Aramark (ARMK) 2008 Q1 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the ARAMARK Corp. first-quarter 2008 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 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.

Thank you and welcome to ARAMARK Corp.'s conference call to review the results of our first quarter of fiscal 2008. Here with me today is Fred Sutherland, our Executive Vice President and Chief Financial Officer. Fred and I 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'd 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 for the quarter you may want to refer to the 10-Q we filed this morning which contains our first-quarter results for fiscal 2008. This 10-Q can be found on our website at www.ARAMARK.com. In today's discussion of results we mention certain non-GAAP financial measures. The 10-Q, as well as schedules we posted to our website this morning, includes reconciliations of these non-GAAP financial measures to the most comparable GAAP measures as required by SEC rules.

Our discussion of operating income during today's call will exclude the increased intangibles amortization resulting from the going private transaction and the impact of stock option expense under FAS 123 as well as certain transaction related expenses that were incurred in the prior year quarter. All of these items are detailed in the schedules posted to our website this morning.

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 the Form 10-Q filed this morning. We disclaim any duty to update or revise such forward-looking statements whether as a result of future events or otherwise. I'd now like to turn the program over to Fred Sutherland.

Thanks, Chris. Good morning and thank you for joining us for our first-quarter 2008 results phone call. I'd like to review our business and operating segments and then have Chris go over a few additional details on our performance for the quarter.

Moving to our consolidated results for the quarter, we achieved record sales of $3.35 billion, up 8% from the prior year quarter and up 5% on an organic basis. Operating income, adjusted to exclude the items that Chris just described, increased 14% to $205.6 million.

Overall we are pleased with our start to fiscal 2008. While the environment clearly remains competitive across all of our businesses, we believe we are well positioned to continue to succeed and to grow profitably. Our rate of annualized new sales during the first quarter was higher than in the first quarter of last year and we are also off to a good start from a client retention perspective. While our quarterly sales and profit growth may fluctuate somewhat from quarter to quarter, we expect that fiscal 2008 will be another solid year of financial performance for ARAMARK.

Now turning to our domestic food and support services segment -- first-quarter sales were up 5% to $2.2 billion driven primarily by our higher education, healthcare and sports and entertainment businesses. Organic sales growth was in the mid single-digits for the quarter. Our business and industry sector had low single-digit sales growth led primarily by new business growth in refreshment services. Our education sector overall had mid single-digit sales growth led by another very strong quarter of base business growth in our higher education food business.

In our healthcare sector we realized mid single-digit sales growth with strong base business growth in both food and facility services. Our sports and entertainment sector had mid single-digit sales growth in the quarter with good base business growth in stadiums and arenas which benefited more from the major league baseball playoffs than in the prior year quarter.

Adjusted operating income in the domestic food and support services segment was up 16% to $145.1 million with the business and industry, education and healthcare sectors all delivering strong profit growth in the quarter. The segment's year-over-year income growth would have been somewhat higher if the impact of currency translation and the 2007 divestiture of SMG were excluded from the comparison.

We are very pleased with the segment's overall performance this quarter and remain optimistic about its performance for the balance of fiscal 2008. However, the first-quarter results did benefit from several factors which are not expected to repeat in subsequent quarters, including a strong contribution from the baseball playoffs, strong performance in higher education, which traditionally represents a meaningful portion of our first-quarter results, as well as the impact of certain unfavorable accrual adjustments recorded in the year-ago quarter.

As we look to our second fiscal quarter we expect certain other factors will constrain growth, including the timing of the Easter holiday which is simply a second-quarter to third-quarter timing item, the quarterly pattern of activity in our remote camps business in Canada, which is moving more from a short-term camp business to a long-term camp year-round business, and some weakness in our arenas related to NBA events. For the full year however we continue to expect that the domestic food and support services business will deliver solid top- and bottom-line performance, of course absent any unforeseen negative impact of overall economic conditions.

Now turning to the international food and support services segment, first-quarter sales of $658.3 million were up 20% with strong growth in the UK, Chile, Korea and China. Organic sales growth for the segment was approximately 10% in the quarter. First-quarter adjusted operating income was $26.6 million, up 23% from the prior year quarter. Most countries delivered solid profit growth led by Chile, Ireland, Spain and Korea. Foreign currency translation contributed approximately 11 percentage points to the segment's operating income growth in the quarter.

We expect a more moderate rate of growth in the fiscal second quarter principally due to the timing of the Easter holiday which will affect results in the education and business sectors across a number of our country operations. Again, for the full year of fiscal 2008 we anticipate another solid year of both top- and bottom-line performance from the international segment again, absent any unforeseen negative economic developments in the balance of the year.

In our uniform and career apparel segment first-quarter sales of $447 million were up 4% from the year ago quarter led by 7% growth in uniform rentals sales. The segment's organic sales growth was in the low single-digits for the quarter with rental growth in the mid single-digits. Uniform segment adjusted operating income was $41 million in the quarter compared to $43.3 million in the year-ago quarter.

While the uniform rental operations and Galls delivered solid top- and bottom-line year-over-year growth in the quarter, it was offset by softness in demand at WearGuard-Crest. The moderate weather during the quarter somewhat dampened demand for WearGuard's higher margin outerwear and, along with a very challenging pricing environment, was a primary contributor to the business' under performance in the quarter. We expect improved performance from the segment in the second quarter and for the balance of the year.

Corporate expenses, adjusted to exclude the items that Chris described earlier, were $7.1 million in the quarter compared to $9.5 million in the year-ago quarter, principally reflecting lower staff spending and other administrative costs.

So summing up the first-quarter's operating performance, we did see an increase in our level of annualized new business and net new business compared to last year. We are remaining selective in terms of the type of new business we pursue and continue to be disciplined in our deployment of capital to win new accounts.

We've generated very strong operating income growth overall and consolidated margin improvement in comparison to last year, although we expect full-year performance to be more in line with our long-term targets. And importantly, our entire senior management team remains very focused on delivering profitable growth in fiscal 2008 and beyond. Now let me turn it back to Chris for some additional details on the quarter.

Thanks, Fred. I'd like to wrap up our remarks by commenting on our financing capital structure and cash flow. Our adjusted EBITDA for the trailing 12 months ending December 28th was $1.065 billion, up from $1.030 billion at September 28, 2007 and a comparable $983 million at December 29, 2006. Interest and other financing costs were $129 million for the quarter, up significantly from the prior year quarter which of course reflects the pre going private transaction capital structure. Our interest costs in the quarter were in accordance with our expectations.

As of December 28, 2007 approximately 83% of our debt portfolio is at fixed interest rates with a weighted average cost of approximately 7.26%. Total reported debt at the end of the quarter was $5.997 billion reflecting the expected utilization of our revolving credit facility to fund our seasonal working capital needs during the quarter. Based on our strong EBITDA growth this quarter we are pleased that our secured debt ratio improved to 3.86 times as of December 28th despite having a somewhat higher debt level due to our seasonal working capital needs.

Net capital expenditures were $67 million for the quarter compared to $60 million for the quarter last year, as we continue to reinvest in the business but do so in a disciplined manner. And as we've discussed, the seasonality of our business is such that working capital is a use of cash for us during our first half of our fiscal year. So during the first quarter of fiscal 2008 our working capital requirements were consistent with both our expectations as well as with historical levels. Now let me turn it back to Fred.

Thanks, Chris. We are pleased with our overall performance during the first quarter of fiscal 2008 as most of our businesses have delivered operating income growth and solid margins. And while we are certainly not immune to the impact of overall economic weakness, we continue to view our sector, geographic and client diversity as important fundamental strengths of the Company that should serve us well in this uncertain environment.

We also continue to see many growth opportunities across most of our businesses, importantly including the ability to grow our business within our existing clients. We believe that we are well-positioned to seize these opportunities both now and in the future. So thank you again for your time this morning and for your support of ARAMARK. We would now be happy to take your questions.

(OPERATOR INSTRUCTIONS). Reza Vahabzadeh, Lehman Brothers.

Good morning. On the international side of the business it looks like organic growth has accelerated of late. Is that new business wins or is that just better same-store sales growth internationally or specific countries?

Our international business, you're right, has improved its growth rate over the last six to nine months and it's been across all of the metrics. But in particular we've been pretty successful in new business over the last six months or so. And we've been able to hold our lost business pretty constant.

Got it. And should one assume the recent trends are going to be more indicative as of this coming year?

I think we tried to address that somewhat in our prepared remarks. We obviously had a very solid first quarter, particularly in the operating growth increase -- operating income growth increase year-over-year and above our overall long-term targets in terms of top- and bottom-line growth. We do think that these year-over-year results are going to fluctuate quarter-to-quarter, so I wouldn't annualize the first quarter. But we remain confident that we can generate top- and bottom-line growth consistent with our overall long-term targets.

Right. And on the domestic food and support services, overall revenue growth has been relatively stable, right in the 5% handle range, but your comments suggested a bit of caution on the sports side and the camp side. Can you comment on that? Is that likely to change your trends from recent quarters or is that just you're being conservative?

Some of that is timing from quarter to quarter in the relative mix of the businesses and some changes in the nature of the contracts in the remote camp business. So I think overall, as we look at over broader periods of time year by year, we think the overall level of organic growth in our domestic food and support services business should continue where it is and we're hoping that we can actually improve it.

And is this 5% -- 5.5% revenue growth, is that largely volume or is there a significant price component in there -- price mix component?

The price component is very modest, so it is largely bringing more volume -- we talk about higher ed for example having a very strong quarter, they are doing a good job at really capturing more and more volume within our existing accounts. So that's the real driver, price is really on the margin.

Right. And so how are you faring in the U.S. business vis-a-vis higher food cost -- I don't know how you're faring on labor and benefit costs, but how are you dealing with higher cost if any?

Sure, and we've talked I think pretty consistently about the things we have at our -- or in our control that we can try to use to mitigate some of the price increases that we've seen that clearly more recently have been running at higher rates. Again, if we look at the domestic business -- you need to first strip out the facilities part of the business where there's obviously no food cost component and that's roughly $2 billion. And then if you look at the rest of the business, about 25% of it is management fee-based contracts where we really do get by and large direct pass-through of the costs, so that obviously, again, reduces the overall exposure.

And then through the flexibility we have around menu engineering within the accounts, which is pretty significant, and the ability to ultimately get price at the consumer level, we think we're in a position to really mitigate the pressure. We certainly can't eliminate it entirely, but we've got I think ways to mitigate it that are more meaningful than some other food related companies. And then also beverages, as we've told you, is a very significant component of our food costs as well and there you just haven't seen the same -- other than in milk and dairy, you haven't really seen the same level of pressure on the cost side.

Got it. And then how do you feel about the rental business? The trends recently have been mixed at best and certainly the margins and pricing looks a bit on the challenging side. Any comments on that would be appreciated.

The rental component of our overall uniform group actually had a very solid first quarter. They were able to increase their margins, notwithstanding the negative impact of year-over-year energy costs mostly driven by fuel. And their organic growth, as we mentioned earlier, has been pretty steady in the mid single-digits. And if you follow any of the public companies in the space, our organic growth compares very favorably with the other major competitors.

So we've seen margin improvement despite fuel cost challenges, solid organic growth. We feel pretty good about the business. The real challenge in this segment in the quarter, as I mentioned, really related to our WearGuard direct sale business. The first quarter is the big quarter for them and is principally driven by outerwear, but the rental business is doing well.

Okay. And then as far as CapEx, the estimated range for this year would be what kind of a number?

I think we're not changing the way we've talked about an expected level of CapEx spending, as we've talked about for the last number of years. Somewhere in the 2.7 to 3% of sales overall is the right range to think about and last year we were at the low-end of that range, but we don't see any real changes in our need to reinvest.

Do cash taxes approximate book taxes or not?

They were about $29 million in the quarter.

Okay. Would that be a good annualized number for '08 or just a timing factor?

This is a very profitable quarter for us just overall, the first quarter certainly compared to the second quarter just given the mix of business. So it's certainly not a number you should annualize. And again, the incremental amortization is obviously not tax-deductible. That's the number -- that number is a consistent number throughout the year. But again, this is a very profitable quarter for us overall.

Thank you.

[Karen Eldridge], Goldman Sachs.

Just following up on the food cost, would you be able to break out for us what percentage are beverages and then within that what percentage is dairy?

No, we typically don't break out our overall food sales between categories of food.

Okay, fair enough. And as you look out for the commodity for this year, is there any thought or hope that you could get some relief in protein?

Protein costs year-over-year actually have not been a problem. So it's really been more in the categories of dairy and bakery items that are really driven by wheat prices.

Great. And final question, as you mentioned, you're seeing some softness in conventions and parks. Has this trend been accelerating in recent months? Because particularly with conventions there's some kind of lead-in time and is that kind of your thought for the year ahead?

We think that the business could be somewhat weak for the full year. The parks business, right now we're in a very low level of activity for the parks business really comes to the floor along with major league baseball in the summer. And we're cautiously optimistic but we'll have to see. And convention centers continues to the somewhat weak, but it's not a big factor in our overall results.

Great, thank you very much.

Bryan Hunt, Wachovia.

This is Meredith Fowler for Bryan. Can you quantify the degree of food cost inflation that you expect for fiscal 2008?

Yes, I think -- it certainly accelerated over 2007 and 2007 was in the 4% range probably overall. I don't think we're in the business of necessarily predicting where they're going to go from here. Certainly the first quarter they were higher than that. But again, I think we're doing everything we can to mitigate it and we'll continue to do that throughout the year regardless of how they behave. But I don't think we're going to make a prediction as to what we expect in terms of full year over year.

Some of these prices can be -- dairy for an example can be quite volatile.

All right. And then can you give us an idea of how much the Easter shift should impact sales in the second quarter?

We haven't broken that out separately. It's enough to talk about and it's really just a Q2/Q3 shift.

All right. And then just one housekeeping? What was the amount outstanding on your revolver at the end of the quarter?

The revolver had $95 million outstanding. The accounts receivable securitization facility had $250 million utilized; I'll give you that number as well.

All right, thank you.

Andrew Berg, Post Advisory Group.

Just going back to the second-quarter outlook, since you're not going to quantify Easter, and I'm guessing I'm probably not going to get an answer, but you said the NBA business is soft. Can you sort of flesh that out a little bit more why you're seeing softness in that business?

I think if you look at NBA attendance overall you would see that NBA attendance is flat to down in general across all of the teams. And we can speculate as to why that is. But the NBA is more prominent in the mix in sports and entertainment in the March quarter. And the fact that NBA attendance per game is down is a matter of public record.

Okay. And you guys aren't willing to give us -- going back to the Easter question previously -- some ballpark estimate as to how much that shift is from 2Q to 3Q?

That's right.

Thank you.

Akiva Stechler, JPMorgan.

Thanks so much. On U.S. foodservice, you had mentioned that baseball had impacted the margins. Was there anything else in there that had impacted margins?

Yes, I think we said that the higher education business, which is sort of a dominant business for us when you look at the overall mix in the first quarter, just had a really terrific quarter from a base business growth standpoint and the drop-through on that growth is attractive. So that was a contributor to the quarter as well?

The way to think about it, as you know, we're organized by market vertical or by sector -- so sports and entertainment, healthcare, business and industry, education -- and those businesses have different seasonal patterns. So the mix of sales that we get from each of those vertical -- market verticals will vary somewhat quarter by quarter. Clearly the most pronounced is sports entertainment which is a much bigger factor in the summer than it is in the winter. So you'll see as that mix changes naturally from quarter to quarter then the growth rates will change accordingly depending on the relative growth of the individual businesses because they're not all growing at the same rate.

And when we look at just education overall, is that margin improving or it was just a seasonal impact?

No, it's improving.

Again, with the kind of base business growth that they're generating that is attractive growth from a profitability standpoint.

And not to harp on this issue of food cost inflation, it seems that the sector that really faces the issue is the corrections business where you have specific food which you need to give to the inmates. In terms of contracts, in terms of ability to change those contracts, what's the outlook going forward?

That is right and dairy, for example, is an important part of their food cost as well. So that business is again focused, to the extent there is some opportunity to modify the menu there they are working on that to -- especially around dairy where there are other ways to get calcium into the meal other than actually through a carton of milk. And those contracts as they are renewing we're focused on making sure that we're getting year-over-year increases that are more reflective of the cost in the business as opposed to something that's maybe more CPI related, but that business will continue to face a year-over-year challenge this year no question because of the increase in commodity cost compared to last year.

And to put it in perspective, the corrections business is a terrific business, but at the market verticals I just described it's the smallest.

By far.

Okay, and Chris, you had mentioned that 83% was fixed. Do you anticipate from the other balance for you guys to have a benefit where LIBOR is today?

Sure, if LIBOR continues to track down for that 17% of the debt that's floating rate we tend to have quarterly resets, so there's a little bit of a lag, but we'll benefit certainly on the margin.

I know you've broken out for the term loan you see a benefit of about $4.5 million with the stepdown. Do you have a similar number on that floating rate note for the rest of the debt?

I think you can make your own assumptions about where -- well, just look at where LIBOR was, where it is, and take 17% of our debt and multiply it out.

Will do, thanks a lot.

Rishi Sadarangani, Alliance Bernstein.

Yes, hello. I was wondering if you kindly elaborate a little bit on to the extent you are seeing economic weakness or an economic slowdown and to the extent you are being impacted by that, if you could kindly share some more granularity on what geographies or what sectors in terms of end demand might be impacted or that you are seeing?

Let me focus on the first quarter, which is what we've obviously reported and is the subject of the call. About 50% of our overall sales are outside of the business sector; in other words, not the business clients. And the 50% that is the business clients is all of our uniform business and then our food and facilities business to business clients.

The 50% that is to other market verticals, healthcare, education and the like, we haven't seen -- I think to be fair through the quarter, we haven't seen any negative impact of the economy in terms of number of patients, number of nurses, number of students, number of sports fans and the like.

I think similarly in the business sector, while there certainly has been lots of discussion about layoffs and cutbacks, particularly in certain verticals within the business sector, and we're sensitive to that and we're keeping a close eye on it. Through the first quarter there hasn't been any material negative impact on the business of any of those things.

Thank you.

Marianne Manzolillo, Angelo Gordon.

I was hoping for some further clarification regarding your different businesses in the food service section. In education you're saying your first fiscal quarter is your stronger quarter, is that correct? And then Q2 is not as strong? Is that like a seasonal type of thing?

Yes, and it has to do with the way Christmas holidays fall.

So is there any reason, though, that this Q2 should be any different than last year's Q2 in the higher education segment?

Yes, Easter is occurring in March this year, it occurred in April last year. So that is obviously a shift in terms of the number of school days and a lot of schools may schedule spring break around Easter.

Okay, so then it would be a timing difference between Q2 in Q3?

Correct.

All right. And then on the sports and entertainment side as well, you're saying Q1 is stronger because of baseball?

Nothing like having the two teams in the World Series.

And actually four of the eight teams in the playoffs. So the playoffs occur in our fiscal first quarter. We had a good run. The NFL (multiple speakers)

(multiple speakers) the Rockies and the Red Sox.

But the playoffs always occur in the first quarter, right?

But the Red Sox and the Rockies are not always in the world series.

Yes, we had four out of eight playoff teams, both teams in the World Series.

We had 13 major league baseball teams. So obviously we do not have -- although we have a number of Major League Baseball teams, we don't have the majority of the teams in the league.

And then the NFL is really a first-quarter event for us, not a second-quarter event -- other than playoff games. We didn't have any playoff games at our stadiums, home playoff games this year, and there's no baseball at all obviously in our fiscal second quarter.

The fiscal second quarter is always weaker. But then again, this year versus last year, this year may be off because you're seeing NBA attendance is off?

Right. That's correct.

All right. And then healthcare, it doesn't sound as if you're seeing really any difference.

I think that's fair. That business continues to perform well, it performed well last year and they had a very solid first quarter.

It's not particularly seasonal.

Okay, all right. And then on working capital, you're saying that Q1 and Q2 are your strongest quarters or are the quarters that require an investment in working capital?

They are the quarters that require an investment in working capital.

All right, is that because -- if Q2 is a little weaker just because of seasonality, wouldn't that be kind of running off? I'm surprised that Q2 also requires an investment in working capital?

Q2 is very different from Q1. Q2 is stronger, as we get into February and March; they are positive cash flow months for us. I'm just saying the balance of the first half of the year (multiple speakers) tends to be a working capital use.

The peak actually is somewhere between the end of the first quarter and the end of the second quarter actually.

And the peak is in sort of the January time frame.

Okay. And what is the peak to trough type of variance?

It's at the peak 250 million or so as a use. And then again, as you saw in 2007 and as we've looked back in history, by the end of the fiscal year the revolver, which we use to fund that goes back to zero and then we're left with the free cash flow we've generated during the course of the year to repay term debt or make acquisitions, etc.

And for the year should working capital be kind of just an increase commensurate with the increase in revenue?

Yes, we've said in general it's a modest use overall. Some years it may be a modest source, but a modest use. The one difference in 2008 is that 2008 is actually a 53-week year for us, so we're picking up an extra week at the end of the fourth quarter and that week is actually a working capital use for us, so it may be a slightly higher use of cash, but still relatively modest.

Great, thank you very much.

[Phil Filler], Citigroup.

Thanks for taking my question. I wanted to focus on the uniform business; the rental organic growth was strong. Can you talk about the different components of that? Are you writing a lot of new business and how are any employment situations at your existing customers, things like that?

We don't break down the organic growth between new sales, lost business and can't stop which we call shrinkage. Having said that, I guess really all three of those components in the first quarter performed pretty well and consistent with prior years. We have a number of initiatives within the business to focus our route reps and we have about 3,000 route reps driving routes with weekly pick up and delivery.

On growing our business with our existing customers, so if we have a uniform customer and we're stopping there to add mats or another product, similar to the base business growth concepts that we've talked about in food and facilities, and that has been pretty affective so far so that our base business growth continues to hold up pretty well.

Now if you're seeing increased business at existing customers, does that bode well for the margins in that segment? And has any of the pricing pressure that you're seeing in the direct sale business leaked over into the rental business at all?

I think it does generally bode well. The rental business is very competitive and we certainly have made every effort to pass prices along -- price increases along. And as I think has generally been the case in the industry because everyone has been hit by increases in fuel costs and natural gas costs. So it's not easy to do, but we're pretty disciplined and pretty organized as to how we do it and we've been pretty successful. And again, our costs and everyone's costs are going up and so it's generally a trend in the industry.

Okay, great. Thanks, guys.

Reza Vahabzadeh, Lehman Brothers.

Now that you've taken off some leverage I'm wondering if you are spending more time looking at bolt-on acquisitions which were a relatively steady part of your strategy a few years back.

I think the best answer to that really is that our valuation of bolt-on acquisitions has pretty much constant from year to year. It's really driven by where, for example in the uniform business where we do a number of them, where we're located, where geographically we may be a little weaker and a bolt-on acquisition would be particularly helpful to us and the pace at which and smaller companies are available for acquisition.

Typically we're not dealing in dollar amounts that are all that material to the total capitalization of the Company. So I would say that the fact that our overall debt ratios are down from a year ago doesn't really change our view on these small add-on acquisitions. It doesn't make us more aggressive or less aggressive.

Is this the same for the international side of the business as well?

Yes, I think it really applies to acquisitions across all three of the segments.

Got it. And what about divestitures? You obviously sold your interest in SMG, is there more along those lines or was that a one-off situation?

That was pretty much a one-off situation.

Got it. And then as far as your contract renewals on the correction side of the business, and I recognize it's the smaller segment within USS -- do those contract renewals -- are they relatively spread out throughout the year or are they generally front of the year or back of the year?

They're really spread out throughout the year. Again, we have so many contracts that are brought on at -- there's not -- unlike the K-12 business that has a very regimented calendar in terms of when that business comes out, the corrections business really comes in as it comes in throughout the year, so those contracts are up for renewal throughout the year with really no rhyme or reason.

Right. And on a same-store or same contract basis as they are coming up for renewal are you seeing any kind of traction on getting some kind of a pricing or mix change?

Yes. Again, I think we're early days and these contracts tend to be three or five years in most cases, right? And that business has grown very nicely for us over the last three or four years. So I think anecdotally we're pleased with the early progress, but I think there hasn't been a material opportunity to really change over the contract mix yet in terms of contract language changes and annual escalators. But I think we've got a strategy and I think we're so far pleased with some early success.

Thank you.

Ryan [Bloom], Hartford.

Good morning. I just had a couple of follow-on questions. In terms of like broader oversight, when you see softness in the business segment historically and maybe even now do you see a pickup in the education business as a result? The old adage is "if you can't get a job, go to school for the education." Is that something that is an offset or you don't really see that in the business model?

That is, as you say, an old adage that people who lose their jobs go back to school for retraining or re-education. I think to be fair we wouldn't expect it to be a major driver of the business. I think to the extent that in a period of economic weakness maybe families can't afford to send their kids to school because a parent has gotten laid off. I think that tends to be offset by exactly what you've talked about. So the way we think about it, it's maybe an offsetting factor in keeping that business level, but not really a big driver and an acceleration of the business.

Okay. Do you generally view it as a sort of inconsequential mitigant or a moderate mitigant in terms of orders of magnitude or not really relevant?

Sort of an inconsequential mitigant I guess, or moderate mitigant.

And as Fred mentioned in his remarks, that business is a business where we still have a lot of opportunity to grow within the existing accounts. It has nothing to do with additional headcount at the school, it's really capturing more of the spend from the population that's already there where we're still only capturing a minority of the amount of money being spent on food on a typical college campus.

Okay. And then just a follow on as a nice segue. Can you break out the percentage of the new business that's coming as a result of cross sells versus just plain new ones? Is that something you disclose?

Yes, we don't typically break that out. I think it's fair to say that the majority of business is not cross sell. The cross sell is a meaningful minority of the new business. And it continues to be a very good opportunity because in most of these market verticals the percentage of our clients with which we have multiple services is well less than 50%.

And it's really by and large isolated to the healthcare and education sectors. And certainly I think in those sectors over time we've seen some good success. But the overall portfolio, the rest of the sectors really don't lend themselves as much to cross sell of services.

Okay. And just so I have the terms defined appropriately, do you view further penetration as sort of the cross sell within the food and services segment or increased penetration is not necessarily -- syncs up with penetration? Are they synonymous or not really?

Not really. Increased penetration is really -- again, I'll use the higher ed example -- capturing higher penetration of the amount of money spent on food on a college campus, we're working on doing that every day and are having some good success. So that's sort of increased penetration and then cross selling would be in a higher ed food account bringing additional services to bear that historically we hadn't, for example facility services. So they're really distinct.

Okay, thank you very much.

Thomas [Shur], Federated Investors.

First, kind of getting back to the corrections business, you mentioned that your contracts kind of hit in the three to five year range. Are those fairly equally spread out or do you have a big group coming to at the same time?

They're pretty early spread out.

Okay. Also, you mentioned that that's your smallest segment. Can you quantify how much that is as a total within that segment if it's less than 10%?

Yes.

Okay. Going over to the sports and entertainment section, the outside of a baseball, is there another sport where playoff mix will materially affect your earnings?

Well, it depends in what you mean by materially.

To the point that you'd have to comment on it in another call.

Major league baseball in terms of volume because of the nature of the (multiple speakers) number of games, number of fans in a season is head and shoulders above the other three. But that's not to say -- the other three are certainly not going to drive the overall business. But as we talk about variations and talk about our sports and entertainment business certainly they can be meaningful enough to comment on.

In general does the NHL have a meaningful effect on your numbers and have you seen any weakness there?

The NHL and I think you can think of the NHL and NBA as comparable in terms of I think we have about the same number of teams in both leagues. Actually these days the attendance per game is relatively comparable and we've seen year-over-year attendance increases in NHL.

Okay. In the NFL how many teams do you have?

I think nine, 10 teams, something like that.

Did you say nobody made the playoffs?

They made the playoffs but they didn't have any home games unfortunately.

We have the Giants, but they never played, they never played at Giants Stadium.

You do have the Steelers, they had a home game.

There's one.

That was it?

That was it.

Okay. And just because it is a simple one game, that doesn't have a huge effect?

No, one game is not worth talking about.

Yes, well I mean just in total because the most you can get is three games out of any one team unless they all make the playoffs. It's going to be hard for that to have an effect? Is that fair?

Correct.

Okay. All right, thank you very much.

And that's all the time we have for questions. I'll now turn the call back over to Chris.

Well, thanks again for your time this morning and we hope you have a terrific day.

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