Aramark (ARMK) 2006 Q1 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the ARAMARK Corporation First Quarter 2006 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for Q&A after the presentation.

I would now like to turn the call over to Bobbi Chaville, Associate VP of Investor Relations. Please proceed, Bobbi.

Thank you, and welcome to ARAMARK Corporation’s conference call to review the results of our first quarter of Fiscal 2006. Here with me today are Joe Neubauer, ARAMARK’s Chairman and CEO; and Fred Sutherland, our EVP and CFO. Joe and Fred will present an overview of our first quarter results and business operations, after which there will be an opportunity for phone-in participants to ask questions.

I would like to remind you that any recording or other use or transmission of this audio may not be done without the prior written consent of ARAMARK. When we discuss earnings per share, we are referring to diluted earnings per share. As we discuss the results for the quarter, you may want to refer to the financial statements attached to this morning’s press release, which can be found on our web site at www.aramark.com. In the earnings press release and in today’s discussion of results, we mention certain non-GAAP financial measures. The Investor Relations section of the Company’s web site includes reconciliations of these non-GAAP financial measures to the most comparable GAAP measures, as required by SEC rules.

Various remarks that we may make in this call relating to matters that are not historical facts, including remarks about future expectations, anticipation, beliefs, estimates, plans, and prospects constitute forward-looking statements. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in the Risk Factors, ND&A, and other sections of our Form 10-K and Form 10-Q. We disclaim any duty to update or revise such forward-looking statements, whether as a result of future events or otherwise.

I will now turn the program over to Joe Neubauer. Joe?

Good morning, and thank you all for joining us for our first quarter 2006 earnings call. I’d like to give you a quick overview of the quarter and then I’ll turn it over to Fred for some more details on the businesses themselves.

I’m very pleased to report record, the first quarter results, in earnings, sales, and earnings per share, as well as improved margins in most of our businesses. The total sales were $2.9 billion, up 7% from the 2005 first quarter. Earnings per share were up 11% at $0.42, that’s excluding the $0.08 benefit from an income tax adjustment, and were up 16%, including both the tax adjustment and the $0.02 impact of expensing of employee stock options this quarter. The reported net income was $93 million and the reported earnings per share were also $0.50. Our first quarter organic sales growth, which is adjusted to exclude acquisitions, divestitures, and currency translation, was 6% for the total Company.

Sales for our U.S. Food and Support Services segment grew 7% on an organic basis on strong growth in our Sports and Entertainment, Education, Correction, and Refreshment businesses. Operating income improved 16% on solid performance across many of our businesses and the operating margin increased to 5.9%.

I’m very pleased that our International Food and Support Services segment achieved record sales and earnings for the quarter. The sales were up 13% and organic growth was up 7%. Operating income was up 17% and the margin improved to 4%. We’re very proud to have been recently awarded the FIFA World Cup, and this summer we’ll manage Food Services at a number of German stadiums where more than 2 million spectators are expected to attend the world’s premiere soccer event and one of the world’s most popular sporting events.

Subsequent to the end of the quarter, we completed the acquisition of our Food Service Company in China, thus further expanding our service capabilities in this important country. ARAMARK now has more than 8,000 employees in China providing Food and Facility Services.

Our Uniform Rental segment had a solid 7% sales growth for the quarter, 6% on an organic basis. Operating income was up 8% and margin improved to 11.2%, despite continuing high energy costs.

In our Uniform Direct Marketing segment, we saw a modest decline in sales. Wear Guard-Crest delivered improved year-over-year sales and profitability, while we experienced lower sales and profits at Galls. We’ll continue to face challenges in this segment for awhile.

We continue to return cash to shareholders by repurchasing more than 2 million shares and paying our recently increased quarterly dividends.

Now let me turn this call over to Fred. Fred?

Thanks, Joe. I’d like to first take you through our consolidated financial performance and then I’ll discuss our business segments.

As Joe said, we reported first quarter sales of $2.9 billion, up 7% from the prior year. Organic sales growth for the quarter was 6%. Operating income increased 10% to $158.6 million; net income was $93.1 million; and earnings per share were $0.50. As Joe mentioned, in the first quarter, we reduced the income tax provision based on the settlement of certain open tax years and also adopted the new rules relating to the expensing of stock options. The impact of these two items on the first quarter earnings per share was an $0.08 per share increase and a $0.02 per share decrease, respectively. Adjusted for these 2 items, earnings per share were up 16% from the year ago quarter.

Turning to our U.S. Food and Support Services segment, first quarter sales were $1.9 billion, up 6%, and 7% on an organic basis. As Joe noted, this growth was primarily driven by our Sports and Entertainment, Education, Corrections, and Refreshment businesses.

Now I would like to give a bit more color on the U.S. Food and Support Services segment, starting with Business Services, which includes our Corrections clients. The Business Services sector had mid-single digit sales growth in the 2006 first quarter, driven by continued solid growth in our Corrections and Refreshment Services businesses. Business Dining sales were flat to the prior year, despite solid base Business growth from the ongoing implementation of our marketing initiatives, designed to drive increased participation in spending at existing client accounts. We are pleased to have added Verizon and American Girl as new Business clients, and SBC as a new Refreshment Services client.

Moving to Education, we experienced high-single digit sales growth, fueled by strong base Business growth and higher Education and in K-12 schools. As we continued to benefit from our consumer-oriented marketing initiatives, such as on-campus convenience stores, increased voluntary meal plans, and the rollout in the K-12 market of our UBU Lounge concept. We also saw good growth in Education Facilities Services. During the quarter, we added the University of Texas at Tyler as a new client.

Sales in the Healthcare sector were flat, due to the impact of a continued mix shift towards more management fee-type business, as well as the previously lost business. We continue to win new business and expect to see improved growth rates in this sector, as we move towards the end of the year. During the quarter, we added Mercy Health Partners, Western Maryland Health System, and Covenant Health System in Texas as new clients.

Sports and Entertainment had mid-teen sales growth, driven by the return of hockey and solid performance for basketball, despite the lingering impact of the hurricane on a few of our convention centers.

First quarter operating income for the U.S. Food and Support Services segment was up 16% to $110.2 million, including about $3.5 million of insurance proceeds related to last year’s hurricanes. The operating margin improved to 5.9%.

Turning now to the International Food and Support Services segment, first quarter sales of $623 million were up 13% from the 2005 first quarter, or 16% before the impact of unfavorable currency translation. Organic sales growth was 7%, driven by solid growth in Canada, Germany, and Chile.

We added several new International clients in the quarter, including PricewaterhouseCoopers; Queen Mary Sidcup Hospital and Coors Breweries in the U.K.; LTU Arena, a German soccer stadium; Sun Life Financial in Canada; and our Japanese joint venture, AIM Services, greatly expanded this relationship with Bosch.

First quarter operating income in the International segment was up 17% to $24.6 million on improved profit performance in the U.K., Canada, and Germany. The margin improved to 4%.

Now turning to our Uniform business, first quarter Uniform Rental segment sales of $296 million were up 7% from the year ago quarter. Organic growth was 6%, which is comprised of new business sold of about 14%, with about half of the new sales coming from first-time users of rental programs; lost business of about 8%, with about one-quarter of the losses coming from customers who went out of business; price increases of about 2%; and a decline in base business of about 2%. Operating income increased 8% from the year ago quarter to $33.1 million. The decreased sales and lower garment costs offset a 40% increase in energy costs and our continued investment in augmenting the sales force. The resulting margin increased to 11.2%.

In the Direct Marketing segment, first quarter sales were down 1% from last year to $125 million, as an increase in work wear and quick service restaurant demand at Wear Guard-Crest was offset by softness in the Healthcare channel and lower sales at Galls. Operating income for the segment was $7 million, compared to $8.3 million for the year ago quarter, due primarily to the reduced volume at Galls.

Corporate expenses were up about $5.6 million, due principally to the expensing of stock options, which, as you know, began in the 2006 first quarter. As expected, interest expense increased 9% from the prior year quarter to $34 million. We continue to expect to see increased interest expense throughout 2006, due to the impact of higher year-over-year interest rates.

The first quarter tax rate was about 37% before the previously mentioned tax provision adjustment and we expect the rate to be around this 37% to 38% level for the balance of the year.

Total debt was approximately $2 billion at quarter-end, down about $100 million from the prior year’s first quarter. While debt is up from September year-end levels, reflecting our normal seasonal working capital needs, we continue to be very pleased with our working capital performance.

Net CapEx for the first quarter were somewhat lower than last year, as we continue to focus on appropriate economic returns on our investments.

Share repurchases for the quarter were 2.1 million shares for about $58 million. The total remaining share repurchase authorization is $194 million.

For the 2006 second quarter, sales are anticipated to be between $2.75 and $2.85 billion, and diluted earnings per share to be between $0.28 and $0.30, which includes an estimated $0.01 to $0.02 reduction from stock options expense based on our most recent estimate of option expense for the year.

Now let me turn the call back over to Joe.

Thank you, Fred. I’d like to commend our management team and all of our 240,000 employees on a solid performance during this first quarter. We had good momentum with solid top-line growth and margin improvement in many of our businesses. We continue to see good opportunities to grow our base business with existing clients, as well as adding new clients.

Now while we often face a few unanticipated quarter-to-quarter challenges and opportunities in the business, our overall expectations for the year remain essentially the same as before. While we are very pleased with the results of this quarter, I think it’s important for all of us to focus -- not to focus too much on quarterly variation in some of our businesses, but rather to focus on our strategic business positioning and our longer-term economic and cash flow performance, which is more appropriately reflected in our annual results. We remain very focused on delivering value to our clients and our customers, as well as generating profitable growth and solid returns to our shareholders, including returning substantial cash to them in the form of share repurchases as well as dividends.

Now we will be happy to answer any questions that you may have. Thank you, all.

[Operator Instructions.] Brandt Sakakeeny, Deutsche Bank

Congratulations on the solid quarter. I guess two questions. One is can you maybe just talk a little bit more in the second quarter. Are you negatively impacted by, I guess, some margin challenges? I guess I’m just trying to reconcile the first quarter to the second quarter decline in operating margins. And I guess the second question is can you just talk a little bit more about the “Corporate and Other” line? That came in a little higher than what I was expecting relative to where it came in last year. Thanks.

Brandt, this is Fred. On the “Corporate and Other” line, that increase was driven exclusively really by the impact of FASB-123, the expense of stock options.

Oh, okay. So that’s where it is?

Yeah.

Do you have the exact dollar amount of that, Fred?

It’s roughly $6 million.

Okay.

And I think that’s -- I think the increase was actually slightly less than that. And with respect to the second quarter, we continue to expect to have solid performance in the second quarter. We, on the one hand, we’ve got pretty strong results from hockey; on the other hand, we’ve got the continuing impact of the hurricane on our convention center business, which, frankly, although it’s not material for the whole year, does vary quarter-by-quarter and has a bigger impact in the second quarter than it has in the first quarter. It’s clear in New Orleans and the surrounding areas that tourism is not going to come back in the near term.

Okay.

That’s right. A couple of our facilities there are still impacted. While they’re back, they are not back in full force. That’s why I encourage you all, I know it’s your business, but I encourage you all really not to look at quarter-to-quarter variations.

Yeah. No, that’s helpful. And I’m sorry, can you just given us a quick update on CapEx budget for the year too?

Well, the -- I mean, generally, we expect the CapEx budget to grow consistent with the growth in sales. But you can see for the first quarter we were slightly below prior year. But, again, that’s going to vary quarter-by-quarter. I guess the message there is we continue to see the capital investment characteristics remain the same.

Okay, great. Great sales on the organic growth.

Jonathan Shapiro, Goldman Sachs

I won’t ask a quarter-to-quarter question. More broadly, can you talk about what you guys might be seeing in terms of inflation, both what you guys are seeing in the business, besides, obviously energy, but then also, are there any areas where you are able to, and I guess more on the Food and Facilities side, where you are able to get some price here?

Well, let me try -- so you are talking about both the demand side and the supply side here?

Exactly. Inflation cuts both ways.

Right. I think on the supply side, overall, on the product cost side, I don’t think we’re seeing a lot of unusual increases. I think you’ll see the normal low-single digit kind of cost increases overall in the mix. Again, from quarter-to-quarter, seasonally, things go up, things go down, it’s really hard to say overall. But I wouldn’t say that we’re seeing any unusual costs one way or the other. Labor costs continue to be under overall control and I don’t think that’s a big push for us either. So, I would say on the cost side, other than the energy side, with a few specific product items, but in terms of the overall basket, no.

I think on the demand side, this is a very competitive environment we operate in. It continues to be a very competitive environment. We’ve told you all along that we’re very prudent in terms of both our investments and our offering to our clients. As we push more and more to differentiate our services, we think that price is just one of the variables in terms of the total offering and solution to our clients. And we see that continuing throughout the whole business. From time to time, in some part of our business or another, somebody decides that they must have Account A or it’s important for them to have Account B, and that’s just the way it goes, but, overall, I would say it’s about as competitive as it has been for awhile.

And I would just add to that on the cost side, that I agree with Joe, certainly, about the overall food costs in terms of general increase, but I think it’s also fair to say that we are seeing more volatility in the components of food costs, certainly, than we’ve seen in the past.

Fair enough.

Okay, that’s great. And then just a question on the healthcare contract, maybe I guess for the other parts of your business too, are you guys still largely indifferent as to how the contracts are structured, whether they’re management fee or cost-plus or however you do it, as long as in the end the economics work out, it’s sort of how your clients, what their preference is?

Well, again, remember we are here to serve our clients. So, clearly, they dictate which way they go. I think what we want to do is develop partnerships with our clients as robust as we can and we will begin anywhere they want to and hope that we’ll build our relationships once we are into the accounts.

Michel Morin, Merrill Lynch

A couple of questions. First, you mentioned an insurance recovery in the U.S. Food Service business. I just want to make sure I’ve got the right number there and whether or not there might be more to come on that front?

I think the actual number was $3.7 million. And it’s very hard to predict as to whether there would be any future recoveries. It’s an ongoing process. But we did reflect that in the first quarter. [Voices overlap] reflected.

Okay, but you still do have some claims outstanding I guess would be the question?

Yeah, we’re still -- it’s back with the World Trade Center. I mean it’s a complex process and we are still in discussions with the carriers.

Okay. And then secondly, in terms of the organic growth on the Uniform side, it was nice to see a little pickup there after, I guess, 4 consecutive quarters at 5%. There were a lot of things that changed this quarter. You got a nice bump up in pricing. So, just wondering, are we done with the pricing? Is 2% kind of a maximum that we can go to? It looks like some of your competitors are at that level as well. And then also, on the new sales, is that really a reflection of adding people or is it productivity or a bit of both? Thank you.

I think on the pricing side, we’re very pleased to be able to capture 2% price increases. Clearly, as you know, we’ve had disproportionate increases in some of our costs, such as energy costs, and that’s certainly helped us. Our clients understand that cost pressure and it certainly helps us on the pricing side. I think if you go into the distant past, we have received annual price increases higher than that. So, we still shoot to improve on that number. We’re not satisfied with 2%, but we think it’s a solid number.

On the new sales side, which, as you point out, is 14% I think of the base, we continue to ramp up the headcount in the business and to make good progress on that front. And our overall sales productivity in weekly sales per sales rep, which is the basic metric there, is actually, I believe, slightly up year-over-year in the first quarter. So, we’ve been really pleased with our overall productivity out of our sales force.

Michael Schneider, Robert W. Baird

Congratulations on a nice quarter. The organic growth is certainly impressive. Could you give some more color on continental Europe and what you’re seeing, specifically maybe in the major economies there? And are you confident, like seemingly a lot of the other companies are, that business, indeed, is fundamentally getting better within the corporate environment?

Well, Michael, I think it varies again country to country. We have never talked about it. The economy is being difficult. I think it’s account performance and company-specific issues. Certainly, in Germany, we’ve had a very good year throughout. I think that our team was voted “Caterer of the Year” in Germany, which is a great honor. And we talk about the FIFA award and our overall expansion there and I think they are doing very, very well.

I think in the U.K., we are very pleased with the new management team. I think they are -- they’ve got their arms around the situation there. I think they’ve stabilized it and now we will move it forward. Overall, I think you’ll see probably flattish kind of sales for the rest of this year and then they’ll start coming back up again. But, again, we’re very pleased with improved profitability. And the rest will come out of Europe, I think is in pretty good shape. We are very pleased with our overall international performance.

Okay, thank you for that. And then just final question, just switching to Uniforms. The add stop rate being minus 2%, it’s the nagging question for the industry as to why in an employment environment that’s growing 2%, the industry is showing, presumably, headcount growth at minus 2%. Do you guys have any read now, after kind of passing through calendar 2005, or any update I guess on why that is and maybe what areas are weakest and might explain that disconnect?

Mike, it’s Fred. As you know, that impact in any 1 quarter is really the cumulative effect of the last 4 quarters. So, that 2% decline is from second, third, and fourth quarter last year, and then, actually it’s only partially affected by the first quarter of this year. I think in some of the segments in which we serve, employment continues to be a challenge. I think sometimes the mix between back-of-the-house employees, in-front-of-the-house employees is a challenge in some of our clients. But I do think, as you work through this lag effect with the 4-quarter rolling average, if you will, we do expect that we will gradually see a pickup.

Arithmetically, you are going to get to zero sooner or later. But I think that it really is a reflection, Michael, of a much more dynamic economy where the employment adds and the employment detracts don’t come in the same place.

Right.

And that’s why you have lags. Traditionally, in the old days, when the economy came back, it came back and employment came back in exactly the same places. That’s not true anymore, so it changes completely. And just because overall employment is back doesn’t mean that it comes back in the same place.

And I think also, as you know, a meaningful portion of our sales come through our route force, and we are increasingly focusing our 3,000-odd route reps on increasing the sales at our existing locations. And you would think over time that’s going to help us on that base business growth as well.

Okay. Thank you for that. Congratulations again.

Chris Gutek, Morgan Stanley

A couple of questions. In the U.S. Food Service business, certainly the headline growth there looks pretty good. But there is an easy comparison. I might have missed it; did you mention what the underlying organic growth is when you adjust for the NHL? And can you also give us what the revenue there was in the quarter versus in the period 2 years ago for the NHL business?

Actually, Chris, you didn’t miss it. But the impact of hockey in the organic growth rate for the quarter was somewhere in the range of 1% to 2%.

Okay. And going back to the big picture here, I think your long-term expectation is still around 6% to 8% organic growth for the whole company. And if you normalize in the quarter for the easy comparison maybe you are around 5%. Do you still think that the 6% to 8% is realistic? And considering that we have a pretty decent macro environment currently, how likely do you think it would be that by the end of this fiscal year we could be in that 6% to 8% range?

Well, Chris, this is Joe. We, clearly, I think are heading in the right direction and are making progress on it and I guess we’ll review the scorecard at the end of the year. But I don’t see any reason why we shouldn’t be able to get close to that. Our new sales for the quarter, particularly our International side, we’re very strong. Our Uniform side was very strong. The U.S. side was a little less than last year, because last year we had a couple of large accounts that fell into the first quarter. Our base business growth is very encouraging. And, as you know, that is very difficult to achieve. But our teams are doing a really an outstanding job where we’re getting mid to high single-digit increases in our base businesses. And our lost business actually improved earlier this year. So, overall, we are very encouraged.

And if the growth rates don’t necessarily improve as much as you expect or for some other reason, if the stock doesn’t perform significantly better, could you guys discuss any appetite or inclination you might have to potentially take more aggressive action, whether it’s putting more leverage on the balance sheet or being more aggressive with share repurchases or maybe being much more aggressive with the dividend or any other actions you might consider?

Well, I think, Chris, we are very focused on growing our business, serving our customers, and we hope that you all will take care of the price.

Fair enough. One more quick one. In the U.K., you mentioned the business is improving. Could you maybe elaborate a little bit on how the profitability there compares to where you think it can go and over what time period you think you can see further improvement?

In the U.K. Chris, as Joe mentioned, and I guess I mentioned in my remarks, the overall sales performance is actually flat to slightly down because of some carryover impact in lost business, and that’s really something that we’re very comfortable with. The profit performance year-over-year is pretty solid in terms of percentage increase. Notwithstanding that, we think the business can continue to improve its overall level of profitability and margin. So, I would say that the margin improvement potential in that business exists over the next couple of years.

Mike Fox, J.P. Morgan

Most of my questions have been answered. I was just wondering if you can give us an update on the offshore oil business and how close you guys are to exiting that? And then, also, if you can quantify the earnings impact for the NHL strike in the first quarter and what you expect in the second quarter? Thanks a lot.

We haven’t generally talked about the earnings impact of the NHL. It’s really hard to quantify quarter-over-quarter what the real incremental impact of that is. Clearly, it does have some effect on the business.

With respect to the West Africa offshore business, operationally, we are now pleased to be out of that business. So we no longer have any operations there at all.

Bruce Simpson, William Blair

I wanted to dig a little bit into the remarks about healthcare. I think you had talked about revenue was sort of flattish there, having to do with a mixed shift to P&L. And I wonder if you could take a step back, get us up to date on that process, where you are in terms of the status of the 4 big contracts from 2004, and whether the customer’s appetite appears to be waning for sort of fixed cost contracts and more to P&L, and then how you expect that to impact your ability to win big marquee contracts like the 4 that you talked about.

In the Healthcare business, Bruce, we will see ebbs and flows between management fee type business where we really don’t have the full gross revenues running through our P&L and P&L type business. And as the business, if it shifts more for a period of time towards management fee, then we’ll see that mathematically impact our growth rate, even though, I think we mentioned a little earlier, the overall profit potential at a client might be very much the same, even though the revenue impact may be different because of the structure of the account. I wouldn’t say that we see a strong trend, long-term trend, one way or the other.

With respect to the large multi-service accounts, I think we really don’t consider that to be an issue overall anymore. I think we’re very pleased with the performance. The profitability in those accounts is very acceptable. And so, as I say, we consider that to be on a very good track.

And I guess the last part, in answer to your question, we continue to see multi-service offering possibilities to this market as being something that is attractive to the market. As we have mentioned before, it’s a complex sale, it’s a long-term sale, it’s a sale that needs to be made at a very high level within the Healthcare organization. But we continue to see a fair amount of interest in it.

Let me just add to that, that I think that our offerings, particularly in the Healthcare segment, are the best in the industry, the leading edge, and we’re very excited about the opportunity to throughout this marketplace. As you know, outsourcing marketplace is very, very large. Some people think it’s $100 billion or so. Very little of it is outsourced. And we are very excited about the opportunities there and we’ve demonstrated by the list of large clients that we have signed up recently that Fred actually mentioned in his commentary. So, I think we will continue to see significant new business coming from the Healthcare business. By the way, we’re very excited about the Healthcare business, not just in the U.S., we think that is a very significant avenue of growth throughout the whole world.

Okay. If I can just ask one follow-up question. It has to do with the impact of labor costs. What are you seeing there in terms of non-salary benefits, as well as just total year-over-year changes in the cost of employing so many people and is that having a meaningful impact one way or the other on operating margins overall?

The 2 major components, Bruce, of the non-salary related healthcare benefits, or benefits, would be healthcare costs and then our Workers Compensation costs. I think as we’ve talked about in past calls, we’ve taken pretty aggressive actions to better control our healthcare costs through changing features of the plans, going to mail order pharmaceuticals, generic pharmaceuticals and the like. And we’ve seen that have a positive impact on reducing the rate of growth in our healthcare costs. Having said that, it’s growing -- they are still growing faster than the overall wage rates, which are really not pressuring us at all. But we have seen a decline in those rates of growth.

And Workers Compensation, since our costs are really driven by our experience over a long period of time, there is a lag, as we start to improve our overall performance with respect to the number of Workers Compensation claims. But I think it’s fair to say throughout the businesses, as a result of programs we’ve put in a year ago, that both the number of claims and the average cost of claims is -- the rate of growth in that has ameliorated quite a bit.

How do you sum all that up and say per worker year-over-year were up or down x percent either in total compensation, or even more helpful, salary versus non-salary?

Well, I think that the salary component is, yeah, I would guess in the 3% range or so?

Yeah, I think if you take overall inflationary GDP, you are there on the salary side.

I think the non-salary side is --

Going to be higher than that.

-- is probably in the mid to high single-digits, but not in the double-digits.

Matthew Keating, Lehman Brothers

Matt Keating standing in for Gary Bisbee. Congratulations on a nice quarter. We’ve noticed that there has been some speculation in terms of some of your European competitors, perhaps, being taken private. We’re just wondering when an update on sort of the Company’s appetite for large-scale international food service acquisitions and sort of what your thoughts are at the moment there? Thanks.

Well, as you can appreciate, we can’t comment on specifics on that at all. But let me just say that we’ve been in the business a long time. It is a -- we know everybody that is in the business. We compete aggressively against many of these people throughout the world and let’s just say that we are aware of what everybody is doing.

Okay, great, thanks, that’s helpful. Another question for during the fiscal year ’04 on the Sports and Entertainment vertical, you lost a couple of contracts in the Major League Baseball arena. I was just wondering if there was a similar experience towards the end of fiscal year ’05, or if we can assume that all contracts in Major League Baseball were maintained for fiscal year ’06 [inaudible].

We had very solid performance and retention across Sports and Entertainment and very solid retention in baseball as well in ’05.

All right. And just one last question, I guess, it would be on the Uniform Rental sales force. If you can provide the year-over-year increase in the sales force numbers.

The headcount increase year-over-year was in the mid to high single-digit range.

Jeff Omohumdro, Wachovia Securities

Just another question on the Uniform division. I wondered if you could elaborate just a bit on, perhaps, cost controls or productivity gains that helped the Company mitigate the substantial increase in the utility cost environment?

I can make a couple of comments on that score, Jeff. First, we continued to manufacture, self-manufacture, a higher and higher percentage of our garments through our own manufacturing facilities in Mexico. And secondly, are increasingly looking throughout the world to source garments and products that we rent, particularly in the Far East. So, that’s clearly one factor. The second factor is I think outside of energy costs we’ve got very effective programs and have been very effective in managing our plant, in-plant costs, at our market centers around the country. I guess thirdly, we’ve mentioned in past quarters that we’ve recently rolled out hand-helds for our route drivers across the country. And I believe actually we are the only company that really has rolled that out on a national basis. And that gives us --

Each one of our route drivers now has one.

Right. And that puts a lot more discipline into the day-to-day behavior at the route level. And that’s also helped us in terms of both pricing, discipline, and cost control.

Pete [Carilla], Citigroup

A few questions for you. If you adjust for the $3.7 million insurance payment, I guess you get to a little over a 30 basis point year-over-year improvement in operating margins in the services guide, U.S. I think this is only the third time this has happened actually in the last few years, the last 3 years or so. Is there anything other than the -- I guess, like, if hockey has got to be one reason you saw a little bit improvement. Is there anything else in there accounting for the improvement, year-over-year improvement?

Well, pretty strong base sales and pretty strong cost controls.

I think it’s fair to say that there was some pickup from hockey, but the margin improvement in the quarter was consistent with our overall targets.

Okay. It’s one thing, it’s essentially sort of sustainable in the coming quarters?

Well, as I’ve said, and I just repeat myself over and over again, we are working towards a long-term goal here of improving our margins by 10 to 20 basis points a year. Whether you can extrapolate one quarter to the next quarter, I would encourage you not to do that, but just look at it over a longer-term period.

The question on the call earlier sort of how you are going to get your organic growth goals as you get to the end of the year, what are the keys to you guys hitting your organic growth goals of 6% to 8%. Is it on the marketing side or is it -- what are the keys, as you guys, as you view them?

Well, I think there are 3 significant elements to that, is first it’s the retention side; the second one is base business growth; and the third one is new business acquisition. And you’ve got to work on all 3 of them because any one of them by themselves will not give it to you. And various parts of the business respond differently to various initiatives. Clearly, our consumer-focused marketing efforts are very helpful across all those 3 elements. And economics of the business vary by business to business, so we use different techniques, in terms of retention, in terms of base business growth, in terms of new business acquisition.

On the base business growth issue, how important do you guys view the sort of U.S. employment situation? U.S. employment, not the report commission, just sort of the general U.S. employment environment. How important is that to you and which sort of sub-factors do you sort of look at most to your businesses?

Well, it’s clearly important, but you have to remember that the business side is just one of our lines of business. Our Healthcare business, our Education business, both K-12 and higher education are not so susceptible to any of this. And our Correction business, clearly, is not at all. And even our Refreshment business, which is really our smaller account business, is really most susceptible, I would say, to the Service sector growth than it is the manufacture sector growth. So, we are much more broadly diversified from a portfolio point of view of services in the U.S. than we have ever been before.

One last question on the -- in the Rental operations, you still really have a little bit of a spread between you and the sort of industry giant, if you will. What kind of things -- I guess what’s the appetite for -- what kind of things can you do to try to get to the margin improvement there and try to catch up a little bit on the margin side, or is it something on the road you think about because you think about doing something else with it, spinning it off or selling it or whatever?

Well, we think there is very solid potential for margin improvement over an intermediate period in our overall Uniform business. And one effect will be as our growth rate increases. This is a business that has reasonable operating leverage and you get margin impact just from increasing the overall growth rate. Secondly, as I mentioned before, as we drive down our garment costs through self-manufacturing and worldwide sourcing, that improves our margins. Thirdly, as we increase the level of automation in our plants, we’re looking at more efficient systems to route our route vehicles at the market center level in order to reduce our fuel costs. That also improves our margins.

And then finally, I guess I’d say that the rollout of the new handheld system, and that is a continuing project in terms of the replacement of our internal operating systems connected to that, gives us, as I mentioned earlier, more control and really standardizes the various processes that the route rep goes through, gives us more discipline in terms of pricing and maintaining pricing. It also will eventually reduce our administrative costs, because today we have a big part of our overall administrative costs are at the individual market centers, at over 90 market centers around the country. And as we standardize these operations through this platform in the hand-helds, we’ll be able to centralize a portion of that administrative cost and improve our margins that way.

Okay. That’s great. Are you guys -- did you mention the Olympics and are you at the Winter Olympics this --

No, we’re not.

That’s all the time we have for questions. I’ll now turn the call back to Bobbi.

Thank you for your interest in ARAMARK. We hope you have a great day.

A rebroadcast of this conference is available starting today at 12 P.M. Eastern Time and will run until February 15, 2006 at midnight Eastern. You may access a rebroadcast by calling 888-203-1112 or 719-457-0820. Please reference pass code 5413289. This concludes our conference call today. Thank you for your participation and have a nice day. All parties may now disconnect.