# MIDDLEBY Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [MIDDLEBY Corp](/companies/midd.md) (CIK 769520)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 21:25 ET
- Period: 2023-09-30
- Accession: 0000769520-23-000019
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/769520/000076952023000019/midd-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/769520/000076952023000019/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-02 to 2023-09-30 | $980.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $3.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-02 to 2023-09-30 | $605.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.88bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-02 to 2023-09-30 | $375.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $1.15bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-02 to 2023-09-30 | $196.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $615.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-02 to 2023-09-30 | $174.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $520.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-02 to 2023-09-30 | $35.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $107.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-02 to 2023-09-30 | $108.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $324.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-02 to 2023-09-30 | $2.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $5.99 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-02 to 2023-09-30 | $2.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $6.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-02 to 2023-09-30 | 54,157,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 54,192,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $373.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $69.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $74.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $167.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $1.96bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $6.92bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $864.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $2.54bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $44.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $3.10bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 32,360 characters.

### Special Notes Regarding Forward-Looking Statements

This report contains forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The company cautions readers that these projections are based upon future results or events and are highly dependent upon a variety of important factors which could cause such results or events to differ materially from any forward-looking statements which may be deemed to have been made in this report, or which are otherwise made by or on behalf of the company. Such factors include, but are not limited to, volatility in earnings resulting from goodwill impairment losses which may occur irregularly and in varying amounts; variability in financing costs and interest rates; quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange and political risks affecting international sales; unfavorable tax law changes and tax authority rulings; ability to protect trademarks, copyrights and other intellectual property; cybersecurity attacks and other breaches in security; changing market conditions, including inflation; the impact of competitive products and pricing; the timely development and market acceptance of the company’s products; the availability and cost of raw materials; the company's continued ability to realize profitable growth through the sourcing and completion of strategic acquisitions; and other risks detailed herein and from time-to-time in the company’s SEC filings, including the company’s 2022 Annual Report on Form 10-K. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this report are made only as of the date hereof and, except as required by federal securities laws and rules and regulations of the SEC, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

### 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. There is a delay, however, in the realization of pricing due to lead times of orders in the backlog and global supply chain and logistics constraints. High inflation has led to increased interest rates throughout 2022 and through the first six months of 2023, which combined with global macroeconomic uncertainty can impact customer demand. Most notably in our residential segment, we have faced recent demand 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 has experienced some relief of the supply chain and logistics constraints, supply chains for certain key components remain distressed. The availability of resources and inflationary costs have resulted in heightened inventory levels and backlogs, impacted margins and placed constraints on our operating cash flows. 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 sufficient to address these challenges and are expected to continue to be.

### Net Sales Summary

### (dollars in thousands)

| Business Segments: | Three Months Ended Sep 30, 2023 Sales | Percent | Oct 1, 2022 Sales | Percent | Nine Months Ended Sep 30, 2023 Sales | Percent | Oct 1, 2022 Sales | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Foodservice | $634,009 | 64.7% | $619,557 | 62.4% | $1,893,607 | 62.5% | $1,765,849 | 58.8% |
| Food Processing | 166,667 | 17.0 | 152,349 | 15.3 | 528,918 | 17.5 | 403,245 | 13.5 |
| Residential Kitchen | 179,975 | 18.3 | 220,965 | 22.3 | 605,504 | 20.0 | 832,054 | 27.7 |
| Total | $980,651 | 100.0% | $992,871 | 100.0% | $3,028,029 | 100.0% | $3,001,148 | 100.0% |

24

### Results of Operations

The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods:

|  | Three Months Ended Sep 30, 2023 | Oct 1, 2022 | Nine Months Ended Sep 30, 2023 | Oct 1, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of sales | 61.7 | 63.2 | 62.1 | 64.8 |
| Gross profit | 38.3 | 36.8 | 37.9 | 35.2 |
| Selling, general and administrative expenses | 20.0 | 20.3 | 20.3 | 19.9 |
| Restructuring | 0.5 | 0.2 | 0.4 | 0.3 |
| Income from operations | 17.8 | 16.3 | 17.2 | 15.0 |
| Interest expense and deferred financing amortization, net | 3.2 | 2.4 | 3.0 | 2.1 |
| Net periodic pension benefit (other than service costs) | (0.2) | (1.0) | (0.2) | (1.1) |
| Other expense, net | 0.1 | 0.9 | 0.1 | 0.6 |
| Earnings before income taxes | 14.7 | 14.0 | 14.3 | 13.4 |
| Provision for income taxes | 3.6 | 3.5 | 3.6 | 3.3 |
| Net earnings | 11.1% | 10.5% | 10.7% | 10.1% |

25

### Three Months Ended September 30, 2023 as compared to Three Months Ended October 1, 2022

**NET SALES**. Net sales for the three months period ended September 30, 2023 decreased by $12.2 million or 1.2% to $980.7 million as compared to $992.9 million in the three months period ended October 1, 2022. Net sales increased by $18.0 million, or 1.8%, from the fiscal 2022 acquisitions of 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 $30.2 million, or 3.0%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the three months period ended September 30, 2023 increased net sales by approximately $13.2 million or 1.3%. Excluding the impact of foreign exchange and acquisitions, sales decreased 4.4% for the three months period ended September 30, 2023 as compared to the prior year period, including a net sales increase of 0.2% at the Commercial Foodservice Equipment Group, a net sales increase of 1.2% at the Food Processing Equipment Group and a net sales decrease of 21.0% at the Residential Kitchen Equipment Group.

- Net sales of the Commercial Foodservice Equipment Group increased by $14.4 million, or 2.3%, to $634.0 million in the three months period ended September 30, 2023, as compared to $619.6 million in the prior year period. Net sales from the acquisitions of Marco, Flavor Burst, Blue Sparq, and Terry, which were acquired on December 20, 2022, January 24, 2023, April 3, 2023 and July 5, 2023, respectively, accounted for an increase of $8.0 million during the three months period ended September 30, 2023. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $6.4 million, or 1.0%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $1.1 million, or 0.2%, at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales decrease of $1.5 million, or 0.3%, to $458.5 million, as compared to $460.0 million in the prior year period. This includes an increase of $3.7 million from the recent acquisitions. Excluding the acquisitions, the net decrease in domestic sales was $5.2 million, or 1.1%. The decrease in domestic sales is related to slow market conditions. International sales increased $15.9 million, or 10.0%, to $175.5 million, as compared to $159.6 million in the prior year period. This includes an increase of $4.3 million from the recent acquisitions and an increase of $5.3 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $6.3 million, or 3.9%. 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 $14.4 million, or 9.5%, to $166.7 million in the three months period ended September 30, 2023, as compared to $152.3 million in the prior year period. 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 $9.2 million during the three months period ended September 30, 2023. Excluding the impact of acquisitions, net sales of the Food Processing Equipment Group increased $5.2 million, or 3.4%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $1.9 million, or 1.2%, at the Food Processing Equipment Group. Domestically, the company realized a sales increase of $2.7 million, or 2.5%, to $111.1 million, as compared to $108.4 million in the prior year period. This includes an increase of $4.5 million from the recent acquisitions. Excluding the acquisitions, the net decrease in domestic sales was $1.8 million, or 1.7%. International sales increased $11.7 million, or 26.7%, to $55.6 million, as compared to $43.9 million in the prior year period. This includes an increase of $4.7 million from the recent acquisitions and an increase of $3.3 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $3.7 million, or 8.4%. The increase in international sales is primarily related to bakery products.
- Net sales of the Residential Kitchen Equipment Group decreased by $41.0 million, or 18.6%, to $180.0 million in the three months period ended September 30, 2023, as compared to $221.0 million in the prior year period. Excluding the impact of the acquisition of Trade-Wind, acquired August 1, 2023, net sales decreased $41.8 million, or 18.9%. Excluding the impact of foreign exchange and the acquisition, net sales decreased $46.4 million, or 21.0% at the Residential Kitchen Equipment Group. Domestically, the company realized a sales decrease of $29.3 million, or 20.1%, to $116.5 million, as compared to $145.8 million in the prior year period. Excluding the acquisitions, the net decrease in domestic sales was $30.1 million, or 20.6%. International sales decreased $11.7 million, or 15.6%, to $63.5 million, as compared to $75.2 million in the prior year period. This includes an increase of $4.6 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange, the net sales decrease in international sales was $16.3 million, or 21.7%. The decrease in domestic and international sales was primarily driven by challenging market conditions and higher inventory levels in the channel.

**GROSS PROFIT**. Gross profit increased to $375.3 million in the three months period ended September 30, 2023, as compared to $365.2 million in the prior year period, 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 approximately $4.6 million. The gross margin rate was 38.3% in the three months period ended September 30, 2023, as compared to 36.8% in the prior year period, primarily driven by higher sales volumes and improvements in product mix.

- Gross profit at the Commercial Foodservice Equipment Group increased by $20.0 million, or 8.5%, to $255.3 million in the three months period ended September 30, 2023, as compared to $235.3 million in the prior year period. Gross profit from the acquisitions of Marco, Flavor Burst, Blue Sparq, and Terry increased gross profit by $3.5 million. Excluding acquisitions, gross profit increased by $16.5 million. The impact of foreign exchange rates increased gross profit by approximately $1.7 million. The gross margin rate increased to 40.3%, as compared to 38.0% in the prior year period related to higher sales volumes and improved product mix. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 40.3%.
- Gross profit at the Food Processing Equipment Group increased by $11.1 million, or 20.1%, to $66.4 million in the three months period ended September 30, 2023, as compared to $55.3 million in the prior year period. Gross profit from the acquisitions of CP Packaging, Colussi Ermes, Escher, and Filtration Automation increased gross profit by $3.4 million. Excluding acquisitions, gross profit increased by $7.7 million related to higher sales volumes. The impact of foreign exchange rates increased gross profit by approximately $1.3 million. The gross profit margin rate increased to 39.8%, as compared to 36.3% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 40.0%.
- Gross profit at the Residential Kitchen Equipment Group decreased by $20.4 million, or 27.2%, to $54.5 million in the three months period ended September 30, 2023, as compared to $74.9 million in the prior year period. The impact of foreign exchange rates increased gross profit by approximately $1.6 million. Excluding the acquisition, gross profit decreased by $20.7 million. The gross margin rate decreased to 30.3%, as compared to 33.9% in the prior year period. The gross margin rate excluding the acquisition and the impact of foreign exchange was 30.1%.

**SELLING, GENERAL AND ADMINISTRATIVE EXPENSES**. Combined selling, general and administrative expenses decreased to $196.4 million in the three months period ended September 30, 2023, as compared to $201.2 million in the three months period ended October 1, 2022. As a percentage of net sales, selling, general, and administrative expenses were 20.0% in the three months period ended September 30, 2023 as compared to 20.3% in the three months period ended October 1, 2022.

Selling, general and administrative expenses reflect increased costs of $6.4 million associated with acquisitions, including $1.5 million of intangible amortization expense. Selling, general and administrative expenses decreased primarily due to lower compensation costs, selling and marketing expenses and intangible amortization expense. Foreign exchange rates had an unfavorable impact of $2.5 million.

**RESTRUCTURING EXPENSES.** Restructuring expenses increased $2.1 million to $4.4 million for the three months period ended September 30, 2023, as compared to $2.3 million for the three months period ended October 1, 2022. Restructuring expenses in the three months period ended September 30, 2023 related primarily to headcount reductions and facility consolidations within the Residential Kitchen Equipment Group and Commercial Foodservice Group. Restructuring expenses in the three months period ended October 1, 2022 related primarily to headcount reductions and facility consolidations within the Residential Kitchen Equipment Group.

**NON-OPERATING EXPENSES**. Interest and deferred financing amortization costs were $31.1 million in the three months period ended September 30, 2023, as compared to $24.1 million in the prior year period primarily reflecting higher interest rates and borrowings levels on our current debt structure. Net periodic pension benefit (other than service costs) decreased $7.8 million to $2.1 million in the three months period ended September 30, 2023, as compared to $9.9 million in the prior year period related to the increase in discount rate used to calculate the interest cost. Other expense was $1.1 million in the three months period ended September 30, 2023, as compared to $8.5 million in the prior year period and consists mainly of foreign exchange gains and losses.

**INCOME TAXES**. A tax provision of $35.7 million, at an effective rate of 24.8%, was recorded during the three months period ended September 30, 2023, as compared to $34.7 million at an effective rate of 24.9%, in the prior year period. The effective tax rate for the three months period ended September 30, 2023 is lower than the comparable year rate primarily due to tax refunds, partially offset byan increase in the UK statutory income tax rate from 19% in 2022 to a 23.5% blended rate in 2023.

### Nine Months Ended September 30, 2023 as compared to Nine Months Ended October 1, 2022

**NET SALES**. Net sales for the nine months period ended September 30, 2023 increased by $26.8 million, or 0.9%, to $3,028.0 million as compared to $3,001.2 million in the nine months period ended October 1, 2022. Net sales increased by $107.8 million, or 3.6%, 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 $81.0 million, or 2.7%, from the prior year period. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for the nine months period ended September 30, 2023 increased net sales by approximately $0.2 million. Excluding the impact of foreign exchange and acquisitions, sales decreased 2.7% for the nine months period ended September 30, 2023 as compared to the prior year period, including a net sales increase of 4.6% at the Commercial Foodservice Equipment Group, a net sales increase of 16.3% at the Food Processing Equipment Group and a net sales decrease of 27.4% at the Residential Kitchen Equipment Group.

- Net sales of the Commercial Foodservice Equipment Group increased by $127.7 million, or 7.2%, to $1,893.6 million in the nine months period ended September 30, 2023, as compared to $1,765.9 million in the prior year period. 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 $49.2 million during the nine months period ended September 30, 2023. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $78.5 million, or 4.4%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $80.6 million, or 4.6%, at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales increase of $83.3 million, or 6.4%, to $1,385.9 million, as compared to $1,302.6 million in the prior year period. This includes an increase of $20.7 million from recent acquisitions. Excluding acquisitions, the net increase in domestic sales was $62.6 million, or 4.8%. The increase in domestic sales is related to higher shipments, product mix impacts, and price increases. International sales increased $44.4 million, or 9.6%, to $507.7 million, as compared to $463.3 million in the prior year period. This includes an increase of $28.5 million from the recent acquisitions and a decrease of $2.1 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 $18.0 million, or 3.9%. The increase in international revenues 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 $125.7 million, or 31.2%, to $528.9 million in the nine months period ended September 30, 2023, as compared to $403.2 million in the prior year period. Net sales from the acquisitions of Proxaut, CP Packaging, Colussi Ermes, Escher, and Filtration Automation, which were acquired on June 29, 2022, July 12, 2022, July 27, 2022, November 10, 2022, and June 13, 2023, respectively, accounted for an increase of $57.2 million during the nine months period ended September 30, 2023. Excluding the impact of acquisitions, net sales of the Food Processing Equipment Group increased $68.5 million, or 17.0%, as compared to the prior year period. Excluding the impact of foreign exchange and acquisitions, net sales increased $65.9 million, or 16.3%, at the Food Processing Equipment Group. Domestically, the company realized a sales increase of $57.1 million, or 19.2%, to $354.9 million, as compared to $297.8 million in the prior year period. This includes an increase of $21.3 million from recent acquisitions. International sales increased $68.6 million, or 65.1%, to $174.0 million, as compared to $105.4 million in the prior year period. This includes an increase of $35.9 million from the recent acquisitions and an increase of $2.6 million related to the favorable impact of exchange rates. Excluding the impact of foreign exchange and acquisitions, the net sales increase in international sales was $30.1 million, or 28.6%. The increase in domestic and international sales reflects growth driven by both bakery and protein products.
- Net sales of the Residential Kitchen Equipment Group decreased by $226.6 million, or 27.2%, to $605.5 million in the nine months period ended September 30, 2023, as compared to $832.1 million in the prior year period. Excluding the impact of the acquisition of Trade-Wind, net sales decreased $228.0 million, or 27.4%. Excluding the impact of foreign exchange, net sales decreased $227.7 million, or 27.4%, at the Residential Kitchen Equipment Group. Domestically, the company realized a sales decrease of $167.9 million, or 29.8%, to $395.2 million, as compared to $563.1 million in the prior year period. Excluding the impact of acquisition, net sales of the Residential Kitchen Equipment Group decreased $168.7 million, or 30.0%, as compared to the prior year period. International sales decreased $58.7 million, or 21.8%, to $210.3 million, as compared to $269.0 million in the prior year period. This includes a decrease of $0.3 million related to the unfavorable impact of exchange rates. Excluding the impact of foreign exchange and acquisition, the net sales decrease in international sales was $59.0 million, or 21.9%. The decrease in domestic and international sales was primarily driven by challenging market conditions and higher inventory levels in the channel.

**GROSS PROFIT**. Gross profit increased to $1,147.3 million in the nine months period ended September 30, 2023 as compared to $1,056.5 million in the prior year period, primarily reflecting higher sales volumes at the Commercial Foodservice Equipment Group and Food Processing Equipment Group. The impact of foreign exchange rates decreased gross profit by approximately $1.1 million. The gross margin rate was 37.9% in the nine months period ended September 30, 2023 as compared to 35.2% in the nine months period ended October 1, 2022 primarily reflecting higher sales volumes and improved product mix.

- Gross profit at the Commercial Foodservice Equipment Group increased by $98.6 million, or 15.0%, to $756.7 million in the nine months period ended September 30, 2023, as compared to $658.1 million in the prior year period. Gross profit from the acquisitions of Kloppenberg, Icetro, Marco, Flavor Burst, Blue Sparq, and Terry increased gross profit by $17.7 million. Excluding acquisitions, gross profit increased by $80.9 million. The impact of foreign exchange rates decreased gross profit by approximately $1.4 million. The gross margin rate increased to 40.0%, as compared to 37.3% in the prior year period related to higher sales volumes and improved product mix. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 40.1%.
- Gross profit at the Food Processing Equipment Group increased by $57.0 million, or 40.8%, to $196.8 million in the nine months period ended September 30, 2023, as compared to $139.8 million in the prior year period. Gross profit from the acquisitions of Proxaut, CP Packaging, Colussi Ermes, Escher, and Filtration Automation increased gross profit by $21.9 million. Excluding acquisitions, gross profit increased by $35.1 million. The impact of foreign exchange rates increased gross profit by approximately $0.4 million. The gross profit margin rate increased to 37.2%, as compared to 34.7% in the prior year period primarily related to improved product mix and acquisitions. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 37.2%.
- Gross profit at the Residential Kitchen Equipment Group decreased by $65.5 million, or 25.2%, to $194.4 million in the nine months period ended September 30, 2023, as compared to $259.9 million in the prior year period. The impact of foreign exchange rates decreased gross profit by approximately $0.1 million. The gross margin rate increased to 32.1%, as compared to 31.2% in the prior year period. The gross margin rate, excluding acquisitions and the impact of foreign exchange, was 32.1%. Gross profit margins in the prior year were negatively impacted by acquisitions, including $15.1 million of acquisition related inventory step-up charges.

**SELLING, GENERAL AND ADMINISTRATIVE EXPENSES**. Combined selling, general and administrative expenses increased to $615.4 million in the nine months period ended September 30, 2023, as compared to $596.8 million in the nine months period ended October 1, 2022. As a percentage of net sales, selling, general, and administrative expenses were 20.3% in the nine months period ended September 30, 2023, as compared to 19.9% in the nine months period ended October 1, 2022.

Selling, general and administrative expenses reflect increased costs of $28.1 million associated with acquisitions, including $4.7 million of intangible amortization expense. Selling, general and administrative expenses decreased related to lower intangible amortization expense, partially offset by higher compensation costs and selling and marketing expenses. Foreign exchange rates had a favorable impact of $0.4 million.

**RESTRUCTURING EXPENSES.** Restructuring expenses increased $3.5 million to $11.7 million in the nine months period ended September 30, 2023 from $8.2 million in the nine months period ended October 1, 2022. Restructuring expenses in the nine months period ended September 30, 2023 related primarily to headcount reductions and facility consolidations within the Commercial Foodservice Equipment Group and Residential Kitchen Equipment Group. Restructuring expenses in the nine months period ended October 1, 2022 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.

**NON-OPERATING EXPENSES**. Interest and deferred financing amortization costs were $92.1 million in the nine months period ended September 30, 2023, as compared to $62.6 million in the prior year period, reflecting the increase in interest rates and borrowing levels under our current credit facility. Net periodic pension benefit (other than service costs) decreased $25.3 million to $6.9 million in the nine months period ended September 30, 2023, as compared to $32.2 million in the prior year period related to the increase in discount rate used to calculate the interest cost. Other expense was $2.6 million in the nine months period ended September 30, 2023, as compared to $18.5 million in the prior year period and consists mainly of foreign exchange gains and losses.

**INCOME TAXES**. A tax provision of $107.9 million, at an effective rate of 24.9%, was recorded during the nine months period ended September 30, 2023, as compared to $99.3 million at an effective rate of 24.7%, in the prior year period. The effective tax rate for the nine months period ended September 30, 2023 is higher than the comparable year rate primarily due to an increase in the UK statutory income tax rate from 19% in 2022 to a 23.5% blended rate in 2023.

### Financial Condition and Liquidity

Total cash and cash equivalents increased by $5.2 million to $167.2 million at September 30, 2023 from $162.0 million at October 1, 2022. Total debt decreased to $2.6 billion at September 30, 2023 from $2.7 billion at December 31, 2022.

**OPERATING ACTIVITIES**. Net cash provided by operating activities after changes in assets and liabilities amounted to $373.1 million as compared to $173.4 million in the prior year.

During the nine months period ended September 30, 2023, working capital changes meaningfully impacted operating cash flows primarily driven by decreased inventory levels of $67.0 million, a decrease of $86.6 million in accrued expenses and other liabilities including impacts from the timing of payments made for taxes, various customer programs and incentive programs and a decrease in accounts payable of $49.2 million.

**INVESTING ACTIVITIES.** During the nine months period ended September 30, 2023, net cash used for investing activities amounted to $139.2 million. Cash used to fund acquisitions and investments amounted to $67.8 million. Additionally, $69.6 million was expended, primarily for upgrades of production equipment and manufacturing facilities.

**FINANCING ACTIVITIES.** Net cash flows used for financing activities amounted to $225.8 million during the nine months period ended September 30, 2023. The company’s borrowing activities during 2023 included $146.5 million of net proceeds under its Credit Facility. Additionally, the company repurchased $74.5 million of Middleby common shares during 2023. This was comprised of $19.5 million to repurchase 126,550 shares of Middleby common stock that were surrendered to the company for withholding taxes related to restricted stock vestings and $55.0 million used to repurchase 397,738 shares of its common stock under a repurchase program.

At September 30, 2023, 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.

### Recently Issued Accounting Standards

See Part I, Item 1, Notes to Condensed Consolidated Financial Statements, Note 4 - Recently Issued Accounting Standards, of this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations are based upon the company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences could be material to the company's consolidated financial statements. There have been no changes in the company's critical accounting policies, which include revenue recognition, inventories, goodwill and indefinite-life intangibles, convertible debt, pensions benefits, and income taxes, as discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”).

## Market risk

As filed, 3,496 characters.

### Interest Rate Risk

The company is exposed to market risk related to changes in interest rates. The following table summarizes the maturity of the company’s debt obligations:

| Twelve Month Period coinciding with the end of the company's Fiscal Third Quarter | Variable Rate Debt |
| --- | ---: |
| 2024 | $44,330 |
| 2025 | 784,303 |
| 2026 | 43,388 |
| 2027 | 1,705,112 |
| 2028 and thereafter | 3,093 |
|  | $2,580,226 |

The company is exposed to interest rate risk on its floating-rate debt. The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swapped one-month LIBOR for fixed rates. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily SOFR in lieu of LIBOR. In April 2023, all outstanding LIBOR swap agreements were amended to one month term SOFR. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of September 30, 2023, the fair value of these instruments was an asset of $62.2 million. The change in fair value of these swap agreements in the first nine months of 2023 was a loss of $2.1 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's financial position, results of operations and cash flows.

The company has Convertible Notes that were issued in August 2020, which carry a fixed annual interest rate of 1.00%. As such, the company does not have economic interest rate exposure on the Convertible Notes. The fair value of the Convertible Notes is subject to interest rate risk, market risk and other factors due to its conversion feature. The fair value of the Convertible Notes is also affected by the price and volatility of the company’s common stock and will generally increase or decrease as the market price of our common stock changes. The interest and market value changes affect the fair value of the Convertible Notes but do not impact the company’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, the company carries the Convertible Notes at face value, less any unamortized discount on the balance sheet and presents the fair value for disclosure purposes only.

### Foreign Exchange Derivative Financial Instruments

The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The potential net loss on fair value for such instruments from a hypothetical 10% adverse change in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations and cash flows. The fair value of the forward and option contracts was a loss of $0.6 million at the end of the third quarter of 2023.

## Controls and procedures

As filed, 1,465 characters.

The company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of September 30, 2023, the company carried out an evaluation, under the supervision and with the participation of the company's management, including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the company's disclosure controls and procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of this period.

During the quarter ended September 30, 2023, there has been no change in the company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

### PART II. OTHER INFORMATION

The company was not required to report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the nine months ended September 30, 2023, except as follows:

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000769520-23-000019. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.