compared to $2,394.8 million in fiscal 2022.

Net sales from the acquisitions of Kloppenberg, Icetro, Marco, Flavor Burst, Blue Sparq, and Terry, which were acquired on April 25, 2022, June 30, 2022, December 20, 2022, January 24, 2023, April 3, 2023 and July 5, 2023, respectively, accounted for an increase of $57.8 million during fiscal 2023.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $68.9 million, or 2.9%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $65.8 million, or 2.7% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales increase of $77.4 million, or 4.4%, to $1,828.4 million, as compared to $1,751.0 million in the prior year.

This includes an increase of $24.9 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $52.5 million, or 3.0%.

The increase in domestic sales is related to higher shipments, improved product mix and pricing increases.

International sales increased $49.3 million, or 7.7%, to $693.1 million, as compared to $643.8 million in the prior year.

This includes the increase of $32.9 million from recent acquisitions and an increase of $3.1 million related to the favorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $13.3 million, or 2.1%.

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

• Net sales of the Food Processing Equipment Group increased by $130.6 million, or 22.1%, to $720.6 million in fiscal 2023, as compared to $590.0 million in fiscal 2022.

Net sales from the acquisitions of CP Packaging, Colussi Ermes, Escher, and Filtration Automation, which were acquired on July 12, 2022, July 27, 2022, November 10, 2022, and June 13, 2023, respectively, accounted for an increase of $61.5 million during fiscal 2022.

Excluding the impact of acquisitions, net sales of the Food processing Equipment Group increased $69.1 million, or 11.7%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $63.4 million, or 10.7% at the Food Processing Equipment Group.

Domestically, the company realized a sales increase of $53.1 million, or 12.5%, to $479.3 million, as compared to $426.2 million in the prior year.

This includes an increase of $23.7 million from recent acquisitions.

Excluding acquisitions, the net increase in domestic sales was $29.4 million, or 6.9%.

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

International sales increased $77.5 million, or 47.3%, to $241.3 million, as compared to $163.8 million in the prior year.

This includes the increase of $37.8 million from recent acquisitions and an increase of $5.7 million related to the favorable impact of exchange rates.

Excluding acquisitions and foreign exchange, the net sales increase in international sales was $34.0 million, or 20.8%.

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

• Net sales of the Residential Kitchen Equipment Group decreased by $253.6 million, or 24.2%, to $794.5 million in fiscal 2023, as compared to $1,048.1 million in fiscal 2022.

Excluding the impact of the acquisition of Trade-Wind, acquired July 31, 2023, net sales decreased $255.6 million, or 24.4%, as compared to the prior year.

Excluding the impact of foreign exchange and the acquisition, net sales decreased $259.1 million, or 24.7% at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales decrease of $188.6 million, or 26.9%, to $513.3 million, as compared to $701.9 million in the prior year.

Excluding the acquisition, the net decrease in domestic sales was $190.0 million, or 27.1%.

International sales decreased $65.0 million, or 18.8% to $281.2 million, as compared to $346.2 million in the prior year.

This includes an increase of $3.5 million related to the favorable impact of exchange rates.

Excluding the acquisition and foreign exchange, the net sales decrease in international sales was $69.1 million, or 20.0%.

The decrease in domestic and international sales was driven by challenging market conditions and higher inventory levels in various channels.

GROSS PROFIT .

Gross profit increased by $87.5 million to $1,534.1 million in fiscal 2023 from $1,446.6 million in fiscal 2022, primarily reflecting higher sales volumes at the Commercial Foodservice Equipment Group and Food Processing Equipment Group.

The impact of foreign exchange rates increased gross profit by $3.9 million.

The gross profit margin rate increased to 38.0% in 2023 as compared to 35.9% in 2022.

The gross margin in fiscal 2022 was negatively impacted by inventory step-up charges associated with acquisitions.

In addition, higher sales volumes and improved product mix have contributed to the expansion of the gross margin rate.

The gross margin rate in fiscal 2023 excluding acquisitions and impact of foreign exchange was 38.1%.

• Gross profit at the Commercial Foodservice Equipment Group increased by $101.2 million, or 11.1%, to $1,010.6 million in fiscal 2023 as compared to $909.4 million in fiscal 2022.

Gross profit from acquisitions increased gross profit by $20.8 million.

Excluding acquisitions, gross profit increased by $80.4 million.

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

The gross profit margin rate increased to 40.1% in fiscal 2023 as compared to 38.0% in the prior year related to higher sales volumes and improved product mix.

The gross profit margin rate in fiscal 2023 excluding acquisitions and the impact of foreign exchange was 40.2%.

• Gross profit at the Food Processing Equipment Group increased by $61.8 million, or 29.1%, to $274.4 million in fiscal 2023 as compared to $212.6 million in fiscal 2022.

Gross profit from acquisitions increased gross profit by $23.1 million.

Excluding acquisitions, gross profit increased by $38.7 million.

The impact of foreign exchange rates increased gross profit by approximately $2.3 million.

The gross profit margin rate increased to 38.1% in fiscal 2023 as compared to 36.0% in the prior year related to higher sales volumes, improved product mix and acquisition integration benefits.

The gross profit margin rate in fiscal 2023 excluding the impact of foreign exchange was 38.1%.

• Gross profit at the Residential Kitchen Equipment Group decreased by $75.8 million, or 23.3%, to $250.0 million in fiscal 2023 as compared to $325.8 million in fiscal 2022.

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

The gross margin rate increased to 31.5% in fiscal 2023 as compared to 31.1% in the prior year.

Gross profit margins in the prior year were negatively impacted by acquisitions, including $15.1 million of acquisition related inventory step-up charges.

The gross profit margin rate in fiscal 2023 excluding the acquisition and the impact of foreign exchange was 31.4%.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .

Combined selling, general, and administrative expenses increased by $9.7 million to $806.9 million in fiscal 2023 from $797.2 million in 2022.

As a percentage of net sales, selling, general and administrative expenses amounted to 20.0% in fiscal 2023 and 19.8% in fiscal 2022.

Selling, general and administrative expenses reflect increased costs of $33.6 million associated with acquisitions, including $5.6 million of non-cash intangible amortization expense.

Selling, general and administrative expenses decreased from lower compensation costs, professional fees, and intangible amortization expense, partially offset by higher selling and marketing expenses.

Foreign exchange rates had an unfavorable impact of $2.2 million.

RESTRUCTURING EXPENSES.

Restructuring expenses increased $4.4 million to $14.1 million from $9.7 million in the prior year period.

In fiscal 2023, restructuring expenses related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

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

In fiscal 2023, the company recognized non-cash impairment of $78.1 million primarily associated with several trademarks in the Residential Kitchen Equipment Group in conjunction with diminution of values as we assessed recent market conditions and future business plans.

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

INCOME FROM OPERATIONS .

Income from operations decreased $4.7 million to $634.9 million in fiscal 2023 from $639.6 million in fiscal 2022.

Operating income as a percentage of net sales amounted to 15.7% in 2023 as compared to 15.9% in 2022.

During fiscal 2023, operating income included the impairment of intangible assets.

Excluding the impairment, the increase in operating income resulted from increased profitability driven by product mix and execution of strategic cost initiatives.

Income from operations in 2023 included $254.5 million of non-cash expenses, including $50.4 million of depreciation expense, $75.0 million of intangible amortization related to acquisitions, $78.1 million of impairments of trademarks and $51.0 million of stock based compensation.

This compares to $189.3 million of non-cash expenses in the prior year, including $44.6 million of depreciation expense, $86.3 million of intangible amortization related to acquisitions and $58.4 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Non-operating expenses increased $40.2 million to $115.4 million of expense in fiscal 2023 from $75.2 million of expense in fiscal 2022.

Net interest expense and deferred financing increased $31.3 million to $120.3 million in fiscal 2023 from $89.0 million in fiscal 2022 reflecting the increase in interest rates under our current credit facility.

Net periodic pension benefit (other than service costs and curtailment) decreased $33.6 million to $9.1 million in fiscal 2023 from $42.7 million in fiscal 2022 related to the increase in discount rate used to calculate the interest cost.

Other expense was $4.2 million during fiscal 2023 as compared to other expense of $28.9 million during fiscal 2022, consisting mainly of foreign exchange losses and gains.

INCOME TAXES .

A tax provision of $118.5 million, at an effective rate of 22.8%, was recorded for fiscal 2023 as compared to $127.8 million at an effective rate of 22.7%, in fiscal 2022.

The fiscal 2023 tax provision includes a $7.0 million tax benefit for the finalization of the 2022 tax returns.

The fiscal 2022 tax provision included 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 effective rates in 2023 and 2022 were higher than the federal tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

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

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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

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 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%.

• 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, 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 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.

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 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, 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 profit 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.

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

Termination of Welbilt Merger

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

Financial Condition and Liquidity

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.

Total cash and cash equivalents increased by $85.5 million to $247.5 million at December 30, 2023 from $162.0 million at December 31, 2022.

Total debt decreased to $2.4 billion at December 30, 2023 from $2.7 billion December 31, 2022, respectively.

OPERATING ACTIVITIES .

Net cash provided by operating activities after changes in assets and liabilities amounted to $628.8 million as compared to $332.6 million in the prior year.

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.

During fiscal 2023, working capital changes meaningfully impacted operating cash flows primarily driven by decreased inventory levels of $157.9 million, a decrease of $110.7 million in accrued expenses and other liabilities, including impacts from the timing of payments and status of over-time revenue contracts, various customer programs and incentive programs and a decrease in accounts payable of $49.4 million.

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.

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FINANCING ACTIVITIES.

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.

Net cash flows used for financing activities amounted to $390.9 million in 2023.

The company’s borrowing activities during 2023 included $308.3 million of net repayments under its Credit Facility.

Additionally, the company repurchased $74.6 million of Middleby common shares during 2023.

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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 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 financial performance indicators for the Residential Kitchen reporting unit, the company deemed it necessary to complete a quantitative analysis.

The fair value of the reporting unit exceeded its carrying value by more than 10%, thus no impairment of goodwill was recognized.

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 reporting unit that could result in a material impairment that would adversely affect our results of operations.

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.

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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.

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.

The gross value of all trademarks tested was approximately $246.2 million, including the impaired trademarks.

As a result of the quantitative testing the company recognized $78.1 million of impairment charges primarily associated with the Kamado Joe, Masterbuilt and Char-Griller trademarks.

For further details associated with the company's trademarks impairment testing, see Note 3 (f) to the Consolidated Financial Statements.

The fair values of the trademarks tested with no impairment and exceeded their carrying values by 10% or more.

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

The company continues to monitor global and regional economic market conditions, channel inventory levels, and the underlying demand for its products to assess 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