Middleby Corp (MIDD) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Middleby Corporation Q4 2013 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference call, Mr. Selim Bassoul, Chairman and CEO, and Tim FitzGerald, Chief Financial Officer. You may begin.

Thanks, Kevin. Good morning, everybody. I have some initial comments about the Company's fourth-quarter results, and then we'll open the conference to questions and answers.

Net sales in the 2013 fourth quarter of $377.4 million increased 29.4% from $291.6 million in the fourth quarter of 2012. The fourth-quarter sales reflect the impact of acquisitions completed in 2013 and the fourth quarter of 2012, including Viking, Nieco, Stewart Systems, Celfrost, and Wunder-Bar. These acquisitions were not fully reflected in the prior-year comparative results and accounted for 20.8% of the sales growth in the quarter.

Excluding the impact of these acquisitions, sales increased 8.6% over the prior-year quarter. This increase reflects an organic sales growth of 12.6% at our commercial food service group and a 2.2% reduction in sales at our food processing group.

At the commercial food service group, we continued to realize growth, driven by increased sales to restaurant chains looking to upgrade equipment and adopt new technologies to improve the efficiency of store operations. Sales in international markets remained strong, with overall growth of 15% for the quarter. We realized growth in all regions, although slower growth in China continued to somewhat impact the overall international growth rate due to temporarily slower purchases by a major customer in that region.

As expected, sales at the food processing group declined slightly from the prior-year quarter in comparison to a prior-year quarter which grew 30% and included a large customer order. This order is also reflected in the first-quarter sales of 2013, which grew at a rate of 18%. Accordingly, we anticipate the first-quarter comparisons will similarly continue to reflect the impact of the stronger prior year.

Although the first-quarter comparisons will continue to be challenging, we have a positive outlook for the year as we continue to see strong demand by our food processing customers looking to modernize existing production operations and new customers developing operations in international markets.

Sales at Viking amounted to $56.2 million during the fourth quarter and reflected the continued improvement in industry conditions from the prior years. We expect the first-quarter revenues in 2014 will be somewhat impacted by bad weather conditions and the adverse impact of disruption related to the acquisition of several large Viking distributors completed in the first quarter of 2014. However, we believe the impact of the new product introductions and the benefit of the Viking-owned sales and distribution organization will reflect in the second half of 2014.

Gross profit for the fourth quarter increased to $150.7 million from $113.2 million in the prior year, and the gross margin rate was 39.9% as compared to 38.8% in the prior-year quarter. The gross margin rate reflects the impact of increased margins at the commercial food service group and the food processing business segments. Additionally, the dilutive impact of Viking continued to lessen from the first half of the year as gross margins improved to approximately 38% in the second half of the year as compared to 30% in the first half of 2013.

The improvement in gross margin at Viking reflects the benefit of purchasing savings, SKU simplification actions, gains in production efficiencies, and the restructuring of distribution channels.

Selling and distribution expenses during the quarter increased $12.4 million to $39.1 million. $11 million of this increase was attributable to expense from the recent acquisitions, with the remaining increase associated with direct costs on higher sales volumes.

General and administrative expenses increased $9.3 million to $37.2 million. The increase in G&A expense for the quarter was primarily attributable to $7 million of incremental costs from the acquisitions. The G&A expense for the quarter includes an increase of $3.1 million of non-cash intangible amortization costs associated with these recent acquisitions.

The tax provision amounted to $19.6 million at a 28.2% effective rate as compared to the prior-year provision of $17.9 million at a 32.2% effective rate. The fourth-quarter tax provision reflected favorable adjustments related to reduced state tax expenses. And we estimate that the effective rate will increase to a more normalized rate of 33% to 35% in future periods.

Cash flows provided by operating activities amounted to $62.6 million in the quarter as compared to $43.5 million in the prior-year quarter and reflected the growth in fourth-quarter sales and profits, as well as the positive impact of working capital cycles, which typically results in stronger operating cash flows in the second half of the year.

Non-cash expenses added back in calculating operating cash flows amounted to $10.8 million for the quarter, including $6.9 million of intangible amortization, $0.6 million of depreciation, and $3 million of non-cash stock-based compensation. Depreciation was lower than normal in the fourth quarter due to purchase accounting adjustments to the fair market value of Viking-related fixed assets. In future quarters, we expect the depreciation expense will return to a more normalized range of $2.5 million to $3 million per quarter.

During the fourth quarter, the Company utilized $3.6 million to fund capital expenditures, and for the full year, CapEx amounted to $14.7 million. CapEx primarily related to the upgrade of manufacturing equipment and facilities expansions.

Total debt at the end of the quarter amounted to $571.6 million as compared to $537.4 million at the end of the third quarter, reflecting borrowings to fund the recent acquisitions of Celfrost and Wunder-Bar, which occurred during the fourth quarter.

The Company's debt to EBITDA leverage ratio at the end of the year was just under 2 times as compared to approximately 3 times at the beginning of the year.

We're pleased to announce the acquisitions of Celfrost and Wunder-Bar in the fourth quarter of 2013 and the acquisition of Market Forge to start 2014. These acquisitions collectively have revenues of approximately $65 million and provide three strategic investments to support continued growth.

With the acquisition of Celfrost, we add a leading cold-side brand with significant sales, service, and distribution capabilities in the fast-growing Indian market, complementing our hot-side brands and providing an expanded infrastructure to support our restaurant chain customers so that they grow in this market.

The acquisition of Wunder-Bar, a leading innovator in beverage dispensing solutions, significantly increases Middleby's capabilities to serve the beverage segment of the commercial food service industry. We see significant growth opportunities in this area as our customers realize high-level profitability in their beverage offerings and continue to add new, innovative beverage programs.

With the most recent acquisition of Market Forge, we add a long-standing recognized brand in steam cooking for the restaurant industry. The steam cooking market is large and growing market, and this acquisition provides us with a portfolio of innovative equipment solutions and a dedicated brand to serve this market.

As it relates to the Viking acquisition, we were pleased with the progress we made throughout the year. We have realized significant improvements in profitability, which we continue -- or which we expect to continue in 2014. We also made significant progress in the reorganization of the distribution channels with the acquisition of independent distributors. This process was completed in the first quarter of 2014, and now all the distribution in North America is handled through Viking-owned distribution operations.

We will focus on completing the integration of these various operations in the first half of this year and anticipate that will be completed in the second quarter.

We are also very excited about the introduction of over 50 new products, including new ranges, ovens, refrigeration, cooktops, and ventilation products, which were on display at the recent Kitchen and Bath Show. And at this show, we were pleased to have received the top three People's Choice Awards for our new French door wall oven, new lineup of cooktops, and new 7-series range.

Kevin, that's all for our prepared commentary. If you could open up the call now to questions, that would be great.

(Operator Instructions) Schon Williams, BB&T Capital Markets.

Congrats on the quarter. I wanted to dive in first here on the gross margins in the quarter. I wonder if you could just talk a little bit about maybe some of the sequential improvement, Q3 versus Q4? I mean, quite a bit of -- 60 basis points of improvement on some modest volume expansion. I'm just wondering how much of that was Viking, how much of that was, I don't know, other pieces of the mix? And do you think a 40% gross margin is sustainable going forward?

Yes, hi, Schon, this is Tim. So the improvement that we saw -- well, actually, most of the improvement sequentially from Q3 to Q4 took place in the commercial food service and food processing segments.

The Viking gross margin was pretty strong, around 38%, but that was fairly consistent with the third quarter, as we had significant step-up in the gross margin in the entire back half of the year with Viking. So that's where we saw the sequential improvement.

On commercial food service, some of that has to do with mix. And I think we are operating at pretty strong margins in that portfolio. So a lot of the change in that segment that we see from quarter to quarter really is more of a mix impact and where the sales are coming from within each of the brands of that portfolio. So that can kind of move up or down. And I would say the fourth quarter was a stronger quarter from that standpoint because it was well in excess of 40%.

On the food processing, that stepped up from the third quarter. There we continue to focus on efficiency improvements with the new companies that we've bought over the last two years. So I think that's a continued longer-term trend. I would say we had a good result on gross margins in that segment in the fourth quarter.

Okay. So as we move into next year, should we -- we should see further improvement in the gross margins, but possibly not at that 40% rate, depending on where the mix falls out?

Yes, I think that's exactly right. I mean, I think longer term, we will see continued expansion in food processing, as well as Viking. In the near term, I think mix will have a bigger impact in the margin rate than anything.

Okay. And then as a follow-up, could we talk a little bit more about Viking and possibly what your plans are with both restructuring the workforce there and then possibly some plant expansion on the refrigeration side there? I just want to make sure I understand, where are we in terms of the end game here with the restructuring activities? Are we still in the kind of third or fourth inning, or we're getting close to the end there? And then just talk maybe a little bit about some of your plans around the plant expansion.

Schon, I can address that for you definitely. We are working on introducing a new line of refrigeration, which we showed at the Kitchen and Bath Show, and that was highly well received -- totally innovative, highly patented refrigeration platform which extends the shelf life of food significantly compared to our competitors.

So, however, this will require some complete investment in our refrigeration plant, as we have to meet the new energy requirement rules in Europe and the US. So we will be making significant investment this year in our refrigeration plants at Viking to be able to bring the equipment needed to create new [forming], new installation, and new testing, and new hot-tooling for those new models coming up in the fourth quarter of this year.

And then any commentary about just in terms of restructuring? You went through another round of layoffs back in November there. Anything -- should we continue to see additional gains there on profitability within Viking?

I think that as you continue looking at -- it's still a work in progress, I would say. I would hate to say today that we know exactly what's going to happen, because you have moving parts. One, the first moving part, we've introduced 50 new products. So as those 50 new products, we're going to require some investments in launching those products. So the first products are being launched right now as we speak; they are being launched March 1. So we have a slew of new products coming out March 1. The next wave is coming up in July, and then the last wave comes in in the fourth quarter, around November/December.

So as we look at this, there is some impact, unfortunately, because we had to go to the Kitchen and Bath Show and show the products. So you're going to have some cannibalization where people are saying, why would I buy an old [piece] refrigerator when I can get a new refrigerator which looks totally fashionable and new? So we're going to have to most probably have to work through how do you balance moving -- still having people buy what you have currently and manage when people have already looked at the [peek and we got to see the award] on new products, saying, well why would I buy an old drawer oven when I can buy the new French door oven and new Turbochef oven?

So we're going to have somewhat of a -- the next few months of what I call a change of production. And sales changes are going to be affected by the new introduction of products.

So this year, in 2014, will be -- continues to be, I think, and it will be the last year of what I call destruction in terms of not only people -- I'm not destruction of people, but I'm talking about salesforce training, managing, switching from the old ranges to the new ranges, the old cooktop to the new cooktop, the old refrigeration to the new refrigeration.

To answer your question briefly, we're going to continue having most probably a very volatile year at Viking this year as we continue moving through this transition.

Yes. And Schon, I'll just add, as I mentioned, we've just completed the last few distributor acquisitions. Those were some of the larger pieces to complete the reorganization there. So we're in the midst of kind of reorganizing the whole sales and distribution function and integrating it with Viking. So that's ongoing and will continue, really, through the first half of this year.

Kind of the bigger picture, we had targeted getting to a 20% EBITDA run rate by the end of 2014, and we feel like we're pretty well on track with that. Overall, our EBITDA margins were just north of 15% for the year, a little bit stronger in the back half of the year. So we think that will continue to pick up, but particularly in the second half of the year as distribution is fully integrated and new products are further seeded, and we'll pass on the disruption in the first half.

All right. Thanks, guys. I'll get back in queue.

Okay, thanks.

Peter Lisnic, Robert W. Baird.

Tim, I was wondering if you could talk just a little bit about commercial food service. You did 11% organic for the year. Obviously, as you look to 2014, that creates a tough comp. You've got a large customer order in there, I guess, too, from 2013. So give us a feel as to how 2014 might play out, just given what you've got in terms of new products out there, customer inquiries. I'm just wondering in terms of growth what the 2014 year might look like for commercial food service?

Peter, I'm going to answer that question. So first, yes, we're going to be overlapping two major rollouts that occurred in 2013. But I will tell you specifically that we have some exciting things coming out. So some of the things that we've been talking about, we'll most probably start seeing the impact of the Kitchen of the Future coming in. So we've talked about what happens after Chili's.

So we are proud to announce that we have another change, the site of Chili's, that we've now embarked on, and we just finished shipping the first 50 units. So I believe that, as we've talked about this automation in the Kitchen of the Future, so we finally basically now are working with the second chain that has the same potential as Chili's, and so with our Kitchen of the Future.

So that's in the works, and that's going to start ramping up in the second half of the year. And that's going to offset some of the rollout of 2013.

So how do I see -- so let's -- without getting into specifics about new products, there's tons of new product [revenue, non-Middleby will be prolonged]. And most of the analysts and most of the shareholders have been following the story of Middleby. We'll generate 10 to 12, 13 new products a year. And they are very, very accepted.

So let's talk about how the year developed in 2014 versus 2013. I think it's going to be very similar, and 2014 will be very similar to 2013. I see it to be same, and your concern about overlapping two major rollouts, we will overlap them with new customers coming in, including Kitchen of the Future. But if you have to think about 2014, yes, last year, 2013, we had a consumer confidence issue with what happened in July with the sequester. This year, we're having it differently; we're having it with the weather.

So we're always going to have the turbulence. We're not out of the gate. It's not clear, clear skies. But we seem to be managing those turbulences very well.

Number two, I think last year we had a huge disruption with Viking, with buying our distributors, which was very difficult, because we ended up changing business models in the industry. We went out and bought our, basically, our salesforce, and that was highly disruptive, because a lot of those distributors, while we were negotiating, stopped taking orders. Some of the salesforce was edgy, not knowing are they going to be kept; what is the compensation. So this will be behind us.

We just finished in February the last two distributors, so we're done. That will pave the way for more stability on the Viking side. So I look at 2014 to be similar to 2013. It's [now kind of out]; it's challenging, but we'll overcome them.

Okay, perfect. That's perfect color. Thank you for that. And then I was just wondering if I could ask a couple strategic questions. The first one, you mentioned some new products at Viking on the refrigeration side, and we also throw in Celfrost in there. So it seems like there's a little bit more of a -- I don't know if focus is the right word, but just there's more refrigeration in your language. Can you give us a feel for, as you look forward, what the opportunities on the refrigeration side might be for Middleby?

It's too early to tell. Those are a very, very small part of our portfolio, both at Viking and both at Celfrost. But let's talk about Viking more specifically, because I have a much better understanding of the Viking refrigeration than the Celfrost worldwide. So I will talk about Celfrost in just a minute, but let's talk about Viking refrigeration.

Viking refrigeration, in the high end, is a $1 billion market, a little bit over $1 billion. And the players are most probably four players, four to five players at most. And Viking is one of those five players with a very small market share. And I think that part of that position has been where Viking spent a lot of time focusing on ranges and cooking versus refrigeration. And we see Viking playing a major role at a high margin, because that billion-dollar market is a very high-margin residential refrigeration business, and we are investing in it and growing it and growing our market share.

We look at our, today, $1 billion, most probably we are less than 3% of that market, or around 3%. Let's say around 5% at most, if you want to say that. There should be no reason for us not to be 10%, 20%, 25% of that market. And that's where we are going, and that's where we're making investments.

On the Celfrost side, we bought Celfrost because we believe that refrigeration in emerging market is a very high-margin proposition, because as US chain and local chain start growing their units in India, in the Middle East, in Sri Lanka, in China, refrigeration becomes an important part of it. And we want to be a player in those markets with technology as a value proposition that allows us to get the margins that we have and allow our customers to have a value proposition. And I think it's a win-win.

And that's the reason we enjoyed going after Celfrost. It's a very market-opportunistic position. It's not to go and bring Celfrost to the United States. It's not to come in and say, I'm going to take Celfrost to Europe. So acquisition of Celfrost is specifically to become a leading refrigeration leader in emerging markets.

Added to that, Pete, Celfrost, beyond refrigeration, brought a lot of sales/service infrastructure in India. So the leading brand with that infrastructure allows us to really service the whole market of India on the hot side as well. So it's really an infrastructure investment to grow our presence in India overall with kind of a leading cold-side brand.

Okay, got it. That's very helpful. Thank you very much for your time.

(Operator Instructions) Tony Brenner, ROTH Capital Partners.

I have a question regarding Viking -- a couple questions regarding Viking. First of all, with the acquisition of the distribution network, what kind of a markup does that imply for Viking sales? And then I presume that now that you'll be recording sales when the distributor sells, rather than when Middleby ships to the distributor, there will be a delay of some sort in recognizing revenues. So between that markup as you recognize distributor revenues and the delay in recording those revenues, what does that imply for first-quarter revenue comparisons for Viking?

Yes, that's a good question, and it's a hard question to answer. We'd been going through that, really, in the second half of the year, Tony, because we'd been acquiring distributors starting in the second quarter, and really in each quarter we've either canceled or acquired distributors. So we've had kind of exactly what you're talking about, which is this lag of what was revenue now becoming in intercompany shipment. And because there's so many activities going on, it's been very hard for us to, on a net basis, understand what the impact of revenues is.

In the first quarter, the ones that we completed were the largest of the distribution networks. So it will probably have the biggest impact in the first quarter. So we do expect that that will probably flatten out or draw back what would've otherwise been some sales growth in the first quarter. But it's a little bit difficult right now because those are very recent acquisitions to understand the full implication of it.

Well, I could tell you one thing, Tony. It will definitely be easier for us at Viking, having done -- finished acquiring the distribution than what happened last year. So last year we started in April, I think March or April. And we were almost every quarter buying some, and it was not clear whether all of those would sell or who was going to buy and what was the structure.

And I think that from our perspective, while we might have challenge in the first quarter at Viking because of acquiring those last two, it's definitely now from a distribution standpoint. From a dealer standpoint, everybody knows who's going to call on them. We have a unified program. We have unified pricing. We have a unified MSRP, unified EMRP. We've put all of the Internet sales that now goes across the nation. I have to tell you, I'm very excited. Finally, we got it done, and it took a little bit longer than we expected, but it's now behind us.

So from your question, how is it going to impact us, yes, we might have an impact in the first quarter, but then it should be a lot smoother for the rest of the year compared to almost every quarter last year we were facing that question.

Sure. Are the distributor margins much lower than Viking's own margins? It sounds like without those acquisitions, second-half Viking margins might have been a little greater than you are implying they were.

Well, the distributors definitely that we've bought had lower margins. Essentially, those were not very profitable operations from a bottom-line standpoint. So as you initially indicated, we'll get an incremental markup that they have, but they had costs to run those operations. And one of the things that we're in the process of doing is streamlining that, centralizing and realizing cost efficiencies, which will incrementally add to the EBITDA margin of Viking probably in the second half of 2014. We did get some of the benefit of that in the back half of this year with the ones that we had bought earlier in the year, but that's kind of the work in process. So --

But those acquisitions don't change your projections through kind of margin improvement at Viking overall, right?

No, they're kind of built into our target to get to the 20% run rate for the second half of this year, but probably give us the opportunity to grow beyond that 20% as we move into 2015 and 2016.

Okay. Will there be more than one new kitchen renovation customer in the first half of 2014, or is it only that one new customer that replaces Chili's?

Tony, this is not replacing yet. I think just basically that customer, I think, which is a -- will be our second large Kitchen of the Future customer. And I see this starting happening in the second half of the year. So, so far, we have done 50, and I think we will most probably see that starting accelerating in the second half of the year.

So we're not going to see much until we'll find they are getting -- as happened with Chili's, it took some time to set the training, set the menus. So we'll see. Now, it's off and going; we're done. This is no longer in doubt. It's going to roll out, but it's going to -- you're going to start seeing acceleration of the rollout I would say in the second half of the year.

No, but I'm talking about other customers besides the one that you are referring to. Are there other chains that are going to come onstream?

Yes, yes. At this moment, as I've said, we have several chains testing the system, and they are still in test. So we only have now one that has gone from test to actual rollouts. And the size of it is exactly the size of Chili's in terms of units.

Thank you. My last question, Tim, you implied that the tax rate is going to go back to historical norms, 33% and 35%. You've got to go all the way back to the third quarter of 2011 before you had a tax rate as high as 34%. Over the last three years, you've had a new normal, which is considerably below that. Why are you looking for an uptick in tax rate?

Well, I think really the last couple years, we've had some favorable reserve adjustments. We've done a lot to reduce exposures while we had tax reserves that were on the books. So those kind of came through the P&L and helped reduce the effective rate. They helped us reduce the go-forward exposures as we were able to do that, but then we were able to take some of the exposures off the books. And that was kind of benefited this year and last year as we kind of put those plans in place and also had some audits wrap up.

So I think the rate has been running, I guess, lower than ordinarily really the last couple years because of that. But I think the big picture, Tony, is that our tax rate used to be 38% (multiple speakers).

Yes.

It was much higher, and we have done a lot to bring that from the high 30%s to the lower 30%s. And a lot of that had to do with state tax planning. A lot of it had to do with the international acquisitions and some restructuring that we've done related to that. So I think overall, the trend has been very positive over the last five years from the tax rate perspective.

All right. Thank you very much.

Greg Holter, Great Lakes Review.

Wondering if you could speak to how each of the geographic areas did -- Europe, Asia, and Latin America -- in the quarter or the year or both?

I'm sorry, I missed that, Greg. What was the question again?

How the sales did in the geographic areas of Europe, Asia, Latin America.

Okay. Well, as I mentioned, overall international growth was 15%. Our strongest-performing market was Latin America, which was in excess of 20%. Europe performed very well also, which we view as not necessarily an emerging market. That was double-digit growth rates. So, actually, Asia grew in the high single digits, and that was probably a little bit slower than what we've seen historically. And that's, as I mentioned, because in China, a large customer, which had some food safety issues during the year, they had slowed down store openings. But we expect that to come back online next year.

And that commentary you just provided, is that for the quarter or the year?

Yes, that is for the quarter.

Okay. And Selim, I know you always talk about or sometimes talk about new products. Just wondered if there's anything of note that you may want to speak to.

I can talk about a lot of new products coming (multiple speakers). As you well know, Greg, we have [basically ultimate] steamer that's being rolled out as we speak. Very excited about that. We have a brand-new panini product; we're very excited about that. We have [BrownSweet] that's going to be unveiled this year, and to be a revolutionary pizza oven again in the way it works and how it interacts with ventilation. Highly patented, highly [respected].

We have our waste management system, taking solid waste to biofuel. And that is out in place, and we're just getting our -- picked up our sixth order so far. It was highly patented. We have our fire oven that's coming at NRA. We have a significant amount of holding cabinets that are coming soon. And then, of course, at Viking we have 50 new products that are being launched this year.

I think as I look towards where -- I've always wanted to look at the picture as Middleby. If you're a shareholder or you're an analyst or you're a customer or you're an employee or a supplier, you have to look at Middleby three years from where we launch a product. I've always said we continue disrupting the marketplace, and we'll continue bringing value to our customers, whether on the residential or the food processing or the commercial side. And 2013 and 2014 will see the highest number of patented products being launched in the history of Middleby. At all levels -- at the food processing, at the commercial, and at the residential, in all three segments.

Okay, thank you. And Tim, relative to some of the balance sheet categories, receivables, inventories, and payables, what kind of impact have the acquisitions had on those? If you could break that down, that would be helpful.

Yes, they were significant. And I don't have exact numbers for you, unfortunately, but roughly two-thirds or more of the increases that you would have seen in inventory and receivables would have come from acquisitions that -- including not only the original acquisitions of Viking, but all the Viking distributors that we were acquiring during the year. And then right at the tail end of the year, we had Celfrost and Wunder-Bar, which was in December.

So I think you're going to see most of the growth with the inventory and receivables be due to working capital. There would have been some incremental investment, either through the sales growth or, more significantly, with investments we've made in international markets as we opened up our office in Brazil, we opened up an office in Australia, expanded some of the operations that we had in the Middle East. So we've invested some working capital in those markets as we've been growing there as well.

The overall DSO and inventory turns, though, are actually relatively consistent when you actually normalize these things. So we've seen a slight increase in those, but not substantial.

And I missed the number you provided on the depreciation and amortization for the quarter.

Yes, so depreciation, I'll mention, was low in the quarter. It was about $0.5 million, or it was $600,000, which was lower because with the first-year kind of valuation of all the Viking assets, we trued up the fixed assets in the fourth quarter, and we had a kind of a true-up adjustment. So we would normally see depreciation in the $2.5 million to $3 million range, and that came through at $600,000 in the fourth quarter. So that is one thing that I mentioned, but I'll highlight again.

But for the entire quarter, we had $10.8 million of non-cash expenses. So $6.9 million was intangible amortization. We had $3 million of non-cash stock-based compensation, and then the depreciation number I just mentioned.

Okay. And what did the Company spend -- and you may not have the final numbers here -- but on M&A, the cash flow number that will show up on the cash flow sheet spent on M&A in 2013?

While Tim is looking for that number, Greg, you asked specifically about new products. And I think that should be an interesting question again, because you're right, the DNA of the Company has always been about innovation. So we're going to continue talking about -- I'm going to elaborate a little bit more, because it's really what you talk about, our new low-volume fryer that has a payback of literally less than a year. We continue working on our fryer system, and it's been highly -- our fryer division has done extremely well and continues to do well both domestically and internationally.

Our pizza oven business, especially with both our ventless conveyor oven and our WOW! oven, which is now we have introduced -- in 2006 we introduced WOW! 1. In 2007, we introduced WOW! 2, and now we're introducing WOW! 3, which is completely revolutionary in the way it will cook a pizza. The speed, the product, the service of that oven --

Is that the one I've seen that cooks a pizza in 90 seconds?

The one you see in 90 seconds is the fryer. It's completely different; it's not a conveyor. So that's a brand-new product being released in 2014. We've just got a huge order for it. And yes, it's a 90-second pizza that has -- it's not a conveyor. It's a ventless batch oven, which is being launched by Middleby this year. Very, very disruptive.

But the [one three], it takes you back to the automated conveyor. So the fryer is another product that's coming up this year in 2014 that will also change, put a lot of people -- it allows us now to have people, like, who have bars, who have basically not a big kitchen operation, to be able to install that oven and serve toasted sandwiches, toasted appetizer or pizza right on the counter. The price point of that oven is phenomenal, and the way it bakes in 90 seconds is superb. And it's a ventless product that's coming out. It will be introduced here in the US by Turbochef, internationally by our division called Giga. So it will be a joint effort between Turbochef and Giga, that type oven that has been developed. So we're very excited about that.

So, Greg, I'll just answer your question. So our M&A spend for the year was just under $470 million, of which Viking is obviously the biggest piece of that. So Viking is about $360 million of that number, and the other roughly $100 million was the acquisition of Celfrost, Wunder-Bar, and the Viking distributors that we bought throughout the year.

Okay.

And I'll just kind of repoint out again, with all these acquisitions we completed during the year, we finished the year at a debt multiple or leverage multiple just under 2 times, which was kind of the target that we -- we started the year right after Viking at 3 times. So we were able to have, I guess, significant deleveraging from a multiple perspective. And that's even including the acquisitions that we completed after Viking.

And what's your outlook for that? Do you see that 2 times going down to 1 times, or--?

Well, we're always in the continuous mode of acquiring and cash flow generation. So, really, it's just kind of a function of where we are in the cycle with the acquisitions that we complete. So the pipeline continues to be strong with acquisition. And that's still one of the integral strategies of Middleby, which is continuing to add leading brands and technologies to all three of the platforms that we have.

All right. And one last one for you. What do you anticipate the capital spending for the Company to be in 2014?

We have historically targeted less than 2% of revenue. So I think we'll be in line with that this year, as well as many other years, we've been closer to the 1% range than the 2% range. It'll probably step up in 2014 because it's one of the initiatives Selim mentioned early on, which is the investments that we would make in refrigeration at Viking.

All right, thank you.

Peter Lisnic, Robert W. Baird.

Back again. Just, Selim, longer-term question -- adding another customer this year for Kitchen of the Future. Can you give us a sense as to how you think about the world evolving and how big of an opportunity that Kitchen of the Future is for, A, the industry and, B, yourselves?

In fact, I can tell you specifically the Kitchen of the Future today, we have around I would say 20 customers looking at it. Of the 20 customers that are in test, they represent around I would say 25,000 units. So it's a lot of units.

As you look at it, I think Chili's was around 1200, 1500. So as you look at the world of the Kitchen of the Future, we haven't yet tapped the potential. So that next customer is another -- they will have around 1200 to 1500 units. So we still have around 15,000, 20,000 units that you could converge into Kitchen of the Future.

What is fascinating about that is literally one of the results, and you can see, Chili's has touted what it has done for them. It has made their kitchen more efficient, less labor, faster, and more consistent. And if you look back after now, what you've done, because you're almost complete with Chili's, it has been a resounding success. And they've done a great job, I have to tell you.

It's not only the equipment. I think Chili's implemented it through great planning. They were able to reinvent menu items. They were a stickler about quality, and the improved quality significantly. And most important, what Chili's has done, allowing Kitchen of the Future to be successful, is they have worked very closely between the back of the house and the front of the house. And I think that has been the success of the Kitchen of the Future.

I don't want -- literally should not be the only credit we take. I think Chili's has worked, taking our hard work with and working around their people and training them, and instituting many changes. And I think that has been success. And that's what we see now with the second chain. They are doing the same thing -- different menus and different type investments, but we're getting the same thing. They are buying the hardware and getting the kitchen and the front of the house to speak and talk and get more efficient.

In my opinion, if I tell you about the world of Kitchen of the Future, it has just been -- we're at the start of it, and I think it will become mainstream as we keep on getting those big brand names and getting the recognition that a $30,000 investment in a kitchen does for -- per store passed to that store. The payback is there, the speed to table is there, the menu consistency. The quality gets better. No human error, and of course, you're taking labor out, which tends to become more and more expensive.

And is that, to this point, I assume that's more of a North American opportunity? Do you foresee that becoming more of an opportunity in the international part of your business as you look forward?

It does, because it has the same implications, same applications. So far, it's been -- well, I shouldn't say that, because it's been driven by US chains. And Chili's has implemented that overseas. So we've done most of the international stores. But today, it's mostly I think a lot of it's US chains. And the ones that I gave you, the numbers that I gave you are for units between 15,000 and 20,000, are all US. We haven't even talked about international chains that could tap into it.

And the other interesting part that we're starting to see, we just got a new interest, it's gone beyond just casual dining. Now, those 15,000 to 20,000 units have been all casual dining. And we're starting to see interest beyond casual dining. It's fast casual, and we've had one fast food chain very interested in looking at that concept, which are not in those numbers.

So the Kitchen of the Future could be as big as -- it could be hundreds and hundreds of millions of dollars for us over the next few years.

Okay. All right, as usual, that's very helpful. Thanks again for the time, Selim.

Schon Williams, BB&T Capital Markets.

Just a couple quick follow-ups. Tim, you mentioned that you expected the Chinese customer to come back to the market. I just wanted to get may be a little bit more clarity on the timeframe. Are we talking about first half of 2014 versus second half of 2014? Do we need to wait until 2015? Just if you could help out a little bit there.

Yes, I mean, I think we're thinking 2014, not 2015. It will probably be more in the second half than the first half, so there's still maybe some disruption there, at least in the first quarter. But then I think we think things will start to normalize as we move into the second quarter.

And how do you -- I mean, it probably was at least plausible that we may actually see some more sales coming out of that region just around food safety and sanitation. Have you saw any interest there, maybe coming out of some of the food safety concerns?

Well, so that's on the food processing side of the business. And I think the answer there is yes. Longer term, food safety and that whole area is something that's a big focus where we're seeing more attention on with our customers. You see, for example, Smithville, which is the largest meat processor in the US, or one of the large ones, was acquired by a Chinese company. A lot of that has to do with them trying to adapt US food processes and safety standards in other markets.

So we think they're going to be adapting some of the standards that we see in the more established markets in the US market in countries like that. So that kind of flows through that whole issue. So we do see opportunities on the food processing side as awareness around food safety increases.

Okay. And then maybe on the just -- you talked about a little bit of a disruption maybe around the weather in Q1 here. I want to say that your commentary focused primarily around Viking. Any effect on the weather -- from weather on food processing or commercial food service?

I would have to say yes, because we've had orders coming into the quarter. We haven't seen as much of it yet, other than such at Viking. But I can tell you, as I talk to our customers, our restaurant customer has been affected, of course, by guests and clients not coming in. If you had the storms that you've had, and it happens -- unfortunately, a lot of those storms happen on weekends. They were mostly on weekends in the Northeast. They've been very tough in the Midwest. And you know what? A lot of people can't get out because they have very good snow.

So I will tell you that the first quarter has been rough for our customers just in terms of -- will that have an impact in second quarter? I can't tell you yet, because all this happened literally in January and February. We came into the year so far with some good backlog. And however as I've talked to our chain restaurants, their same-store sales have been a little bit affected by the weather, specifically if you have a lot of concentration in the Northeast and the Midwest. And I don't know what would be the impact in the second or third quarter with would that delay the CapEx.

But I want to reemphasize that we really have faced a lot of challenges over the years. We're not in an economy that's booming, let's put it this way. With our performance subject to the economy booming, we're literally being able to help our customers redesign their kitchen to become more customer-centric, be able to take technology and our equipment and our cooking platform so that they can reduce their fixed-cost basis.

So when you look at us and what we provide, it's not weather-related; it's not how well the chains are. It's literally how do I make somebody become more efficient in their operation. And that's what we do. And efficiency doesn't come only later. Consistency, speed to table, more menu items. If you want to introduce breakfast, we can basically help you get without having to add hose, because we're very big in ventless, which we haven't talked about it. But our ventless technology continues to grow double digit and has been fantastic for us.

So I look at what we bring is not determined by one quarter or by one weather or by -- our customers have -- if they want to be more efficient, have to use our technology, and it works. It works at Starbucks; it works at Subway; it works at Domino's; it works at Dunkin' Donuts; it works at Pizza Hut; it works at Chili's. It works in a lot of places; I can continue -- it works. And that's why it makes Middleby who it is.

We're not a sexy company. We're a company that delivers value. And whatever the issue is, we provide the solution in the kitchen to allow you to provide that customer experience that becomes good. When we look at Subway and what we do at Subway, not only baking the bread, toasting the bread, warming, holding the bread, it's been a great experience for them and for us.

All right. Thanks, guys, appreciate the color.

Thanks, Schon.

I'm not showing any further questions at this time. I'd like to turn the conference back over to our host for closing remarks.

I think we're done. I want to thank everybody for the conference call. Thank you very much. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.