Aramark (ARMK) 2007 Q4 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the ARAMARK Corporation fourth-quarter 2007 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 questions and answers after the presentation.

I will now turn the call over to Chris Holland, Senior Vice President and Treasurer. Please proceed, Chris.

Welcome to -ARAMARK Corporation's conference call to review the results of our fourth quarter and our full year of fiscal 2007. Here with me today are Joe Neubauer, our Chairman and Chief Executive Officer, and Fred Sutherland, our Executive Vice President and Chief Financial Officer. Joe, Fred and I will present an overview of our fourth-quarter and full-year results and business operations, after which there will be an opportunity for phone-in participant 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.

As we discuss the results, you may want to refer to this morning's 8-K which contains our fourth-quarter and full-year results for our fiscal 2007 and can be found on our website at www.ARAMARK.com.

In today's discussion of results, we will mention certain non-GAAP financial measures, and as required by SEC rules, reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are included in our 8-K and are on our website.

In addition, as we have explained in the 8-K, our discussion today compares the sum of our pre-January 26 or pre-buyout period and our post-January 26 period to the year ago period because we believe that it provides a meaningful method of comparison.

This quarter's results reflect the impact of increased intangibles amortization related to the going private transaction and stock option expense under FAS 123R, while last year's fourth quarter also included stock option expense, certain expenses associated with the going private transaction, as well as costs in our Uniform and Career Apparel segment related to our decision to exit the health care uniform line.

Our full-year results and their comparison to the prior year also reflect these items, as well as various other expenses and payments that were triggered by the going private transaction and the gain on the sale in June of this year of our ownership stake in SMG. All of this information is contained in the 8-K and will also be detailed in our 2007 10-K which will be filed in December. The operating results discussed today exclude all of these items in order to enhance comparability.

I would also like to point out that with the completion of our fiscal 2007 we have modified our segment reporting such that our Canadian Food and Support Services operations, which are now operationally integrated with our US Food and Support Services operations, are now included within our domestic Food and Support Services segment as opposed to our international segment. And our uniform rental and uniform direct marketing operations, which are managed as part of a single group and have become more operationally integrated, have been combined into a single Uniform and Career Apparel segment for reporting purposes. These changes better align our segment reporting with how the businesses are being managed with each segment reporting to a group president. Our 2007 segment results, as well as prior periods, have been adjusted accordingly in order to conform to these segment changes.

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 MD&A and other sections of our Form 10-K and Form 10-Qs. We disclaim any duty to update or revise such forward-looking statements whether as a result of future events or otherwise.

Now I would like to turn the program over to Joseph Neubauer.

Good morning all of you, and thank you for joining us for our fourth-quarter and year-end 2007 results call.

As I promised many of you during our going private roadshow early in this year, I would like to take the opportunity at the completion of our first-year following the closing of that transaction to share some thoughts with you and then turn the a call over to Fred and Chris who will run through the details of the operating financial results for the quarter and answer any of your questions.

While it has been less than 10 months since we completed our going private transaction, I am very pleased and quite proud to share our performance with you. First of all, I am most grateful to our management team and the entire ARAMARK family around the world for their continued commitment to each other and to our clients and customers. The quality, dedication and incredible service mentality of our people have always been at the core of what made ARAMARK successful, and it remained as the key to our continued success moving forward.

In this regard, nothing much has changed. I also feel more strongly than ever about the merits of our decision to pursue ownership structure that we currently have in place. The reestablishment of a deep owner-manager culture has created a highly focused and motivated leadership team that is more committed than ever to delivering results.

As you may recall, we achieved nearly 100% participation in our manager investment program, and as a result, essentially all of our top 250 managers invested their own cash in the Company. And collectively we already own about 17% of the equity. And as anticipated during the course of 2007, we further broadened the ownership opportunity to hundreds of additional ARAMARK managers around the world, providing them with a more direct linkage between their performance and their rewards. And while we continue to take our financial responsibilities to all of you very seriously, we're also less burdened by the short-term focus that Wall Street imposes on public companies. And, as a result, we are able to take a longer-term view of the many opportunities available to us.

Now for a few comments on our financial performance during the year. I'm pleased to report that the 2007 full-year sales were a record $12.4 billion, up 7% from 2006. Our operating income adjusted to exclude the item that Chris mentioned earlier was $664.9 million, up 10% from 2006, and our consolidated operating margin improved by about 15 basis points compared to last year.

We had good new business in the year 2007, and our client retention levels were consistent with our targeted range. Cash flow was predictably strong as we continue to demonstrate discipline in our deployment of capital, and our credit profile improved due to both the year-over-year growth of EBITDA, as well as significant debt reduction.

While our businesses clearly remain competitive, we believe that ARAMARK is well positioned to continue to grow and succeed. We enjoy a number of key strengths, including an excellent management team, a broad integrated set of professional services, deep client knowledge by sector and increasingly sophisticated marketing and consumer-focused capabilities, and the ability to positively impact our clients' environments and outcomes. We believe that all of these ARAMARK strengths, along with attractive industry dynamics and our great people, position us well for continued growth and profitability in the years ahead.

Let me now turn the call over to Fred. Thank you.

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

We achieved fourth-quarter sales of $3.1 million, up 7% from the prior year quarter and up 6% on an organic basis. Excluding the impact of the items Chris mentioned earlier, our operating income was $188.6 million, up 11% as compared to the year ago quarter.

For the full year, we reported sales of $12.4 billion, up 7% over last year and up 5% on an organic basis. Our operating income was $664.9 million, up 10% from 2006 on a comparable basis with the consolidated margin, as Joe mentioned, up by about 15 basis points.

Now turning to our domestic Food and Support Services segment, fourth-quarter sales were up 6% to $2.2 billion, driven primarily by our health care, sports and entertainment and higher education businesses but with solid contributions from most of our sectors.

Organic sales growth was in the mid single digits for the quarter. For the full year, segment sales were up 5% to $8.4 billion with organic growth also in the mid single digits. The full-year segment results were led primarily by the performance in our health care, higher education and corrections businesses. Our business and industry sector had mid single digits sales growth for both the quarter and the full year, led primarily by refreshment services and our corrections business with business dining showing improved growth.

The education sector had low single digit sales growth for the quarter and mid single digit sales growth for the year with solid base business growth in our higher education food business in both periods, offset somewhat by slower growth in K-12, primarily due to lost business.

In our health care sector, we realized low double-digit sales growth for the quarter and high single digit sales growth for the full year led by a combination of strong base and new business growth in both food and facilities services. Our sports and entertainment sector had mid single digits sales growth for both the quarter and the year led by solid base business growth in both stadiums and arenas and in convention centers.

Now, as Chris described earlier and as is detailed in the schedules on our website, my discussion of segment operating income will exclude certain items for the purposes of comparability.

Operating income in the domestic Food and Support Services segment was $139.5 million in the quarter, up 8% from the prior year period and slightly higher when also adjusting for the divestiture of SMG which closed as you know last June. Solid profit performance this quarter in our health care and business and industry sectors, as well as in the higher education business, more than offset some softness in the K-12 business and increased food costs in our corrections business. For the full year, segment operating income was up 6% to $461.5 million with modest improvement in the operating margin.

Turning to the international Food and Support Services segment, fourth-quarter sales of $578.8 million were up 16% on solid growth across most of our individual country operations. Organic sales growth was in the high single digits for the quarter, driven primarily by strong new business growth in the UK and in Chile.

For the full year, segment sales were up 14% to $2.3 billion led by Chile, the UK, Ireland, Korea and China. Organic growth was in the mid single digits.

Fourth-quarter operating income was $22.5 million, up from $16 million in the prior year quarter with the UK, Ireland, Spain and Japan each reporting solid year-over-year profit growth in addition to a positive currency impact for the quarter.

For the full year, segment operating income was up 23% to $90 million, including a positive currency impact of about 9%. Full-year results were also driven primarily by profit growth in the UK, Ireland, Spain and Japan.

In our Uniform and Career Apparel segment, which as Chris mentioned now includes both our uniform rental and direct marketing businesses, fourth-quarter sales of $416.9 million were up 4% from the year ago quarter, led by 7% growth in the uniform rental business. Organic growth was in the mid single digits for the segment. For the full year, segment sales were $1.7 billion, up 3% from the prior year driven by 8% growth in the rental business. Organic growth for the full year was in the low single digits for this segment led by the rental business, which grew in the mid single digits organically.

Segment reported sales growth in the fourth quarter and the full year were negatively affected by our decision to exit the health care uniform line late in fiscal 2006. Uniform segment operating income in the quarter grew 7% to $35.7 million, and the operating margin improved about 20 basis points versus the year ago period.

For the full year, operating income was up 10% to $149.5 million, driven by improved margins in the rental business which were helped somewhat by a year-over-year decline in energy costs and improved profitability at WearGuard-Crest.

Excluding the items that Chris mentioned earlier, corporate expenses were $9.1 million in the quarter compared to $8.9 million in the year ago quarter. For the full year, corporate expenses were $36.1 million compared to $37.3 million in the prior year, reflecting reduced staff spending.

As Joe mentioned earlier, we had a good new sales year with more than $900 million in annualized new business signed during the fiscal year 2007. While our lost business was up over last year, we did reach our targeted client retention range for the year with a mid-90s retention level across the portfolio. And we continue to be pleased with the levels of base business growth we are generating in a number of sectors, most notably in our higher education business.

Now let me turn it over to Chris for some additional details on the quarter and on the year.

Thanks, Fred. I would like to now comment on our financing, capital structure and cash flow. For the trailing 12 months ending September 28, our adjusted EBITDA was $1.030 billion, up from a comparable $1.009 billion at June 30, 2007 and $962 million at September 29, 2006. Interest and other financing costs were $128.3 million for the fourth quarter and $414.6 million for the full year.

During the fourth quarter, we fixed the interest rate on an additional $650 million of our floating-rate debt, and as a result, approximately 85% of our total debt portfolio is now at fixed interest rates, and our overall weighted average cost of debt is approximately 7.35%.

With the benefit of these recent hedges, our absolute amount of floating-rate debt is now comparable to the level that existed before the going private transaction.

Total reported debt at the end of the quarter was $5.9 billion. During the quarter we made additional principal payments on our term loan of $52 million, reflecting the strength of our free cash flow during the quarter. This brings our total term loan payments since we closed our transaction in January to just over $400 million, reflecting both the strong free cash flow we generated this year, as well as the net proceeds we received from the June divestiture of our ownership interest in SMG.

As a result, we are significantly ahead of our required debt payment schedule, and as of year-end, we essentially had the full $600 million capacity of a revolving credit facility available to us.

Based on our solid EBITDA growth this year and the debt reduction, we're very pleased that our secure debt ratio has now improved to 3.89 times as of September 28, down from an initial level of approximately 4.5 times when we went private in January.

Capital expenditures for the full year were $330 million, up modestly from $320 million in fiscal 2006, and were actually lower as a percentage of total sales as we continue to be disciplined in our deployment of capital.

Consistent with our expectations and historical patterns, working capital was a significant source of cash for us during the fourth quarter. And for the full year, working capital was a modest source of cash overall as we continue to focus on growing the business without requiring significant amounts of incremental working capital.

Now let me turn the call back to Joe.

Thanks, Chris. So, in summary, I'm pleased with our performance during fiscal 2007 as most of our businesses delivered solid operating results and generated consolidated margin improvement.

We have seen an increase in the level of new business for the year and achieved client retention rates consistent with targeted ranges. Our teams continue to be very selective in terms of the type of new business we choose to participate in and pursue, and we remain disciplined in our deployment of capital.

Our business model continues to generate strong free cash flow, which along with the proceeds from the divestiture of SMG, allowed us to already repay over $400 million of the term loan as Chris mentioned, and this resulted in nicely improving credit profile in a relatively short period of time.

Looking forward now, expectation for the business has not changed at all. Consistent with the financial objective that we outlined to many of you in the roadshow in January of 2007 and our performance during the year 2007, we will continue to work to deliver solid organic revenue growth, ongoing margin improvement and strong and steady cash flow. We believe these financial objectives are achievable in the year 2008 and going forward.

Finally, ARAMARK's broad management team with significant ownership stake is very focused on delivering results. I can assure you that we will continue to work very hard to seize the many new and exciting opportunities we see across all of our businesses around the world while remaining disciplined in our investment of capital opportunities.

Thank you again for your time and your confidence in us this morning, and now we will be happy to take some questions.

(OPERATOR INSTRUCTIONS). Reza Vahabzadeh, Lehman Brothers.

Just one housekeeping item first. The absolute gross number was exactly $5.9 billion, or was there some change in there?

It is I think 5.890, and that is the balance sheet debt. Of course, there is the accounts receivable securitization facility in addition to that.

Okay. And was there cash on hand as well?

About $80 million of cash on the balance sheet.

Okay. And then one more housekeeping item. CapEx outlook for 2008?

I think consistent with what we have said for a number of years now, somewhere in the range of 3% to slightly below 3% of total sales on a consolidated basis.

Got it. Okay. And then as far as the business is concerned, it looks like both the international and the US Food and Support businesses have had pretty solid revenue trends the last couple of quarters. Would you say that that is just existing business, you know, same-store sales growth, or are you getting more traction on the new business capture front? Any color would be appreciated.

I think it is a combination of both of those items. As Joe mentioned, our total annualized value of new business that we contracted in '07 was up over '06, and we continue to drive impressive levels of base business growth. Because there really are significant opportunities to increase our sales through increased participation, check averages and the like in our existing locations.

Got it. And was there a price mix impact also in your revenue numbers?

Our price increases in '07 are pretty consistent with prior years. So I think generally in the 1%, 2% range, somewhere like that.

Okay. And do you need to take more pricing at some rate over the coming year just to cover costs, or are you comfortable with the same amount of pricing?

Well, we are seeing some escalation in cost. Food cost, as I think everybody knows year-over-year, cost increases are higher than they were six months or 12 months ago. Energy costs given the price of oil, as we look forward, fuel costs could be increasing at higher rates. So we need to be vigilant about that.

We're pretty disciplined about passing through cost increases, and particularly in the food business, we have in most all of our businesses a lot of flexibility to vary the menu in response to changes in particular food items. So it is a discipline we have had over the years and we use as we need to.

Would you say that you have the flexibility as well in the correction business, or is that somewhere where you need to do more work on?

The corrections business is the one business where we have very limited flexibility because the menu is very highly speced as part of the contract, and it is a fixed-price per meal business. We do get escalations in our price year after year, and we are working through to try to improve our pricing flexibility in that market. But that is the one business where we do get the most squeezed on food price increases, cost increases, but that is a relatively smaller part of the overall Food and Support business.

One other point to just remind you of, about 25% of the total overall portfolio is management fee, and so it is effectively cost plus.

Right. Now what is the outlook for the apparel business? The direct business was somewhat challenged in prior periods. Now you have consolidated into the rental business, it's getting a little hard for me to tell what is going on there.

We will continue to split sales within this segment between rental and direct sales, so you will see that breakdown.

First with respect to the rental business, our organic growth in the fourth quarter pretty consistent with where it has been. It compares pretty well to our competitors, and we're pretty happy with the overall metrics in terms of client retention, new sales, pricing and the like. We see that continuing into '08.

With respect to the direct marketing business, expect that we will probably continue to see low single digits sales growth. The weather has been warm in the fall, and I think if you generally look at retailers, retailers have been somewhat challenged this fall, and we're not immune from that.

Got it. And then lastly, what is the outlook for acquisitions going forward or for that matter divestitures?

The acquisition divestitures would just be in the normal course of business. We make small to medium-sized acquisitions from time to time to add into either the domestic food and facilities, international food and facilities and Uniform business, and I think it is safe to assume as we look at it now that that level of activity is going to be pretty consistent with where it has been.

Zafar Nazim, JPMorgan.

Joe, I was wondering the first year after the LBO was pretty solid both in terms of topline, as well as margins. I was just wondering as we look into the next fiscal year, is there any reason we should think that '08 should be any different from '07 both in terms of topline or as well as other margins? Is there I guess either because of competition or inflation or anything else that may be out there that is different now than before?

Well, it is always dangerous to make predictions in any world, particularly in the world as you all see it out there at the moment. So I'm cautious about predicting anything. But basically the model is the model, and the model has not changed much over quite a period of time.

The competition and the competitive set has remained the same. That has not changed. They are as aggressive as they had been before. Our capabilities and capacities continue to grow. So I think that if you project ahead at about the same level that we achieved in '07, you would not be far wrong.

Great. And then, Fred, some granularity on the segment performance. In the domestic segment, you now include Canada. I was wondering if Canada was excluded both from the current quarter, as well as the quarter year back, would margins in that business still be up slightly?

Yes.

Okay, and what was the impact on margins of the inflationary impact on the corrections business?

It was clearly negative for that business and fairly meaningful for that business in and of itself but not meaningful for the overall group.

Okay. In uniform rental I guess fuel is a big part of your cost of operation. I was just wondering how do you see that shaping out given gasoline prices we see today?

Well, in the fourth quarter, we actually got a little bit of a pickup, not significant, but a little bit of a pickup year-over-year from fuel price changes. As we move into '08, we have actually worked out the mechanics so that we were able to do some hedging of fuel, which is mechanically complicated for us because we're buying gasoline obviously all over the country, and we have to make sure we have the right correlations. But we have not hedged in much of our fuel purchases for '08 as we stand right now.

I would say that the bias given where oil is, that the bias is more that fuel prices year-over-year will increase, accelerate rather than decelerate. While we buy a fair amount of gasoline and diesel fuel, if you look at the overall EBITDA of the Company and look at the possible scenarios for increases in gasoline prices, it is really not all that material, particularly after taxes. It is certainly not material to our cash flow.

And then to put it in context, total energy costs within the Uniform business, including natural gas, electricity and gasoline, is less than 5% of sales. So a headwind, yes, but material to the overall performance not likely.

Okay. Great. And then just a couple of housekeeping type questions. One, did you mention how much was the drawing on the receivables facility?

$233 million at the end of the year.

And working capital was a benefit. Can you quantify that for the quarter?

For the full year, it was about a $30 million benefit. And so for the quarter, it was -- yes (multiple speakers)

Because of the seasonality. it was significant for the quarter.

Yes, we were -- it was a negative through nine months of about I think $40 million or something.

I guess that is somewhat unusual, right? I mean in general I guess the expectation was that for the year working capital should be a slight use of cash, right?

I think in general, and we have been consistent about this, that we plan on it being a slight use of cash. If you look historically over a five or six-year period and average it out, it ends up being pretty neutral per year. So I would say from that perspective we did a bit better than we would have expected this year, but again I think not material overall.

We would expect in '08 that it would likely flip into being a modest use of cash, modest being somewhere between 0 and $50 million.

Okay. And then just finally in the international segment, pretty strong improvement in margins. Is that something that is sustainable in the near-term?

We think so. The international margins historically have been below our domestic margins, and as there is really more collaboration across our individual country operations and more focus on base business growth, which is relatively more profitable, we have some of our larger country operations with margins that are starting to approach our domestic businesses. And so we see more opportunity. We think it is sustainable, and we think there is more opportunity over the next few years or so.

Karen Eltrich, Goldman Sachs.

As you look at your corporate side of the business with these customers, obviously with some of the challenges going on in the economy, are you seeing any changes in how they are doing business with you in terms of cutting back their own employees or cutting back services?

I would say right now the answer to that generally across the portfolio of clients we have is no. Certainly we're not seeing that in the health and education sector or the health care sector and the education sector. In sports and entertainment per capita as in major league baseball fourth quarter were up year-over-year. So not across those businesses. And time will tell whether we see some negative impact where we are serving business clients both in Food and Support Services and in Uniform Services. We have a strong market position with financial services entities. In our Food and Support Services segment, so far we have not seen a lot. But it is hard to say what is going to happen in '08.

Great. And actually following up on that, you did highlight hospitals and education a few times in your conference call. Are you getting increased penetration in those businesses? And I know it has been a focus for you guys. What do you think you are doing right to get that incremental businesses?

I think we are and I think -- Joe, you may want to jump in here -- we have an array of services and capabilities in both of those segments that really adds value to the clients whether it is the hospital or a major university achieve their own objectives. And, therefore, the services we provide are less back of the house sort of services and really services that are relevant to their mission.

Let me just add to that I think it is simply stated we understand their world better today than we did three years ago, two years ago, one year ago. We are slightly parochial, and therefore, we think we understand it better than our competitors do. And we are able to help them much more.

Remember, this is not about what we want to do. This is about what their needs and desires are and what the problems are that they are trying to solve. And I think we are just very good, and our teams are excellent at bringing that to the four. You know, we have won some very major contracts this year, particularly in higher education. I personally visited a couple of those, and it is a delight to see how well our teams have done in quickly addressing the issues that were of concern to the administration of the particular higher education institution. And that, as you know, is a fairly close set of institutions around not only in this country but also overseas.

And that is the other wonderful thing that is going on here, is we have transfer of intellectual property and knowledge from this country to our international operations. Somebody asked the question before about whether we think that the international improvement is a onetime shot or whether we think it is sustainable, and the answer, as Fred said, it is clearly sustainable, and I think we are not done yet.

So we're very excited about -- our teams are very focused on the individual sector. So we understand higher education better and deeper today than we had before. And the same is true of health care, too, by the way. And the same is true of corrections and all the others.

Bryan Hunt, Wachovia.

I was wondering about just a few bookkeeping items. Did you pay the $77 million tax liability during the fourth quarter associated with the sale of your SMG interest?

Yes, I think it was about $70 million as it turned out from a cash perspective. Yes, we paid that in September.

Okay. And second, how much did foreign currency help sales and EBITDA in the international business year-over-year?

The sales contribution I think was about 9% for the year. And --

This is organic, right?

Right. So mid single digit organic growth versus --

And the EBIT contribution was higher than that.

Right.

Alright. Do you have it for the quarter or just for the year?

Actually I think it was higher for the year than it was -- or for the quarter than it was for the year.

So higher than 10% or so per quarter? Okay.

A little less for the quarter.

Is that right? Okay. It is the other way around.

Alright. You mentioned, Joe, I believe during Q1 that baseball continued to help out your business. Was that purely because you had both the Sox and the Rockies' ballparks through the World Series, or was it just because general attendance is up in sports and entertainment overall?

I think both. I think general attendance is up, I think our per capitas are up, and you know, we love both clients, and they are very interesting. One has been with us for a very long time, the Red Sox, and the other one, the Rockies, we have been with them since day one.

And now most of those games would have fallen into our first fiscal quarter. So --

They are into '08.

Right. So we did see an increase, as Joe mentioned, not only an increase in attendance across our ballparks, but we're very gratified to see an increase in per capita spending, which is really as a result of our programs.

Do you have any -- could you tell us where cash taxes were for the year, as well as what you think the outlook is for '08?

Cash taxes were I think right around $100 million for the year given the SMG tax payment that we made in the fourth quarter. And I think they are going to bump around a little bit just given the amortization and the timing. But I think it should be a fairly -- if you take the amortization related to the transaction and add that back to the reported net income numbers and use a normalized tax rate, you should get pretty close to a cash tax number.

Okay. Thank you. It looks like you signed a lot of and had some success with your energy management services during the last couple of years. Given where energy prices have gone, do you see that interest accelerating? And is that a unique product for you all relative to your competitors?

I think we see that product or that service accelerating. It is a nice value-add. We typically provide that to our existing client base, and we will work with them to design and with contractors to install, let's say, improvements in HVAC equipment that reduces their overall unit energy usage.

On the one hand, I think it is fair to say that we are not unique in that capability, but I think it is also fair to say that within our facilities service capabilities, which range all the way from janitorial to these more sophisticated services, that we really through the acquisition of the ServiceMaster business back in the early -- about 2001 -- have always been quite strong in the engineering and more sophisticated energy management services. So we think we have got a very strong position there.

And then last question, I mean you mentioned the strength -- and it appears you have strong momentum in the higher education and health care. Do you believe that is a function as well as your portfolio of services or the overall desires of those relative institutions to continue to drive down costs?

This is Joe. I have to caution you all. I know you all focused on cost. It had nothing to do with costs. It has got to do with providing services that really enhance the environments and the outcomes that these institutions are looking for. You have to do it in an economical manner, but this is not about cost. This is about providing a better environment for the students, better environment for their patients, better environment for their nurses, better environment for their staffs.

Yes, costs have to come with it, but let me just give you a simple example. We do patient transport as part of our total services in health care. When you get the patients to the right place at the right time, it is very important to them. If you are 15 minutes late, the equipment stands idle. If you are half an hour early, the patient grumbles, the nurses get unhappy, etc. It has got nothing to do with cost. It has got to do with the quality of service.

[Yi-Yun Chin], MetLife.

Do you guys have a debt to EBITDA target?

I think as you have seen what has occurred during fiscal 2007, the great thing about the model is EBITDA will grow, and we're going to generate a fair amount of free cash flow. And, as we have said, we will make normal course acquisitions, but all else being equal, you will continue to expect to see improvement in the ratio.

But we're not driving to a particular number.

Okay. And can you estimate what percentage of your revenues are attributable to recession resistant type sectors, like schools or hospitals and correctional?

Yes, I think if you look at the total global portfolio, probably 45% or so you can call somewhat cyclical, and that would be the uniform business, the convention center business and the business to business clients globally. So somewhere in the 45% range.

And then the other noncyclical portion of the business, includes all of the health care business, all of the education business, the stadium and arena business, the corrections business, etc. So it is pretty balanced.

This is Joe. I think in the US it is even more balanced the other way. That is in the US I would estimate that less than a third of our total business is --

Yes, it is probably more like 25% in the US. The international business is still somewhat more weighted to the business clients, but those economies are a lot of them -- (multiple speakers)

Doing very well. So I think if that is what you are trying to gauge, it is difficult to answer it collectively. But I think in the US, as Chris gave you the range, and the rest of it is international.

Zafar Nazim, JPMorgan.

Yes, Joe, I was wondering with the depreciation in the US dollar does that place you at a competitive disadvantage in making overseas acquisitions, especially when you are competing with the likes of Compass and Sodexho I guess who are foreign competitors, and they may not have a currency situation that we have?

Well, not really. I am always amused by people who think that because the appreciation of either the Euro or the Pound, that many more foreign investors are going to buy US assets. As you know, it is not what you buy, it is what the cash flows are in with. Are the currencies coming back? That is really important.

So I did not think we're at a disadvantage at all. If we find attractive things in Europe or in the UK or in Latin America or the Far East, and we're looking at all of those, we will buy them because we are not buying for a day or a month. We're buying for long-term, and we're making strategic decisions, not just investment decisions. We're going to hold those assets, and hopefully the cash flows coming from them will be again in the strong currencies that we invest in. So we're not concerned about that at all.

That is all the time we have for questions. I will now turn the call back to Chris.

Again, we would like to thank you for your attention this morning, for your continued support, and we hope you all have a great day.

And that does conclude our conference. Again, thank you for your participation. We do hope you enjoy the rest of your day.