Middleby Corp (MIDD) 2009 Q4 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the Middleby Corporation fourth-quarter conference call. With us today from management are Middleby Chairman and Chief Executive Selim Bassoul and Company Chief Financial Officer Tim Fitzgerald. This call will include a question-and-answer period and we will give instructions for that later.

I would now like to turn the call over to Mr. Fitzgerald. Go ahead, sir.

Good morning and thank you for attending today's call. I am Tim Fitzgerald, CFO of The Middleby Corporation and joining us today is Selim Bassoul, our Chairman and CEO.

I have some initial comments about the Company's 2009 fourth-quarter results and then we will open up the conference call for questions and answers.

We are pleased with the results of our fourth quarter. While the industry environment remains challenging, we remain focused on executing our cost savings initiatives and we are very pleased with the continuing strength in our cash flow generation.

We also continue to execute on our acquisition strategy, strengthening our portfolio of brands with the acquisition of Doyon, a leader in the manufacture of baking ovens, and we also continued our R&D efforts and added to our technology portfolio through our technology partnership with SpinFry, which further enhances our leadership position in fryers with the development of a unique product that reduces oil and fat content of fried food while, at the same time, providing for significant oil savings.

During the fourth quarter, we also continued to invest in our selling organization with the restructure of our international sales operations and the addition of salespeople in key international markets, expanding the scope of our coverage. We believe these investments will better position Middleby to penetrate the international markets with our increased portfolio of brands and technologies.

The fourth-quarter results included the impact from our four acquisitions completed during 2009, including TurboChef Technologies on January 5, Anets on April 26, CookTek on April 30 and the most recent acquisition, Doyon, on December 14.

Net sales in the 2009 fourth quarter of $152.5 million increased 1% from $151 million in the fourth quarter of 2008.

Sales growth from recent acquisitions accounted for $19.9 million in the quarter. Excluding the impact of acquisitions, sales declined by $12.2 million as compared to the prior year quarter. This decline included a sales reduction of 15.7% at the commercial food service group, offset in part by a 14.7% increase at the food processing group.

The rate of decline at the commercial food service group lessened in the fourth quarter and although we continued to see further decline early in the 2010 first quarter, the order rate, after excluding the impact of approximately $40 million of revenues primarily related to a large chain rollout that will be nonrecurring in the 2010 first quarter, have begun to stabilize the 2009 levels as we continue through the quarter.

Increased sales at the food processing group reflect the placement of orders which had been deferred for several quarters. We have seen an increase in quoting activity at this business unit and believe that we have seen the initial signs of recovery in this segment, which realized the downturn approximately six to nine months prior to the downturn in the commercial food service segment.

Gross profit increased to $58.5 million from $57.5 million in the prior year quarter. And the gross margin rate improved slightly to 38.3% from 38.1%. The margin improvement was realized at both the commercial food service group and the food processing group.

The improvement in the gross margin rate reflects efficiency gains from the consolidation of production facilities offset in part by lower sales volumes and less favorable sales mix as sales at the food processing segment, which represented a larger portion of our sales in the fourth quarter, were lower than the commercial segment.

As we move into 2010, we expect to continue to realize savings from the plant consolidation initiatives. During 2009, we consolidated two manufacturing facilities. The production of the counter line equipment was consolidated into our Tennessee facility in August, resulting in the shutdown of a manufacturing plant in Nevada and resulting in anticipated annual savings of approximately $7 million annually.

In December, we also consolidated the production of our fryer manufacturing into our New Hampshire facility, resulting in the closure of a production facility in Illinois where the Anets product line had been built when we acquired it in April of 2009. Savings from this consolidation are anticipated to amount to approximately $1.5 million annually.

We also anticipate that we will further reduce material costs as we implement strategic initiatives to consolidate purchases amongst our divisions for key supply items. These initiatives should start to be realized in the second quarter and increase through the remainder of the year.

But we have seen some slight increase in steel pricing in the first quarter but anticipate these increases will be more than offset by our supply-chain initiatives in the second half of the year.

Selling and distribution expenses during the quarter amounted to $14.9 million as compared to $13.9 million in the prior year quarter. Selling and distribution expenses included $1.7 million of expense at the newly acquired businesses. The increased costs from the acquisitions were offset by reduced commission expenses as a result of lower commissionable sales and lower average commission rates.

Additionally, marketing and other discretionary spend were reduced in an effort to offset the lower sales volumes.

General and administrative expenses amounted to $15.2 million as compared to $13.5 million in the prior year fourth quarter. General and administrative expenses included $2.5 million of additional expenses at the recently acquired businesses, and $1.6 million of severance and costs related to the plant consolidation initiatives. And these increased costs were offset by lower incentive compensation costs and other expense reduction initiatives instituted during the year.

Net interest expense and deferred financing costs amounted to $2.8 million in the fourth quarter as compared to $3.1 million in the prior year, reflecting the benefit of lower interest rates, which offset the impact of higher debt balances resulting largely from the funding of the TurboChef transaction in the first quarter of the year.

Provisions from income taxes amounted to $8.1 million at a 31% effective rate in the fourth quarter; and this reflects a $1.2 million benefit associated with one-time permanent items. Excluding the favorable benefit the effective rate for the fourth quarter would have amounted to approximately 36% and for the full year would have amounted to 40%.

During the 2009 quarter or the 2009 full year, the Company also realized approximately $6 million of cash tax savings associated with the utilization of net operating losses associated with the TurboChef transaction. This tax benefit is not reflected in the tax provision and has been recorded as utilization of an asset that was established in the opening balance sheet when we acquired TurboChef. And we will continue to realize a cash benefit of similar amounts over the next several years.

Net earnings for the 2009 fourth quarter increased to $17.9 million or $0.95 per share from $17.3 million net earnings or $1.04 per share in the prior year quarter.

We were very pleased with the continuing strength of our operating cash flows during this challenging environment. Operating cash flows amounted to $23.6 million during the fourth quarter; and for the full year operating cash flows increased by 18.1% from $85.3 million in 2008 to $100.8 million in fiscal 2009. Operating cash flows for the year also included approximately $10 million in transaction-related costs associated with the TurboChef transaction which were paid during the first quarter of 2009.

Non-cash expenses added back in calculating operating cash flows included non-cash share-based compensation costs of approximately $10.5 million and depreciation of $6.3 million and $9.6 million of intangible and deferred financing amortization.

Operating cash flows for the year were utilized to fund capital expenditures of $5.7 million and fund $133.3 million associated with the acquisitions of TurboChef, Anets, CookTek and Doyon. Additionally, we issued 1.5 million shares of Middleby common stock during the year with a value of $44 million, associated with the TurboChef acquisition.

Total debt at the end of the 2009 fourth quarter amounted to $275.6 million as compared to $295 million at the end of the third quarter and $234.7 million at the end of 2008. The Company's debt is largely financed under a $497.5 million senior revolving credit facility that matures in December 2012.

The Company's EBITDA ratio as computed under its senior debt agreement was approximately 1.9 times as compared to a maximum leverage covenant of 3.5 times and our fixed charge coverage ratio was 9.9 times compared to the minimum coverage ratio of 1.25. And the Company remains in compliance with all the covenants under our bank agreements.

As it relates to the balance sheet, the net changes in the balance sheet during the year reflect the impact of the acquisitions. The acquisitions accounted for an increase of $11 million to accounts receivable as compared to the prior year opening balance sheet; an increase of $12.9 million to inventory; $2.7 million in property, plant and equipment; an increase in $7.6 million in accounts payable and an increase in $9.4 million of accrued liabilities. Additionally, we recorded $91.8 million of goodwill and $64.1 million of other intangible assets associated with these acquisitions.

Other changes in the balance sheet include reduction in receivables and inventory associated with the completion in -- of production and collection of receivables associated with a large chain rollout which occurred earlier in the year as well as some favorable working capital impact from the plant consolidations.

As it relates to the acquisitions, we are pleased with the continuing progress made at the TurboChef acquisition which was completed in the first quarter. Although revenues are lower, reflecting the impact of industry conditions, we have achieved significant improvement in profitability at this division. And we have completed our integration initiatives associated with this acquisition, which included the elimination of the redundant corporate overhead expenses, re-organization of the residential business and implementation of profitability enhancements at the commercial oven business.

Gross margins have improved to approximately 40%, up from 35% at the time of acquisition. And additional EBITDA margins, which were historically negative at this business, improved to over 20% for the full year.

We remain very excited about the opportunities in the speed cook arena and believe this will be one of the faster growing segments in the food service industry for the upcoming three to five years and TurboChef is well positioned as the leader in this category.

As previously mentioned, we also completed the acquisitions of Anets and CookTek during the second quarter. These acquisitions will allow Middleby to continue to strengthen our leadership position in the cooking and warming segment. And these companies have combined revenues of approximately $15 million during the year. And while these acquisitions were slightly dilutive in 2009, we anticipate they will be accretive in 2010 as we realize integration initiatives, which includes the consolidation of the Anets production facility which was completed in December, as I previously mentioned.

We also believe there are significant revenue growth opportunities with CookTek as market acceptance of induction cooking increases. Since the acquisition of CookTek in April, we have generated interest with several of our chain customers in this unique technology which provides for significant energy savings, safety and speed of cooking.

We were pleased to announce the acquisition of Doyon during the fourth quarter. This acquisition complements our Nu-Vu baking division and provides Middleby with a more complete product line in the baking oven category. We believe the combination of Nu-Vu and the Doyon divisions -- which now report as a collective group -- will provide for sales and manufacturing synergies, which we will realize over the next 18 to 24 months.

That is all for our prepared commentary. Operator, could you please now open the call for questions?

(Operator Instructions). Tony Brenner.

Thank you. Couple of things. First of all, Tim, the amount of savings you would realize from the consolidation on Anets kind of got garbled. Could you just repeat that number?

It's going to be approximately $1.5 million annually. So we would start realizing that in the first quarter of 2009 -- or 2010.

It looks like the international business turned up sharply in sales in the fourth quarter with an unusually large year-over-year increase. What's the story behind that?

The international sales?

Yes. I'm looking at not your international distribution number, but the sales by geography -- actually, what you sold in international markets.

The sales in the fourth quarter, we did start to see some improvement with our orders from our Middleby Marshall oven division. But there was still -- we still had softer sales in the international markets. So we saw less of a decline in the fourth quarter, but sales were not up in the fourth quarter internationally.

We had seen double-digit declines. They were along the lines of 20% for most of the year and that dropped down to about a 10% decline in the fourth quarter. So we started to see some return in the emerging markets as well as the UK, but Europe, continental Europe remained very challenging. And we think that will continue to be a challenging market in 2010.

The food processing pickup, how much of a backlog remains on orders that earlier had been postponed?

We -- you know, I'm not going to comment on a specific backlog number, but we did carry an improved backlog rate on the food processing business going into 2010 over 2009. So we saw our orders pick up in 2010. Obviously we saw a 14.7% increase in revenues and I would say the backlog was up a similar amount as we headed into the first quarter for that business.

Okay. So it is not a one-time improvement from orders that had been behind? But it's an ongoing pickup?

Well, I think the orders that were deferred, they came in and we started to fill them. The improvement that we saw in the backlog was from the deferred orders. So, I mean, we -- while we brought them in, we didn't complete all of them and ship them out.

So I would say we kind of got a lump sum of orders that came, the final [end] that we had quoted and had engineering designs out there for a while. So I think that was kind of a blip.

But at the same point in time we continue to see higher levels of quoting there. And we think we will have more success in closing some of those projects timely as we move into this year. So I think we are hopeful that things have started off strong, but we are hopeful that that will continue.

And the 40% tax rate is an ongoing number for 2010?

Yes. Yes. So normalized, we are at 40%. You know, as I pointed out in the commentary our actual cash tax rate is substantially lower due to a number of items, the NOLs being one piece, but the book effective rate is about 40%.

Thank you.

Peter Lisnic.

Good morning, everyone. I guess the first question, Tim, if you can maybe give us a little bit more color commentary on what you're seeing on the order front in January and February [comps] like things -- you're saying stabilized but I get the impression that maybe on the commercial food service side at least that comps starting to turn positive. Is that the right way to think about it or maybe just some commentary on what you're seeing there and what customers are telling you for, not necessarily the first half of the year, but also the second half.

Yes. Break it into two pieces. Yes, I mean, I think we are cautiously optimistic that we are seeing some improvement in the food processing business. And that is starting to turn up. But as you know, that's a smaller piece of our business.

On the commercial food service side, first I want to remind everybody, and I mentioned it in the commentary, is that in the first quarter we've got a very difficult quarter-over-quarter comparison as we had about $40 million of nonrecurring chain business, the bulk of that being the large KFC order.

So if you back that out -- which is how I'm looking at the order run rate, we continued to be down as we entered into the first quarter. So comps were negative in January. And then, that started to stabilize in the back half of the quarter as we are moving through the quarter.

And then how -- can you give us a sense as to what your customers might be saying in terms of second quarter, third quarter, fourth quarter in terms of that order pattern?

I think it is still too early to indicate kind of what that is. I mean, I think the environment I think we think is more stable than last year so comparative to 2009. But it's still difficult to really forecast an outlook for the remainder of the year.

And is there -- I think you alluded to this in the past but is there an element of some pent-up demand that could be released, if you will, like maybe in the back half of this year? Are you hearing that from customers to any degree?

Let me answer that. First of all, let me go back and answer your question a little bit more specifically on the foodservice side. The foodservice side, where we sell to restaurants and schools as an example, several markets such as international and institutional have rebounded. And we are receiving orders that were deferred.

Other areas, such as casual dining and fast casual, are still facing headwinds. However, I can tell you that we are seeing the levels of inquiry increase across the board.

So going back to your question of pent-up demand, we feel strongly that the pent-up demand are going to most probably come through, I believe somewhat toward the end of this year or early next year. And there is a significant pent-up demand.

I am here literally at the show, at the pizza show, and I can tell you that I am hearing a lot of upbeat versus a year ago when we attended that show. So there is a lot of pent-up demand. People who are facing significant repair bills because some of these haven't changed their ovens for a couple of years and service calls are expensive, parts are more expensive.

So we are going to start seeing the pent-up demand. It is coming and whether it comes in the end of this year or the beginning of next year, we know that it's there and it's going to happen.

Okay. Great. I appreciate that color on that answer. And then just quickly, Tim, you mentioned steel costs as sort of a headwind in the first quarter. I'm guessing that's -- I don't know -- 100 or 200 basis points of gross margin but net impact for the year sounds like it might be flat effectively with some of these supply-chain initiatives that you're undertaking. Is that the right way to think about it on the gross margin line?

Yes. I think that's right. I mean, we've got a number of initiatives that we feel positive about for the year. I think those start to kick in as we head into the year, so there will be a lesser effect in the first quarter, but probably ramp up in the second quarter and through the back half of the year.

So they will, we anticipate that will offset steel, but from a timing perspective, steel will be a little bit of a headwind in the first quarter and then we will see. It will probably net to a positive in the back. That is also dependent on what steel does during the course of the year, which we are seeing some modest increase right now.

If you sort of take away the commodity costs, some of these things that you are doing on the supply-chain side, is there a way that you can kind of ballpark what sort of the go-forward benefits are? I mean, is this going to save you 100 or 200 basis points a year?

I think they're substantial. But I think it's not something that we want to forecast a number. I think as we kind of move later into the year and we start realizing the savings, I think that then we will be more comfortable speaking to it then.

All right. Appreciate the color. Thank you both.

Greg Halter.

Hello. I noticed in your filings that the advanced customer deposits were about $14 million, up from $4.4 million last year. What should we take away from that or read into that increase?

There are a couple of components to that. In that line item we do -- typically with a food processing group we do get advanced customer deposits as we start large projects. So consistent with the comments of the higher levels of backlog that we are carrying into that business, we've got some customer deposits for the food processing business and those are larger orders in nature so that we take a significant portion of those deposits upfront.

So that is part of the increase. The other piece of that is associated with the TurboChef business. And that increase is just a function of -- you know, TurboChef wasn't in our balance sheet at the end of last year and it is this year, because they've got some deferred warranty programs or multiple year warranty programs where we get paid for those in advance that cover warranty over multiple year periods. So that also accounts for a part of the increase year over year.

And a similar question but on another topic, on warranty expense, that was $23.4 million, up from $14.2 million, about a 59% increase. The reason behind that as well?

Actually a large part of that also is really associated with TurboChef. Because of this deferred warranty program, the warranty on -- the extended warranty program [as] a percentage of those warranty revenues are much higher, because it's only a couple or a few percent if you are looking at a one-year warranty on a product.

So that throws off the percentages. If you were to exclude kind of the deferred warranty program, our warranty rate was pretty consistent year over year.

And what would you guess for your capital spending and depreciation and amortization in 2010?

CapEx for the Company is, we've always kind of said it's a number that is less than 2% of sales. And that is how we budget it. But historically we have always been well below 2% of sales and it has usually been in the -- you can see we spent slightly less than 1% this year.

So I would say 1% to 2% on the very conservative level is typically the range of CapEx. Depreciation would probably be fairly consistent with what it was last year.

And one last one. Just wanted to get your comments on the M&A outlook for the Company for 2010.

The pipeline remains consistent with what it has been over the last several years. So the industries we operate in still remain fragmented and there's a number of opportunities out there.

So I would say, obviously, we never, you know, allude specifically to what acquisitions we're working on, but I would say the pipeline is consistent.

Okay. Thank you.

Jamie Sullivan.

It's Mike Salinsky filling in for Jamie this morning.

Still have a few questions left on my list. So, have you seen any pressure on customers on pricing in the fourth quarter and going into 2010?

The question is literally about pricing?

Yes. Have you seen any pushback from your customers on the prices of your products?

I have to tell you that, one, over the years if you've followed Middleby we have not dropped price to gain market share. However, as we continue focusing our Company away from pricing to payback, which has been something that we started two years ago where every innovation on R&D that we produced had to have a payback.

So our engineering department, R&D department has been very much challenged to create what I call a payback initiative. And in most of our R&D, our payback -- whether it is in oil saving or energy or labor or efficiency -- have been in less than I would say less than 24 months. That has been our biggest initiative in the last two years.

So I think if you look at Middleby, since we have been big on payback to our customers, pricing becomes less of an issue. I have also to tell you in the marketplace that customers we talk to, as long as you do what I call a reasonable price increase, which is below 5%, I think we're okay. You start increasing pricing in an environment where commodities are flat, they will start having issues.

So we see our price increases to remain between 0 to 5% of what we're doing as we move forward consistent with what the customers are not going to switch brands when you stay there.

Now stainless steel prices start going up, which we've seen in the last two, three years, customers have been willing to take part of that stainless steel increase in terms of either surcharges or price increases. But I would say that Middleby, having focused on payback, pricing has become less of an issue for us.

Great. So it sounds like that hasn't really changed all that much. What about -- have you seen any new activity from your customers on menu items? I know Wendy's was talking about investing in breakfast this morning or actually earlier today.

Are there any other initiatives that you've heard of from your larger customers in new menu items?

It's fantastic that you are asking about that. Our biggest target for Middleby going on between from 2010 to 2012, in the next I would say two and a half years is the QSR as they continue to add menu items, and with kitchen space, have become highly limited. So if you think about that, they continue adding items, they continue adding -- they -- innovative concepts, whether it is adding beverages or chilled beverages or hot menu item or hot breakfast, it's becoming highly limited kitchen space.

Our ventless technology is key to some. And this is where Middleby is highly positioned with the QSR with our ventless technology as we move forward with respect to the QSR, because ventless takes a lot less space. They don't need to put a hood. And this is where the last, I would say two years -- if you go back to our [stretch] of R&D ventless is our next frontier. And we are seeing a lot of interest in our ventless technology.

Got it. Thank you. I also noticed obviously a pretty decent rollback in your SGA expenses in the fourth quarter. Obviously some of that was due to sales. But what kind of bounceback do you think you'd get? Would it scale 1 to 1 with sales as perhaps sales bounces back in 2010 and 2011? Or do you see yourselves maybe being able to even cut additional costs going forward from your sales and from your G&A lines?

I think we will continue to have some permanent improvement. As sales come back there is some correlation with sales. So maybe half of that would kind of roll back as an increase to G&A expense.

Got it. Great. And if I can just ask one more. Can you just give a little bit more color on your new products that are rolling out maybe in the first half of 2010 and the kind of impact those new products might have?

I could answer that, Tim, if you don't mind. I would like to talk about several initiatives for our new products that are kicking off in the first half of this year.

I would say TurboChef has a new platform of cooking equipment which is speed cooking. And we have a new product called [Soda] which is more a TurboChef product that is very, very strong for breakfast menu. This is a new initiative and the product is out. It got released. We are very excited about that product. It is highly innovative. It is unique, the design, using the speed cooking technology of TurboChef.

Our Mini WOW!, which allows us to go after the international markets and where space is restricted, we took our WOW! oven and we developed a Mini-WOW!, which is baking pizza in literally less than three minutes and has savings of 35% of energy. We are looking at a new line of induction cooking that is being well introduced in the first half of this year.

We are looking also at our Visual combi-ovens. We have introduced a new line of gas oven which allows us to go now after the $1 billion plus market that we have not been able to go after before. So now we are a real player in the combi-oven market through the Blodgett and Houno acquisition that we've done several years ago.

Houno was a player in the electric market and now we have introduced a gas combi-oven where gas is a very large part of the market where we were not a player in that segment with Houno.

And I think we have the Hydrovection that was the oven that allowed the grilled chicken concept to work on. And that product is now being adapted to more general market where it is not only a chicken application, but more general market.

We have also a new range line coming up in this quarter by Southbend. And you can go to buildmyrange.com and you can see how this range line is very, very impressive. So again it is buildmyrange.com.

I would look also to say the Kitchen Innovation Award that's issued by the National Investment Association, we have several innovative products that we won that will be exhibited at the NIA show in a couple of months. The Mini WOW! one, the SpinFry fryer is one other one, and the Ultimate Range was the third one.

So we have a large number of products that were basically accepted as a Kitchen Innovation Award this year.

That does sound like a lot. Is that a lot more than you had at this time last year? Can you repeat that?

I would say it looks like a lot, but if you look back most probably you were focusing more on innovation or focusing more on -- we've always said we are going to have 10 new products, disruptive product every year. And I think that this continues to be our goal, to have 10 disruptive products.

So if you go back to Middleby and despite the recession, we did not cut back on our R&D. We invested in our innovation, and our R&D structure continues to be very strong. So --.

Got it. Well, thank you very much for all those answers.

Joel Tiss.

Pretty much everything has been answered, and just one thing. You took the raw material part of your inventory up a lot at the end of the year and I just wondered if you could give us a sense of what you're seeing there and what's behind that?

I guess it depends on what period you are comparing it from. If you're comparing it from the end of last year, some of that would have just been the result of acquisition. But we did also anticipate some of the increase in steel, so there was some buy ahead in raw materials related to that as well.

Okay. And then the contracts overall you said cover you for the next six months or so?

What, steel contracts?

Yes.

We were -- no, we've had shorter term contracts so we are kind of locked in on the base price of steel. We have been really rolling 90 days at a time so we are covered through the end of the first quarter and then rolling through there. But the surcharges have become a larger portion of the overall cost of steel, which are not locked in from a contractual standpoint. So we float on that.

Okay. Then can you give us any help on how to think about the comparison that is coming up in the quarter that we are in now, just because you had that big Kentucky grilled contract, grilled chicken contract a year ago, and it's obviously not going to be there?

Yes. I mean, as you know, Joel, we don't give guidance. I mean, clearly I think if you are looking at year-over-year comparison, you need to back that number out. And then as I indicated with the earlier comments, we saw orders continuing to be down in the early part of the quarter, but turning up as we finished the back half so that is going to net out.

I'm not sure exactly where it nets out to, but it's probably not materially up or down. And then you've got the impact of some of the acquisitions that we had completed as they wouldn't have all -- other than TurboChef, those other acquisitions wouldn't have been included in the first-quarter revenues.

All right. Thank you.

Peter Lisnic.

I guess just one quick strategic question. Any impact from some of the changes, I guess, that are occurring on the distribution side of the business with your customer base?

I think that I'm going to answer that, Peter. I think from a distribution channel we are closer to our dealers and our customers than ever. I think even in the US, we're seeing a close relationship between our dealers and us. I think that as the consolidation occurred in the industry as you have literally three to four major players now in the food service industry in the US, there has been a significant relationship building between Middleby and the dealer network.

On the national account team, the creation of our national account team has created a unique (technical difficulties) [relationship]. We have today a unique national account team with a concierge desk where it allows our customers to navigate the decentralized nature of our business through a one point of contact. And I think we have invested in the national account team here in the US very, very strongly even at a time where we were in a downturn, which makes it very, very unique.

So we have increased our national sales team in the US, at a time where most companies are primarily focused on cutting costs. We have also reorganized many of our international sales organizations, our rainmakers which I talked about almost a year ago. I talked about our rainmaker initiative where we've added significant people to our selling organization.

So going back and taking advantage of the distribution channel, we are very close to our customers. And the biggest thing that I would say that throughout this whole turbulence in the marketplace and the economy, we have not lost any major or single customer and that has been where our relationships are stronger than ever. And our ties to our customers and our dealers is very, very strong going forward.

Okay and on the -- just on the national account side of the equation, are you seeing increased content or are sales being pulled through as you put in that infrastructure? Is that something that becomes more of a benefit or driver of growth in 2010 and '11?

I would say, I will tell you that in 2011 and 2012, our organic growth will be positive. And looking at -- when I look at the national sales team, we have two areas that remain to be facing headwinds. The casual dining and the fast casual continues to be challenged and I think this is where we continue to invest, because we know that the casual dining and the fast casual is not going away.

Some of them have to restructure the menu. Some of them have to look at their footprint and say, well, especially in the casual dining where we're helping many of our customers look at smaller footprints as they want to open stores.

I would say by 2011, our national account will have a significant success as those two major chain customers -- the casual dining and the fast casual -- start merging from the difficulty of where they are still in today. On the QSR, we are seeing them doing well and the pizza business is doing well.

So it is still a mixed bag, but the national account now is well-positioned to saying we are going to continue being closer to our customers because I believe even those two segments -- the casual dining and the fast casual -- will recover somewhere by 2011.

That was very helpful. Thank you for your time again.

We have no further questions at this time.

Can I make a final comment? I would like first to thank everybody -- literally everybody -- for the short notice of sending you when we are going to release earnings and that's due to two things. One, you continue to know how lean we are in our staffing, but also most important the fact that we are being faced with tighter reporting times. So I apologize for all of you that we didn't give you enough warning for our conference call and our press release or earning release.

While we remain in a challenging environment, we have seen things improve across our business. We believe that we have come up from the bottom of the cycle but the markets are still challenged with unemployment being so high. We have talked about our food processing, given that this is the most economically sensitive of our businesses and where the sales decline was earliest.

On the food service side, a piece of equipment that a restaurant would purchase like a fryer would cost $5000 while a food processing piece of equipment that is -- Sara Lee, for example, would purchase would cost $1 million.

We saw the food processing business go into a downturn approximately nine months before the foodservice segment. The foodservice processing business started to recover at the end of the first -- third quarter in 2009 with orders that were deferred coming back.

The food processing segment has grown in the first two months of 2010. We talked about the foodservice side where we sell to restaurants and schools. And when we talked earlier on, based on your question, several markets such as international, institutions have rebounded and were receiving orders that were deferred.

Other areas such as casual dining and fast casual are still facing headwinds. We are seeing the levels of inquiry across the board rising. However, visibility is still limited and the year will still have its share of challenges.

Our customers are still being impacted by the broader economy and high unemployment rate. And we expect that order will remain somewhat choppy.

While the environment remains challenging, we have made sure to stay close to our customers. In addition, we have increased our sales team, and we've talked about a time where not only companies are primarily focused on cutting costs, we have been investing in our R&D and increasing our selling organization.

This is an investment that we think will pay significant dividends as it allows us to take significant market share without [forwarding] our prices.

While the environment feels better to us, there are still significant challenges in the broader economy. Tim just alluded to the improvement to the business we've made in 2009. The operational initiative we see in 2010 should allow us to grow earnings somewhat independent of the market. Our improvement to our supply chain and the savings from plant consolidation that were completed in 2009 will most probably impact positively our cost of goods.

We continue to see improvement in our acquired companies -- TurboChef, Doyon, Giga and Anets. As far as future acquisitions, which has been part of our DNA, more and more companies are seeing Middleby as the best platform in the industry and the best way to grow their business.

When we look back on 2009, we are proud of what we have done as a company. We are proud of our team and we have produced strong financial results, including $100 million of operating cash flow which is permanent. This is not transient.

So if you look back at the generation of free cash flow that this Company generates, it will continue generating significant cash flow especially in an unprecedented year for the industry. It is important to note that we did this while taking action that will make Middleby stronger and more dominant that when we entered the downturn and we paid down significant debt in the process.

We talked about being closer to our customers. We have acquired leading brands and technology. Tim early on talked about a SpinFry -- SpinFryer agreement that we have just gotten which will reduce oil usage by 40%, reduces trans fat by 30%.

As we look forward, we sees significant growth opportunities for Middleby over the next three years, tuck-in acquisitions in the US and regional acquisition internationally that will open up international market. The example would be the acquisition of Doyon in Canada that will open up for us the Canadian market.

We [were] our focus on QSR. We now offer a broader product line that allows QSR to revamp their menu and drive their topline growth. Our continued focus on penetrating customers, both domestically and internationally, with products that offer the industry's best payback such as our green product that saves 35% to 40% on energy costs.

Again, thank you for being with us and we will continue pushing forward and thank you for all your questions today. This concludes our presentation.

Thank you, ladies and gentlemen. This conference call has concluded. Thank you.