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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-28 · 117 added, 120 removed, 283 unchanged (46% of the section changed)

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• changing market conditions;

• the possibility that the proposed spin-off of the company’s Food Processing business will not be consummated within the anticipated time period or at all and that the company may not realize all or any of the expected benefits of the spin-off;

• volatility in earnings resulting from goodwill impairment losses, which may occur irregularly and in varying amounts;

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

Proposed Separation Transaction

On February 25, 2025, the company announced its intent to separate its Food Processing business through a spin-off of the Food Processing business, under which the stock of Food Processing, as a new independent publicly traded company, will be distributed to Middleby’s shareholders.

As of the date hereof, Middleby is targeting completion of the separation by early 2026, subject to certain customary conditions, including, among others, final approval by the company’s Board of Directors and the effectiveness of appropriate filings with the SEC.

The spin-off of Food Processing is expected to be tax-free for U.S.

federal income tax purposes.

There can be no assurance that any separation transaction will ultimately occur or, if one does occur, of its terms or timing.

Current Events

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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.

High inflation and uncertainty surrounding the Federal Reserve's interest rate policy decisions let to increased interest rates in 2023 and into the first quarter of 2024, which combined with global macroeconomic uncertainty, has and may continue to impact customer demand.

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

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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.

The decreased availability of resources and inflationary costs resulted in heightened inventory levels for certain components above current demand 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.

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Impairments 1.0 1.9 —

Merger termination fee — — (3.4)

Income from operations 16.9 15.7 15.9

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Net periodic pension benefit (other than service cost & curtailment) (0.4) (0.2) (1.0)

Other expense (income), net 0.1 0.7 —

Other expense, net — 0.1 0.7

Earnings before income taxes 14.9 12.8 14.0

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Fiscal Year Ended December 28, 2024 as Compared to December 30, 2023

Net sales in fiscal 2024 decreased by $161.4 million, or 4.0%, to $3,875.2 million as compared to $4,036.6 million in fiscal 2023.

Net sales increased by $29.7 million, or 0.7%, from the fiscal 2023 acquisitions of Flavor Burst, Blue Sparq, Filtration Automation, Terry, and Trade-Wind and the fiscal 2024 acquisitions of GBT, MaxMac, Emery Thompson, JC Ford, and Gorreri.

Excluding acquisitions, net sales decreased $191.1 million, or 4.7%, from fiscal 2023.

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

Dollars in fiscal 2024 increased net sales by approximately $0.5 million.

Excluding the impact of foreign exchange and acquisitions, sales decreased 4.7% for the year, including a net sales decrease of 4.1% at the Commercial Foodservice Equipment Group, a net sales decrease of 1.9% at the Food Processing Equipment Group and a net sales decrease of 9.5% at the Residential Kitchen Equipment Group.

• Net sales of the Commercial Foodservice Equipment Group decreased by $102.2 million, or 4.1%, to $2,419.3 million in fiscal 2024, as compared to $2,521.5 million in fiscal 2023.

Net sales from the acquisitions of Flavor Burst, Blue Sparq, Terry, and Emery Thompson accounted for an increase of $2.8 million during fiscal 2024.

Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group decreased $105.0 million, or 4.2%, as compared to fiscal 2023.

Excluding the impact of foreign exchange and acquisitions, net sales decreased $102.3 million, or 4.1%, at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales decrease of $118.0 million, or 6.5%, to $1,710.4 million, as compared to $1,828.4 million in fiscal 2023.

This includes an increase of $2.7 million from recent acquisitions.

Excluding acquisitions, the net decrease in domestic sales was $120.7 million, or 6.6%.

The decrease in domestic sales is related to slow market conditions.

International sales increased $15.8 million, or 2.3%, to $708.9 million, as compared to $693.1 million in the prior year.

This includes an increase of $0.1 million from the recent acquisitions and a decrease of $2.7 million related to the unfavorable impact of exchange rates.

Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $18.4 million, or 2.7%.

The increase in international revenues 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 $10.4 million, or 1.4%, to $731.0 million in fiscal 2024, as compared to $720.6 million in fiscal 2023.

Net sales from the acquisitions of Filtration Automation, GBT, MaxMac, JC Ford, and Gorreri accounted for an increase of $24.7 million during fiscal 2024.

Excluding the impact of acquisitions, net sales of the Food Processing Equipment Group decreased $14.3 million, or 2.0%, as compared to fiscal 2023.

Excluding the impact of foreign exchange and acquisitions, net sales decreased $13.9 million, or 1.9%, at the Food Processing Equipment Group.

Domestically, the company realized a sales decrease of $35.9 million, or 7.5%, to $443.4 million, as compared to $479.3 million in fiscal 2023.

This includes an increase of $7.3 million from recent acquisitions.

Excluding acquisitions, the net decrease in domestic sales was $43.2 million, or 9.0%.

The decrease in domestic sales is driven primarily by lower sales volumes of protein products.

International sales increased $46.3 million, or 19.2%, to $287.6 million, as compared to $241.3 million in the prior year.

This includes an increase of $17.4 million from the recent acquisitions and a decrease of $0.4 million related to the unfavorable impact of exchange rates.

Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $29.3 million, or 12.1%.

The increase in international sales reflects growth driven primarily by increased sales volumes of bakery and protein products in the European markets.

• Net sales of the Residential Kitchen Equipment Group decreased by $69.6 million, or 8.8%, to $724.9 million in fiscal 2024, as compared to $794.5 million in fiscal 2023.

Excluding the impact of the acquisition of Trade-Wind, net sales decreased $71.8 million, or 9.0%.

Excluding the impact of foreign exchange, net sales decreased $75.4 million, or 9.5%, at the Residential Kitchen Equipment Group.

Domestically, the company realized a sales decrease of $52.2 million, or 10.2%, to $461.1 million, as compared to $513.3 million in fiscal 2023.

Excluding the acquisition, the net decrease in domestic sales was $54.4 million, or 10.6%.

International sales decreased $17.4 million, or 6.2%, to $263.8 million, as compared to $281.2 million in the prior year.

This includes an increase of $3.6 million related to the favorable impact of exchange rates.

Excluding the impact of foreign exchange and the acquisition, the net sales decrease in international sales was $21.0 million, or 7.5%.

The decrease in net sales was primarily driven by challenging market conditions domestically and in the European markets.

GROSS PROFIT .

Gross profit decreased to $1,470.4 million in fiscal 2024 as compared to $1,534.1 million in fiscal 2023, primarily driven by lower sales volumes at the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group.

The impact of foreign exchange rates increased gross profit by approximately $0.3 million.

The gross margin rate was 37.9% in 2024 as compared to 38.0% in 2023.

• Gross profit at the Commercial Foodservice Equipment Group decreased by $52.3 million, or 5.2%, to $958.3 million in fiscal 2024, as compared to $1,010.6 million in fiscal 2023.

Gross profit from the acquisitions of Flavor Burst, Blue Sparq, Terry, and Emery Thompson increased gross profit by $1.5 million.

Excluding acquisitions, gross profit decreased by $53.8 million related to lower sales volume.

The impact of foreign exchange rates decreased gross profit by approximately $0.7 million.

The gross margin rate increased to 39.6%, as compared to 40.1% in fiscal 2023.

The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 39.6%.

• Gross profit at the Food Processing Equipment Group increased by $16.2 million, or 5.9%, to $290.6 million in fiscal 2024, as compared to $274.4 million in fiscal 2023.

Gross profit from the acquisitions of Filtration Automation, GBT, MaxMac, JC Ford, and Gorreri increased gross profit by $9.7 million.

Excluding acquisitions, gross profit increased by $6.5 million related to improved product mix and acquisition integration benefits.

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

The gross margin rate increased to 39.8%, as compared to 38.1% in fiscal 2023 primarily related to improved product mix.

The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 39.8%.

• Gross profit at the Residential Kitchen Equipment Group decreased by $31.4 million, or 12.6%, to $218.6 million in fiscal 2024, as compared to $250.0 million in fiscal 2023.

Excluding the impact of the acquisition, gross profit decreased by $32.5 million related to lower sales volume.

The impact of foreign exchange rates increased gross profit by approximately $1.1 million.

The gross margin rate decreased to 30.2%, as compared to 31.5% in fiscal 2023 primarily related to lower sales volume.

The gross margin rate, excluding the acquisition and impact of foreign exchange, was 30.1%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .

Combined selling, general and administrative expenses decreased to $762.5 million in fiscal 2024, as compared to $806.9 million in fiscal 2023.

As a percentage of net sales, selling, general, and administrative expenses were 19.7% in fiscal 2024, as compared to 20.0% in fiscal 2023.

Selling, general and administrative expenses reflect increased costs of $8.9 million associated with acquisitions, including $1.6 million of intangible amortization expense.

Selling, general and administrative expenses decreased $31.2 million related to compensation cost including commissions, $12.3 million related to intangible amortization expense and $10.9 million in professional fees.

Foreign exchange rates had a favorable impact of $0.3 million.

RESTRUCTURING EXPENSES .

Restructuring expenses increased $0.1 million to $14.2 million in fiscal 2024 from $14.1 million in fiscal 2023.

Restructuring expenses in fiscal 2024 related primarily to headcount reductions and facility consolidations within all three segments.

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

In fiscal 2024, the company recognized non-cash impairment of $33.4 million primarily associated with several trademarks in the Residential Kitchen Equipment Group, as well as a few in the Commercial Foodservice Group in conjunction with diminution of values as we assessed recent market conditions and future business plans.

In addition, the company recorded an impairment charge of approximately $5.2 million associated with the decline in recoverable value of an equity method investment.

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 increased $21.3 million to $656.2 million in fiscal 2024 from $634.9 million in fiscal 2023.

Operating income as a percentage of net sales amounted to 16.9% in 2024 as compared to 15.7% in 2023.

During fiscal 2024 and fiscal 2023, operating income included the impairment of intangible assets.

Excluding the impairments, the decrease in operating income was primarily related to lower sales volume.

Income from operations in 2024 included $194.8 million of non-cash expenses, including $55.6 million of depreciation expense, $64.4 million of intangible amortization related to acquisitions, $38.6 million of impairments and $36.2 million of stock based compensation.

This compares to $254.5 million of non-cash expenses in the prior year, including $50.4 million of

depreciation expense, $75.0 million of intangible amortization related to acquisitions, $78.1 million of impairments and $51.0 million of stock based compensation costs.

NON-OPERATING EXPENSES .

Interest and deferred financing amortization costs were $92.2 million in fiscal 2024, as compared to $120.3 million in fiscal 2023, reflecting the decrease in net debt levels.

Net periodic pension benefit (other than service costs) increased $5.8 million to $14.9 million in fiscal 2024, as compared to $9.1 million in fiscal 2023, related to the decrease in discount rate used to calculate the interest cost and increase in expected return on assets as a result of the higher assets value.

Other expense was $1.5 million in fiscal 2024, as compared to $4.2 million in fiscal 2023 and consists mainly of foreign exchange gains and losses.

INCOME TAXES .

A tax provision of $148.9 million, at an effective rate of 25.8%, was recorded during fiscal 2024, as compared to $118.5 million at an effective rate of 22.8%, in fiscal 2023.

The fiscal 2024 provision includes a $3.6 million net tax expense for the finalization of the 2023 tax returns as compared to the fiscal 2023 provision that included a net tax benefit of $7.0 million for the finalization of the 2022 tax returns.

The effective tax rates in 2024 and 2023 were higher than the federal tax rate of 21% primarily due to state taxes and foreign tax rate differentials.

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.

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• 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.

Net sales from the acquisitions of Kloppenberg, Icetro, Marco, Flavor Burst, Blue Sparq, and Terry 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.

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• 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.

Net sales from the acquisitions of CP Packaging, Colussi Ermes, Escher, and Filtration Automation 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.

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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.

Selling, general and administrative expenses reflect decreases in intangible amortization expense of $16.8 million, compensation costs including commissions of $7.8 million, and professional fees of $5.4 million.

These decreases were partially offset by $8.5 million attributed to higher selling and marketing expenses.

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

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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

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 16.7% at the Commercial Foodservice Equipment Group, a net sales increase of 13.2% 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 $380.4 million, or 18.9%, to $2,394.8 million in fiscal 2022 as compared to $2,014.4 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 $295.8 million, or 14.7%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $336.1 million, or 16.7% at the Commercial Foodservice Equipment Group.

Domestically, the company realized a sales increase of $333.4 million, or 23.5%, to $1,751.0 million, as compared to $1,417.6 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 $262.7 million, or 18.5%.

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

International sales increased $47.0 million, or 7.9%, to $643.8 million, as compared to $596.8 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 $73.4 million, or 12.3%.

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 $90.9 million, or 18.2%, to $590.0 million in fiscal 2022, as compared to $499.1 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 $49.6 million, or 9.9%, as compared to the prior year.

Excluding the impact of foreign exchange and acquisitions, net sales increased $65.8 million, or 13.2% at the Food Processing Equipment Group.

Domestically, the company realized a sales increase of $61.4 million, or 16.8%, to $426.2 million, as compared to $364.8 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 $50.1 million, or 13.7%.

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

International sales increased $29.5 million, or 22.0%, to $163.8 million, as compared to $134.3 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 $15.7 million, or 11.7%.

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 $164.1 million, or 22.0%, to $909.4 million in fiscal 2022 as compared to $745.3 million in fiscal 2021.

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

Excluding acquisitions, gross profit increased by $134.3 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 38.0% 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 38.1%.

• Gross profit at the Food Processing Equipment Group increased by $30.8 million, or 16.9%, to $212.6 million in fiscal 2022 as compared to $181.8 million in fiscal 2021.

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

Excluding acquisitions, gross profit increased by $18.6 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 36.0% in fiscal 2022 as compared to 36.4% in the prior year.

The gross profit margin rate in fiscal 2022 excluding the impact of foreign exchange was 36.8%.

• 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 2023 and 2022 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.

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.

Financial Condition and Liquidity

Total cash and cash equivalents increased by $442.0 million to $689.5 million at December 28, 2024 from $247.5 million at December 30, 2023.

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

Total debt amounted to $2.4 billion at December 28, 2024 and December 30, 2023.

OPERATING ACTIVITIES .

Net cash provided by operating activities after changes in assets and liabilities amounted to $686.8 million as compared to $628.8 million in the prior year.

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.

During fiscal 2024, working capital changes contributed to operating cash flows primarily driven by decreased inventory levels of $95.4 million, offset by an increase in prepaid expenses and other assets of $45.5 million, including impacts from the timing of payments and status of over-time revenue contracts, and a decrease in accounts payable of $21.9 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.

INVESTING ACTIVITIES.

During 2023, net cash used for investing activities amounted to $155.7 million.

Cash used to fund acquisitions and investments amounted to $68.8 million .

During fiscal 2024, net cash used for investing activities amounted to $158.5 million.

Cash used to fund acquisitions amounted to $111.7 million.

Additionally, $49.3 million was expended, primarily for upgrades of production equipment and manufacturing facilities.

Proceeds from the sale of property, plant and equipment amounted to $2.5 million.

FINANCING ACTIVITIES.

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Related Party Transactions

From January 1, 2023, 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 December 31, 2023, 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 estimated fair value of each reporting unit is compared to their respective carrying values.

Additionally, the company validates the estimates of fair value under the income approach by comparing the fair value estimate using a market approach.

A market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance.

The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units.

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

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

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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 1, 2023, the company identified several trademarks and trade names with indicators of potential risk for impairment and performed quantitative assessments.

Based on the qualitative assessment as of September 29, 2024, 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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The gross value of all trademarks tested was approximately $255.8 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.

As a result of the quantitative testing the company recognized $33.4 million of impairment charges primarily associated with several trademarks within the Residential Kitchen Equipment Group, as well as a few in the Commercial Foodservice Equipment Group.

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 fair values of the other trademarks tested with no impairment per the analyses, 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.

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These assumptions include expected long-term rate of return on plan assets and discount rates.

The amount of unrecognized actuarial gains and losses recognized in the current year’s operations is based on amortizing the unrecognized gains or losses for each plan that exceed the larger of 10% of the projected benefit obligation or the fair value of plan assets, also known as the corridor.

plan assets, also known as the corridor.

The amount of unrecognized gain or loss that exceeds the corridor is amortized over the average future service of the plan participants or the average life expectancy of inactive plan participants for plans where all or almost all of the plan participants are inactive.

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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