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OFFON

THE MIDDLEBY CORPORATION

(MIDD)
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MIDDLEBY CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/10/2021 | 04:04pm EST

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, the impact of COVID-19 pandemic and the response of governments, businesses
and other third parties; volatility in earnings resulting from goodwill
impairment losses which may occur irregularly and in varying amounts;
variability in financing costs; quarterly variations in operating results;
dependence on key customers; international exposure; foreign exchange and
political risks affecting international sales; ability to protect trademarks,
copyrights and other intellectual property; changing market conditions; 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; and other risks detailed herein and from time-to-time in the
company's SEC filings, including the company's 2020 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.

Termination of Welbilt Merger


As previously disclosed, on April 20, 2021, Middleby, entered into a Merger
Agreement with Welbilt, Acquiror and Merger Sub, which provided that, upon the
terms and subject to the conditions set forth therein, Merger Sub would merge
with and into Welbilt, with Welbilt surviving as an indirect, wholly-owned
subsidiary of Middleby.

As previously disclosed, 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 five-day
match period to expire. Accordingly, on July 14, 2021, Welbilt delivered to
Middleby a written notice terminating the Merger Agreement in accordance with
Section 7.1(c)(iii) of the Merger Agreement and, concurrently with Middleby's
receipt of the termination fee of $110 million in cash from Welbilt, the Merger
Agreement was terminated on July 14, 2021.

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


Net Sales Summary
                             (dollars in thousands)

                                                       Three Months Ended                                                               Nine Months Ended
                                      Oct 2, 2021                             Sep 26, 2020                             Oct 2, 2021                            Sep 26, 2020
                                Sales             Percent               Sales              Percent              Sales              Percent              Sales              Percent
Business Segments:
Commercial Foodservice      $  511,480               62.6  %       $    371,223               58.5  %       $ 1,501,413               63.0  %       $ 1,081,847               60.6  %
Food Processing                112,670               13.8               110,648               17.4              355,172               14.9              316,477               17.7
Residential Kitchen            193,395               23.6               152,654               24.1              527,791               22.1              385,637               21.7
  Total                     $  817,545              100.0  %       $    634,525              100.0  %       $ 2,384,376              100.0  %       $ 1,783,961              100.0  %



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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                               Nine Months Ended
                                                          Oct 2, 2021             Sep 26, 2020             Oct 2, 2021             Sep 26, 2020
Net sales                                                      100.0  %                   100.0  %              100.0  %                   100.0  %
Cost of sales                                                   63.4                       64.9                  63.1                       64.9
Gross profit                                                    36.6                       35.1                  36.9                       35.1
Selling, general and administrative expenses                    21.4                       20.3                  20.8                       21.6
Restructuring                                                    0.1                        1.1                   0.1                        0.6
Merger termination fee                                         (13.5)                         -                  (4.6)                         -

Income from operations                                          28.6                       13.7                  20.6                       12.9

Interest expense and deferred financing amortization, net

                                                              1.6                        2.9                   1.8                        3.1

Net periodic pension benefit (other than service costs) (1.4)

               (1.6)                 (1.4)                      (1.7)
Other expense (income), net                                      0.1                          -                  (0.1)                       0.2
Earnings before income taxes                                    28.3                       12.4                  20.3                       11.3
Provision for income taxes                                       6.7                        2.9                   4.1                        2.6
Net earnings                                                    21.6  %                     9.5  %               16.2  %                     8.7  %



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Three Months Ended October 2, 2021 as compared to Three Months Ended September 26, 2020


NET SALES. Net sales for the three months period ended October 2, 2021 increased
by $183.0 million or 28.8% to $817.5 million as compared to $634.5 million in
the three months period ended September 26, 2020. Net sales increased by $39.4
million, or 6.2%, from the fiscal 2020 acquisitions of Wild Goose and United
Foodservice Equipment Zhuhai and the fiscal 2021 acquisitions of Novy and
Imperial. Excluding acquisitions and a disposition, net sales increased $148.9
million, or 23.7%, 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 October 2, 2021 increased net sales by approximately $7.9 million or 1.3%.
Excluding the impact of foreign exchange, acquisitions and a disposition, sales
increased 22.4% for the three months period ended October 2, 2021 as compared to
the prior year period, including a net sales increase of 31.9% at the Commercial
Foodservice Equipment Group, a net sales increase of 1.4% at the Food Processing
Equipment Group and a net sales increase of 14.2% at the Residential Kitchen
Equipment Group.

•Net sales of the Commercial Foodservice Equipment Group increased by $140.3
million, or 37.8%, to $511.5 million in the three months period ended October 2,
2021, as compared to $371.2 million in the prior year period. Net sales from the
acquisitions of Wild Goose, United Foodservice Equipment Zhuhai, and Imperial,
which were acquired on December 7, 2020, and December 18, 2020, and September
24, 2021, respectively, accounted for an increase of $18.2 million during the
three months period ended October 2, 2021. Excluding the impact of acquisitions,
net sales of the Commercial Foodservice Equipment Group increased $122.1
million, or 32.9%, as compared to the prior year period. Excluding the impact of
foreign exchange and acquisitions, net sales increased $118.5 million or 31.9%
at the Commercial Foodservice Equipment Group. Domestically, the company
realized a sales increase of $100.8 million, or 37.9%, to $366.6 million, as
compared to $265.8 million in the prior year period. This includes an increase
of $14.8 million from recent acquisitions. Excluding the acquisitions, the net
increase in domestic sales was $86.0 million, or 32.4%. International sales
increased $39.5 million, or 37.5%, to $144.9 million, as compared to $105.4
million in the prior year period. This includes an increase of $3.4 million from
the recent acquisitions and an increase of $3.6 million related to the favorable
impact of exchange rates. Excluding acquisitions and foreign exchange, the net
sales increase in international sales was $32.5 million, or 30.8%. The increase
in domestic and international sales is related to improvements in market
conditions and consumer demand, as the prior year period was significantly
impacted by the COVID-19 pandemic.

•Net sales of the Food Processing Equipment Group increased by $2.0 million, or
1.8%, to $112.6 million in the three months period ended October 2, 2021, as
compared to $110.6 million in the prior year period. Excluding the impact of
foreign exchange, net sales increased $1.5 million, or 1.4% at the Food
Processing Equipment Group. Domestically, the company realized a sales increase
of $2.3 million, or 2.8%, to $84.4 million, as compared to $82.1 million in the
prior year period. The increase in domestic sales reflects growth primarily
driven by protein products. International sales decreased $0.3 million, or 1.1%,
to $28.2 million, as compared to $28.5 million in the prior year period. This
includes an increase of $0.5 million related to the favorable impact of exchange
rates. Excluding foreign exchange, the net sales decrease in international sales
was $0.8 million, or 2.8%.

•Net sales of the Residential Kitchen Equipment Group increased by $40.7
million, or 26.7%, to $193.4 million in the three months period ended October 2,
2021, as compared to $152.7 million in the prior year period. Excluding the
impact of the acquisition of Novy, acquired on July 12, 2021, and the
disposition, net sales increased $24.8 million, or 16.8%, as compared to the
prior year period. Excluding the impact of foreign exchange, the acquisition,
and the disposition, net sales increased $21.0 million, or 14.2% at the
Residential Kitchen Equipment Group. Domestically, the company realized a sales
increase of $15.9 million, or 16.3%, to $113.2 million, as compared to $97.3
million in the prior year period. International sales increased $24.8 million,
or 44.8%, to $80.2 million, as compared to $55.4 million in the prior year
period. This includes an increase of $3.8 million related to the favorable
impact of exchange rates. Excluding foreign exchange, the acquisition, and the
disposition, the net sales increase in international sales was $5.1 million, or
10.2%. The increase in domestic and international sales reflects the strong
demand for our premium appliance brands and strength in the European market.

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GROSS PROFIT. Gross profit increased to $299.6 million in the three months
period ended October 2, 2021 from $222.7 million in the prior year period,
primarily reflecting higher sales volumes related to improvements in market
conditions and consumer demand and favorable impact of foreign exchanges rates
of $2.7 million. The gross margin rate was 35.1% in the three months period
ended September 26, 2020 as compared to 36.6% in the current year period. Gross
profit margins have been negatively impacted by rising costs of many raw
materials and inputs, as well as higher labor rates and logistics costs.

•Gross profit at the Commercial Foodservice Equipment Group increased by $59.8
million, or 46.9%, to $187.3 million in the three months period ended October 2,
2021, as compared to $127.5 million in the prior year period. Gross profit from
the acquisitions of Wild Goose, United Foodservice Equipment Zhuhai, and
Imperial increased gross profit by $7.1 million. Excluding acquisitions, gross
profit increased by $52.7 million related to higher sales volumes. The impact of
foreign exchange rates increased gross profit by approximately $1.2 million. The
gross margin rate increased to 36.6%, as compared to 34.3% in the prior year
period. The gross margin rate, excluding acquisitions and the impact of foreign
exchange, was 36.6%.

•Gross profit at the Food Processing Equipment Group increased by $1.5 million,
or 3.7%, to $41.9 million in the three months period ended October 2, 2021, as
compared to $40.4 million in the prior year period. The impact of foreign
exchange rates increased gross profit by approximately $0.3 million. The gross
profit margin rate increased to 37.2%, as compared to 36.5% in the prior year
period primarily related to higher sales volumes and product mix. The gross
margin rate, excluding the impact of foreign exchange, was 37.1%.

•Gross profit at the Residential Kitchen Equipment Group increased by $15.2
million, or 27.4%, to $70.7 million in the three months period ended October 2,
2021, as compared to $55.5 million in the prior year period. The impact of
foreign exchange rates increased gross profit by approximately $1.2 million. The
gross margin rate increased to 36.6%, as compared to 36.3% in the prior year
period related to higher sales volumes. The gross margin rate, excluding the
acquisition and the impact of foreign exchange, was 37.5%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and
administrative expenses increased from $128.8 million in the three months period
ended September 26, 2020 to $175.4 million in the three months period ended
October 2, 2021.  As a percentage of net sales, selling, general, and
administrative expenses were 20.3% in the three months period ended September
26, 2020, as compared to 21.4% in the three months period ended October 2, 2021.

Selling, general and administrative expenses reflect increased costs of $9.4
million associated with acquisitions, including $2.2 million of intangible
amortization expense. Selling, general and administrative expenses increased
$16.9 million related to compensation costs and $11.9 million related to
professional fees, including deal expenses. Higher sales volumes also resulted
in increased commission expense. Foreign exchange rates had an unfavorable
impact of $1.3 million.

RESTRUCTURING EXPENSES. Restructuring expenses were $7.3 million for the three
months period ended September 26, 2020 and $0.8 million for the three months
period ended October 2, 2021. Restructuring expenses in both periods related
primarily to headcount reductions and facility consolidations within the
Commercial Foodservice Equipment Group.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were
$13.2 million in the three months period ended October 2, 2021, as compared to
$18.4 million in the prior year period, reflecting the reduction in borrowing
levels, the reduction in average interest rates under the Credit Facility and
the benefit from the Convertible Notes. Net periodic pension benefit (other than
service costs) increased $1.3 million to $11.4 million in the three months
period ended October 2, 2021 from $10.1 million in the prior year period,
related to the decrease in discount rate used to calculate the interest cost.
Other expense was $0.8 million in the three months period ended October 2, 2021,
as compared to other income of $0.3 million in the prior year period and
consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of $54.9 million, at an effective rate of 23.8%,
was recorded during the three months period ended October 2, 2021, as compared
to $18.2 million at an effective rate of 23.1%, in the prior year period.
                                       34
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Nine Months Ended October 2, 2021 as compared to Nine Months Ended September 26, 2020


NET SALES. Net sales for the nine months period ended October 2, 2021 increased
by $600.4 million or 33.7% to $2,384.4 million as compared to $1,784.0 million
in the nine months period ended September 26, 2020. Net sales increased by $73.5
million, or 4.1%, from the fiscal 2020 acquisitions of Deutsche, Wild Goose and
United Foodservice Equipment Zhuhai, and fiscal 2021 acquisitions of Novy and
Imperial. Excluding acquisitions and a disposition, net sales increased $540.9
million, or 30.6%, 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 October 2, 2021 increased net sales by approximately $39.2 million or
2.2%. Excluding the impact of foreign exchange, acquisitions and a disposition,
sales increased 28.3% for nine months period ended October 2, 2021 as compared
to the prior year period, including a net sales increase of 32.2% at the
Commercial Foodservice Equipment Group, a net sales increase of 10.7% at the
Food Processing Equipment Group and a net sales increase of 32.2% at the
Residential Kitchen Equipment Group.

•Net sales of the Commercial Foodservice Equipment Group increased by $419.5
million, or 38.8%, to $1,501.4 million in the nine months period ended October
2, 2021, as compared to $1,081.9 million in the prior year period. Net sales
from the acquisitions of Deutsche, Wild Goose, United Foodservice Equipment
Zhuhai, and Imperial, which were acquired on March 2, 2020, December 7, 2020,
December 18, 2020, and September 24, 2021, respectively, accounted for an
increase of $52.3 million during the nine months period ended October 2, 2021.
Excluding the impact of acquisitions, net sales of the Commercial Foodservice
Equipment Group increased $367.2 million, or 33.9%, as compared to the prior
year period. Excluding the impact of foreign exchange and acquisitions, net
sales increased $348.0 million or 32.2% at the Commercial Foodservice Equipment
Group. Domestically, the company realized a sales increase of $296.3 million, or
38.6%, to $1,064.5 million, as compared to $768.2 million in the prior year
period. This includes an increase of $40.3 million from recent acquisitions.
Excluding acquisitions, the net increase in domestic sales was $256.0 million,
or 33.3%. The increase in domestic sales is related to improvements in market
conditions and consumer demand. International sales increased $123.2 million, or
39.3%, to $436.9 million, as compared to $313.7 million in the prior year
period. This includes an increase of $12.0 million from the recent acquisitions
and an increase of $19.2 million related to the favorable impact of exchange
rates. Excluding acquisitions and foreign exchange, the net sales increase in
international sales was $92.0 million, or 29.3%. The increase in international
revenues is related to improvements in market conditions, primarily in the
European and Asian markets.

•Net sales of the Food Processing Equipment Group increased by $38.7 million, or
12.2%, to $355.2 million in the nine months period ended October 2, 2021, as
compared to $316.5 million in the prior year period. Excluding the impact of
foreign exchange, net sales increased $34.0 million or 10.7% at the Food
Processing Equipment Group. Domestically, the company realized a sales increase
of $31.8 million, or 14.0%, to $259.6 million, as compared to $227.8 million in
the prior year period. The increase in domestic sales reflects growth primarily
driven by both protein and bakery products. International sales increased $6.9
million, or 7.8%, to $95.6 million, as compared to $88.7 million in the prior
year period. This includes an increase of $4.7 million related to the favorable
impact of exchange rates. Excluding the foreign exchange, the net sales increase
in international sales was $2.2 million, or 2.5%. The increase in international
revenues is primarily driven by protein projects.

•Net sales of the Residential Kitchen Equipment Group increased by $142.2
million or 36.9%, to $527.8 million in the nine months period ended October 2,
2021, as compared to $385.6 million in the prior year period. Excluding the
impact of the acquisition of Novy, acquired on July 12, 2021, and the
disposition, net sales increased $135.0 million, or 36.3%, as compared to the
prior year period. Excluding the impact of foreign exchange, the acquisition,
and the disposition, net sales increased $119.7 million, or 32.2%, at the
Residential Kitchen Equipment Group. Domestically, the company realized a sales
increase of $71.0 million, or 26.9%, to $335.1 million, as compared to $264.1
million in the prior year period. International sales increased $71.2 million,
or 58.6%, to $192.7 million, as compared to $121.5 million in the prior year
period. This includes an increase of $15.3 million related to the favorable
impact of exchange rates. Excluding foreign exchange, an acquisition, and a
disposition, the net sales increase in international sales was $48.7 million, or
45.3%. The increase in domestic and international sales reflects the strong
demand for our premium appliance brands and strength in the European market.

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GROSS PROFIT. Gross profit increased to $879.2 million in the nine months period
ended October 2, 2021 from $626.1 million in the prior year period, primarily
reflecting higher sales volumes related to improvements in market conditions and
consumer demand and the favorable impact of foreign exchanges rates of $14.2
million. The gross margin rate was 35.1% in the nine months period ended
September 26, 2020 as compared to 36.9% in the current year period. Gross profit
margins have been negatively impacted by rising costs of many raw materials and
inputs, as well as higher labor rates and logistics costs.

•Gross profit at the Commercial Foodservice Equipment Group increased by $176.9
million, or 46.8%, to $554.5 million in the nine months period ended October 2,
2021, as compared to $377.6 million in the prior year period. Gross profit from
the acquisitions of Deutsche, Wild Goose, United Foodservice Equipment Zhuhai,
and Imperial increased gross profit by $18.8 million. Excluding acquisitions,
gross profit increased by $158.1 million related to higher sales volumes. The
impact of foreign exchange rates increased gross profit by approximately $6.9
million. The gross margin rate increased to 36.9%, as compared to 34.9% in the
prior year period. The gross margin rate, excluding acquisitions and the impact
of foreign exchange, was 37.0%.

•Gross profit at the Food Processing Equipment Group increased by $15.7 million,
or 13.9%, to $128.3 million in the nine months period ended October 2, 2021, as
compared to $112.6 million in the prior year period. The impact of foreign
exchange rates increased gross profit by approximately $2.3 million. The gross
profit margin rate increased to 36.1%, as compared to 35.6% in the prior year
period primarily related to higher sales volumes and product mix. The gross
margin rate, excluding the impact of foreign exchange, was 35.9%.

•Gross profit at the Residential Kitchen Equipment Group increased by $58.8
million, or 42.8%, to $196.3 million in the nine months period ended October 2,
2021, as compared to $137.5 million in the prior year period. The impact of
foreign exchange rates increased gross profit by approximately $5.0 million. The
gross margin rate increased to 37.2%, as compared to 35.7% in the prior year
period, related to higher sales volumes. The gross margin rate, excluding the
acquisition and the impact of foreign exchange, was 37.6%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general and
administrative expenses increased from $384.6 million in the nine months period
ended September 26, 2020 to $496.0 million in the nine months period ended
October 2, 2021. As a percentage of net sales, selling, general, and
administrative expenses were 21.6% in the nine months period ended September 26,
2020, as compared to 20.8% in the nine months period ended October 2, 2021.

Selling, general and administrative expenses reflect increased costs of
$19.2 million associated with acquisitions, including $6.5 million of intangible
amortization expense. Selling, general and administrative expenses increased
$56.0 million related to compensation costs and $28.0 million related to
professional fees, including deal expenses. Higher sales volumes also resulted
in increased commission expense, which was offset by decreases in bad debt
provisions. Foreign exchange rates had an unfavorable impact of $6.9 million.

RESTRUCTURING EXPENSES. Restructuring expenses decreased $7.7 million from $10.3
million in the nine months period ended September 26, 2020 to $2.6 million in
the nine months period ended October 2, 2021. Restructuring expenses in both
periods related primarily to headcount reductions and facility consolidations
within the Commercial Foodservice Equipment Group.

NON-OPERATING EXPENSES. Interest and deferred financing amortization costs were
$43.5 million in the nine months period ended October 2, 2021, as compared to
$55.9 million in the prior year period, reflecting the reduction in borrowing
levels, the reduction in the average interest rates under the Credit Facility
and the benefit from the Convertible Notes. Net periodic pension benefit (other
than service costs) increased $4.3 million to $34.3 million in the nine months
period ended October 2, 2021 from $30.0 million in the prior year period,
related to the decrease in discount rate used to calculate the interest cost.
Other income was $1.4 million in the nine months period ended October 2, 2021,
as compared to other expense of $3.4 million in the prior year period and
consists mainly of foreign exchange gains and losses.

INCOME TAXES. A tax provision of $97.7 million, at an effective rate of 20.2%,
was recorded during the nine months period ended October 2, 2021, as compared to
$46.5 million at an effective rate of 23.0%, in the prior year period. The lower
rate in the current year is primarily due to several discrete tax benefits,
including a deferred tax benefit for the enacted UK tax rate change from 19% to
25% and tax benefits from amended U.S. tax returns, partially offset by a tax
charge for state deferred tax rate changes. When excluding the discrete tax
adjustments, the 2021 rate was approximately 24.0%.

                                       36
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Financial Condition and Liquidity
During the nine months ended October 2, 2021, cash and cash equivalents
decreased by $16.6 million to $251.5 million from $268.1 million at January 2,
2021. Total debt increased to $1.9 billion at October 2, 2021 from $1.7 billion
at January 2, 2021 primarily due to the adoption of ASU 2020-06 as discussed in
Note 4, Recently Issued Accounting Standards, in the Notes to the Condensed
Consolidated Financial Statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
OPERATING ACTIVITIES. Net cash provided by operating activities was $346.0
million for the nine months ended October 2, 2021, compared to $316.2 million
for the nine months ended September 26, 2020. During the nine months period
ended October 2, 2021, the company received approximately $67.7 million in a
termination fee, net of deal costs and taxes, approximately.

During the nine months period ended October 2, 2021, working capital changes
meaningfully impacted operating cash flows. These included an increase in
accounts receivable of $97.4 million due to improved market conditions and
increased sales volumes. Also, inventory increased $134.5 million and accounts
payable increased $61.3 million to support increased demand and to manage supply
chain risks.
INVESTING ACTIVITIES. During the nine months ended October 2, 2021, net cash
used for investing activities amounted to $412.7 million. Cash used to fund
acquisitions and investments amounted to $389.0 million primarily for the 2021
acquisitions of Novy and Imperial during the nine months ended October 2, 2021.
Additionally, $29.7 million was expended, primarily for additions and upgrades
of production equipment, manufacturing facilities and residential and commercial
showrooms. Proceeds on the sale of property following facility consolidation
actions generated $6.1 million
FINANCING ACTIVITIES. Net cash flows provided by financing activities were $54.4
million during the nine months ended October 2, 2021. The company's borrowing
activities during the nine months ended October 2, 2021 included $64.4 million
of net proceeds under its Credit Facility. The company used $2.5 million to
repurchase 14,652 shares of Middleby common stock that were surrendered to the
company by employees in lieu of cash payment for withholding taxes related to
restricted stock vesting during the quarter. Additionally, the company settled
deferred purchase price obligations of $5.9 million during the nine months ended
October 2, 2021.
At October 2, 2021, 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.

                                       37
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Recently Issued Accounting Standards


See Part I, Item 1, Notes to Condensed Consolidated Financial Statements, Note 4
- Recent 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 other
intangibles, pensions benefits, and income taxes, as discussed in the company's
Annual Report on Form 10-K for the year ended January 2, 2021 (the "2020 Annual
Report on Form 10-K") other than those described below.

Effective January 3, 2021, the company adopted ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity."

                                       38

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