Aramark (ARMK) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the ARAMARK Corporation third quarter 2008 earnings conference call. At this time, I would like to inform you this conference is being recorded for rebroadcast, and 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.

Thank you. Welcome to ARAMARK Corporation conference call to review the results of our third quarter of fiscal 2008. Here with me is Fred Sutherland, our Executive Vice President and Chief Financial Officer. Fred and I will present an overview of our third quarter and nine month 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. As we discuss the results for the quarter, you may want to refer to the Form 10-Q we filed earlier today, which contains our third quarter and nine month results for our fiscal 2008. This Form 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.

Earlier today we posted to our website reconciliations of these non-GAAP financial measures to the most comparable GAAP measures as required by SEC rules. Our discussion today of our year-to-date results, will compare our fiscal 2008 results to the sum of our results from the predecessor and successor periods from fiscal 2007. Although this presentation of the 2007 results does not comply with GAAP, we believe it provides a meaningful method of comparison.

These combined results for the 2007 period have not been prepared as pro forma results, and may not reflect the actual results we would have achieved, absent the going private transaction.

Our discussion of operating income during today's call, will in each instance exclude the incremental intangibles amortization, and property and equipment depreciation expense, resulting from the going private transaction. The impact of stock option expense under FAS 123R, the impact of the divestiture of SMG in 2007, as well as certain transaction-related expenses that were incurred in the prior year period. All of these items are detailed in the schedules posted to our website before this call.

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.

I will now turn the call over to Fred Sutherland.

Good afternoon. Thank you for joining us for our third quarter 2008 results call. I would like to review our business and operating results, and then have Chris cover a few additional details on our performance.

Moving to our results for the quarter, we achieved record sales for the third quarter of $3.4 billion, up 8% from the prior year quarter, and up 6% on an organic basis. Adjusted operating income, which excludes the impact of the items that Chris just mentioned, was up about 2% to $156.6 million. For the nine months, sales were $9.9 billion, up 7% over the prior year period, with organic growth of about 5%.

Our adjusted operating income was up over 10% to $509.3 million, and our consolidated operating margin improved by 14 basis points, as compared to the prior year. Currency translation contributed about 2 percentage points of the growth in our consolidated operating income for the quarter, and for the nine months.

Now turning to our domestic food and support services segment, third quarter sales were up 5% to $2.2 billion, driven primarily by our higher education, sports and entertainment, and healthcare businesses. Organic sales growth was in the mid-single digits for the quarter. For the nine months sales were up 4% to $6.6 billion, with organic growth in the low-single digits.

Our business and industries sector had low single-digit sales growth for the quarter, and the nine months, led primarily by refreshment services, and offset somewhat by a lower level of activity in our remote camps businesses in Canada, as well as the impact of lower employment levels at a number of our business clients, especially those in the financial services sector.

The education sector had high single-digit sales growth for the quarter, and mid-single digit sales growth for the nine months, with strong business growth in our higher education food business, offset by lost business in K-12. The higher education business did benefit somewhat in the quarter from the timing of the Easter holiday, which fell in our second fiscal quarter this year, as opposed to our third fiscal quarter in the previous year.

In our healthcare sector we realized mid-single digit sales growth for the quarter and the nine months, led primarily by solid based business growth in facility services. Our Sports and entertainment sector had mid single-digit sales growth for the quarter and nine months, led by the stadium and arena business. Adjusted operating income in the domestic food and support services segment was $97 million in the quarter, compared to $97.6 million in the prior year quarter.

Strong performance in higher education and refreshment services, was offset by profit declines in our parks, corrections, and convention center businesses. Our National and State Parks business and our convention centers were quite soft in the quarter, as the impact of declines in consumer and business spending were felt. While the expected decline in corrections profits was due to an unfavorable change in contract terms for a large state corrections client, and continuing food cost increases that business is absorbing, and as we have talked about earlier calls in the year.

For the nine months the segment had adjusted operating income of $339.9 million, up 11% compared to the prior year, led primarily by strong profit performance in the education, business and industry, and healthcare sectors. Currency translation related to the Canadian dollar contributed positively about 0.5 percentage point to the segment operating income in the quarter, and about 2 percentage points of growth for the nine-month period.

Overall we are pleased with the segment's performance so far this year, in an increasingly challenging economic environment. While the weakening economy and the impact of rising food and energy costs are having an increasingly negative impact on some parts of our US and Canadian business, we continue to believe that our sector and client diversity will be sources of relative strength and stability in these more difficult economic times.

Turning to the international food and support services segment, third quarter sales of $733.4 million were up 22%, led primarily by the UK, China, Germany, Spain, and Belgium. For the nine months, sales are up 21% to $2.1 billion. Organic growth was in the mid-teens for the quarter, and the low-double digits for the nine months. Third quarter adjusted operating income was $31 million, up 24% from the prior year quarter. Profit growth in the quarter was led by Germany, Spain, the UK, and Ireland.

As expected, the results in the quarter benefited somewhat from the timing of the Easter holiday, which fell in our fiscal second quarter this year. Towards the end of the quarter and into July, we have begun to see some of the same effects that were reflected in our domestic business, namely the negative impact of lower business employment, and reduced consumer spending. For the nine months adjusted operating income was $80.6 million, up 19% over the prior year. Currency translation contributed approximately 10 percentage points of the growth in segment operating income, for both the quarter and the nine-month period.

In our uniform and career apparel segment, third quarter sales of $426.9 million, were up 2% from the year-ago quarter, led by growth in uniform rental and Galls, offset by declines at WearGuard-Crest. Organic growth was in the low-single digits for the segment. For the nine months, segment sales were $1.3 billion, up 3% from the prior year, and segment organic growth was in the low-single digits, led by rental organic growth in the mid-single digits.

As is the case with certain parts of our food and facilities business, increased economic pressures on our business clients had a negative impact on our results, particularly in the direct sale portion of our business, where apparel sales have have been down across all sales channels, and are showing more significant year-over-year declines than in the first half of the year.

Third quarter adjusted operating income was $36.9 million, down from $39.1 million in the prior year, with solid traffic growth in rental, despite the negative impact of higher fuel costs, that was more than offset by a decline in profits at WearGuard-Crest, primarily as a result of lower apparel sales volumes. For the nine months, adjusted operating income was $113.4 million, flat to the prior year with strong growth in rental and Galls, being offset by profit weaknesses at WearGuard-Crest, which has been impacted throughout the fiscal year by declining levels of apparel demand across the sales channels.

Corporate expenses adjusted to exclude the items that Chris mentioned earlier, were $8.3 million in the quarter, compared to $8.7 million in the year ago quarter. For the nine months expenses were $24.6 million, compared to $27 million in the prior year, reflecting lower staff spending, and other administrative costs.

So, summing up the year-to-date operating performance, we have generated solid operating income growth, and consolidated margin improvement in comparison to last year. However in the most recent quarter's results, it is clear that the overall economic environment in the US has become more challenging, and as we would expect during such periods of weakness, certain of our businesses are being negatively effected.

In particular, parks and destinations, convention centers, business services, and uniform and career apparel. We would expect that these businesses, especially will continue to be challenged, until there is an improvement in the economy overall, and we see more benign energy and food cost environments.

However in the meantime, we are very focused on managing the business with an increased emphasis on growth in our less cyclical sectors, and cost mitigation and containment efforts across all our businesses in the entire company. We believe that ARAMARK's diversified portfolio of sectors, services, clients, and geographies will continue to be a source of relative strength and stability for us.

Now let me turn it back to Chris for some additional details on the quarter.

Thanks Fred. I would like to cover our cash flow performance and our capital structure, which continue to be strong. Our adjusted EBITDA continue to grow in the quarter, and for the trailing 12 months ending June 27th was $1.09 billion, up from $1.03 billion at September 28th, 2007, and up from $1.009 billion at June 29th, 2007. Interest and other financing costs were $123.9 million for the quarter, and $382.3 million for the year-to-date period.

At the end of the quarter, approximately 85% of our debt portfolio was at fixed interest rates,with an overall weighted average cost of approximately 7%. Total reported debt at the end of the quarter was $5.933 billion, including an outstanding revolver balance of $27 million, down from $59 million at March 28th this year. Based on our EBITDA growth and reduced borrowings during the quarter, we are pleased that we continue to improve our secured debt ratio, which was down from 3.72 times as of June 27th.

Net capital expenditures were $78 million for the quarter, and $218 million for the nine months, as we continue to reinvest in the business, but do so in a disciplined manner. During the first nine months of fiscal 2008, our working capital requirements were consistent with our expectations, and for the full year, we continue to expect historical working capital patterns to prevail. With the exception of the negative impact the 53rd week will likely have on our working capital in our fourth fiscal quarter.

Now let me turn the call back to Fred.

Thanks, Chris.

We are generally pleased with our overall performance during the first nine months of fiscal 2008, as most of our businesses delivered operating income growth during an increasingly challenging environment. Cash flow has been both steady and consistent with our expectations.

As we have said, and as this most recent quarter's results reflect, we are certainly not immune to the impact of a weak economic climate, and unprecedented levels of energy and food cost increases. However, we continue to view our sector, geographic and client diversity, as an important fundamental strength of the Company, and have allowed us to deliver solid earnings and cash flow performance so far this year.

We also see numerous growth opportunities especially in our less cyclical sectors in North America, and in many of our international countries, and we believe that we are well-positioned to seize these opportunities going forward, both in the short, medium, and long term. Rest assured that regardless of the external environment, we will continue to manage ARAMARK with the same business discipline and focus on cash flow that we always have.

In closing, I would like to acknowledge and thank the ARAMARK team members that are serving the 2008 Summer Olympics Games in Beijing. We are very pleased to have been selected to be the exclusive provider of food service to the Athletes Village, media villages, and broadcast and press centers in Beijing. During the course of the games, our staff of nearly 7,000 managers, chefs, and employees, will serve approximately 3.5 million meals, to thousands of athletes, coaches, officials, staffs, volunteers, and media personnel from all over the world. These games will mark the 14th time that ARAMARK has been chosen to serve the world's Olympic athletes, a part of our history that we are extremely proud of.

Thank you again for your time this afternoon, and for your support of ARAMARK. And we would now be happy to take your questions.

(OPERATOR INSTRUCTIONS)

We will pause for just a moment. And we go first to Reza Vahabzadeh with Lehman Brothers.

It is Reza Vahabzadeh from Lehman. Good afternoon. As the environment has slowed down in the US and overseas, costs are somewhat higher here and there, do you see pricing in the industry to be relatively disciplined, and adequate to cover higher costs? I know this industry has gone through periods of rationality and lack of rationality.

This is Fred. Let me take a shot at answering that. And I think you need to start by distinguishing between the food and facilities business and the uniform business, obviously.

In the food and facilities business, price increases are very much at the local level, so we really rely and work through our individual frontline managers, who have relationships with and are responsible for managing the contracts with our clients, to make and push for price increases, some of which would be borne directly by the client, some would be borne by the consumers who use our facilities.

And we have been very focused, particularly over the past six to nine months, both at the North American and the international food and facilities organization, have been very focused on getting the appropriate price increases, to offset what is a significant year-over-year increase in food costs. And I would say we have been relatively successful in doing that. We haven't been able to increase prices everywhere, and every time we have wanted to, but I would say we have been pretty darn successful.

In the uniform business, we have also been very disciplined in increasing our prices, our contracts, as you probably recall, allow in the base uniform business for annual CPI increases, so clearly with the increases in fuel costs, that is inadequate to cover our overall cost increases, so it requires us to go back outside of that annual CPI increase to our clients, to request price increases, and we have done that aggressively with discipline, and I would say, in particular there are senses that other companies in the industry that are seeing the same cost increases, are doing the same thing.

Got it. Your parks business seems to be slowing down but you seem to suggest the remote parks business not just any parks, and then you talked about the convention business also being down. Any particular factors driving the weakness in those businesses?

Sure, Reza. Just to make the distinction we were referring to our remote camps in Canada, which actually is not a consumer parks destination, but related to the oil and natural gas industry in Canada, where we are actually operating camps that are drilling or exploring, and really the issue, and we have talked about at couple quarters now, is some of those camps are short-term in nature, and go through different stages of operation, and literally just year-over-year we had fewer active camps in '08 compared to '07, just as they were closing one stage and moving into another stage. So that is just an issue in Canada, just related to really not the cyclicality, but seasonality of that business.

But the long-term trends, as you can imagine, given the energy environment, is very positive, and we are actually investing in the infrastructure in the remote camps business in Canada, to continue to grow that business over time. The National Parks business is really a consumer destination business, where folks are taking vacations at parks that we manage and run, so that is really a reflection of consumer demand, and given fuel cost increases that they are bearing day to day, obviously there is less disposable income, so we are feeling in that our parks business through cancellations, through lower attendance levels, and through maybe lower levels of spending when they are at the park.

I see.

And finally, the convention center business is really, and this is pretty consistent with past periods of economic weakness, where you see lower, just a fewer number of events over time, lower attendance levels, and then at those events you tend to have customers starting to essentially spend less, and so just the types of service, and the types of food we might actually be providing at a given event, might be a lower margin, lower cost offering, than it would have been in a better economic time. So again, consistent with, frankly what we have seen in prior periods of weakness, and frankly what we would expect coming into this kind of environment.

Let's now move on to Bryan Hunt with Wachovia.

Thank you. I was wondering, with regards to China, and the very prestigious contract win, were there any significant costs tied up in preparation for your staff in this quarter to get them over to China, or will there be any significant costs in the upcoming quarter, giving travel expenses and stationing your folks over in China, or is that just really offset by the contract itself, and we should expect nothing?

This is Fred. Other than my airplane ticket, since I am heading over there tomorrow, I guess actually Joe Neubauer, our CEO, is going over there, and Ravi Saligram is going over, but to seriously answer your question, the scope of this Olympic games is pretty significant.

Just the scale of it and the volume of it is about 2 to 3 times what we have done before, the most recent being the last Summer Games in Athens. So it is truly at a different level, in terms of scale, scope, and volume. Having said that, we essentially operate this more or less on a management fee basis. So we are responsible really for managing the costs, and being reimbursed for those costs. So there really, we don't anticipate, there hasn't been any significant impact on our P&L, and we don't anticipate there to be. So it is not a big expense drain, because most of our effort really is reimbursable, and it is certainly not a big income earner for us.

Okay. And then with regard to your contracts, whether it's a profit and loss contract, or a client interest contract, it sounded like within those contracts you have been very successful in pushing through price increases. Could you talk about where you have had the inability to push through price increases, what has been the sticking point which hasn't allowed for additional pricing? If there is something universal that has occurred?

I can give you a couple of examples. In those businesses where we provide, let's say, a fixed price per meal, and that would be more prevalent in the corrections business, where we have a contract, we provide meals, the meals are very tightly speced, and we provide those meals for a fixed cost per meal. In the K-12 business where some of our contracts really call for a P&L contract, where we quote a fixed price per meal, and in those cases, we would have to go back to the client, and negotiate a higher contracted fixed price.

And if the client is under pressure themselves, they may say, well, we are not willing to give you a price increase. So it would be a matter of contract negotiation. Where the consumer is paying for it, typically we have to go back to our client, and explain it to our client, and justify it to our client. Generally the client would prefer that we not increase the prices, but they understand the cost increases, and so typically we are able to pass it through. But it is probably more difficult where we have fixed price in a contract with the client.

Got you. And you mentioned in your prepared remarks that both those fixed price or fixed cost businesses have had issues, whether it sounds like some of your K-12 business has gone away, or you have had much lower profitability, or lower profitability in the corrections business. Is there anything that, one, maybe you can talk about K-12 first. Why are you walking from that business, or why is the business in decline, from a revenue perspective? Then second, is there anything you could do in the corrections business to fix the profitability in the near term, or do you just have to wait for a contract cycle?

In the K-12 business, we have had, last year, which we have talk about in earlier quarters, we had a couple of larger contracts that we lost, and that basically has a carry-over effect really for 12 months until you lap the contract, generally that is an attractive market, it a market where a relatively small percentage actually, of the potential is outsourced. A lot of the business is provided in-house.

And we have from time to time, we will lose large contracts, where the districts themselves may come under pressure, it may be complex, there may be political issues, because of the involvement of school boards, and that has really been the impact this year in the K-12 business.

In the corrections business, we can do a few things to address the increase in commodity costs, which I think as we mentioned we had planned for, so we expected this business to be down in profit year-over-year. We can in conjunction with our client make suggestions as to how to make the operation more efficient, particularly from a food cost point of view, and work with our client collaboratively to do that, and we are experts in that. And we can go back to the client and ask for price increase.

And those are really the two, within the term of the contract, and again, these contracts are medium term contracts. One year, two year, three year, four year sorts of contracts. Those are really the avenues.

As we move forward, there is a clear effort on our part to actually for new contracts, to have different contract language around price increases, so historically we have been focused on contract language that was CPI based, and we will certainly make every effort to have contract language that is focused on cost increases, that maybe are tied to a food basket, or some other metric that is more relevant, versus our increases in costs. But that will take time for the portfolio to be worked through.

Now do you feel like, we have seen other industries on the food side, or other segments of the food business do the same thing. You usually have to get the majority of the players to follow along. Do you feel like your competitors are following along with that type of language in their contracts as well?

It would be hard for us to say, to be honest.

Do you feel like the market has become more competitive with regards to contract bidding, or is there a general lift in pricing on new contracts, because of the pressures that everybody is feeling on the operating cost side?

My sense is analogous to the comment that I made about the uniform business, that both we and our competitors are essentially seeing the same cost increases, and are reacting to it accordingly.

Okay. I will get back in the queue. Thank you very much.

You are welcome.

Our next question will come from Karen Eltrich with Goldman Sachs.

Sorry to harp on the commodity costs, but obviously a lot of the larger protein players.

Your line is open. We are unable to hear you, you may want to check your mute button.

It is not on mute. Can you hear me now?

We can hear you.

Getting back to commodities, a lot of the larger protein players have said they are moving to shorter term contracts. Are you seeing that, and how are you managing your margin in the face of that?

We are seeing some movement by our suppliers for shorter term contracts. And that is something that we just manage as we go forward. We know what our costs are, and we reengineer our menus pretty much week by week, and we talk to our clients for price changes, and put price changes, price increases in with, in the consumer side of the business as our costs change.

So would our preference be that we have contracts that are locked in for several years? Yes, that is our preference. But the trend towards so much shorter contracts has not really been anything that we haven't been able to manage.

Great. And to your point, you said you have taken pricing. You obviously did have great organic growth in the quarter, particularly relative to the environment. How much of that was pricing, and how much of that is in this environment may be some customers who are doing self-service, realizing that the costs are just too high, and they can't manage? Are you finding more volume coming in, in this environment?

Yes, I think in terms of price, maybe half of the growth roughly was related to price, and the rest volume. I think it is probably a little too soon to say that we are seeing benefits from a growth perspective because of the environment. I think again, the businesses that are less cyclical, the healthcare business, the higher ed business sort of have their own rhythms, they have their own sales cycles, and I think it is too soon to say that we are seeing benefits from a new sales perspective there.

So I think it is continued focus on base business growth in those markets, where we still have significant opportunities to grow with existing accounts, higher ed is the best example, and they just continue to do a great job of capturing more and more of the spend within our existing base of higher ed accounts, and continue to add new business on top of that. So I think again, anecdotally over time, as periods of weakness maybe extend out, we may have examples where you have a client who because of cost pressures may decide finally to outsource, but I wouldn't say at this point we would say we are benefiting from any of that phenomena.

Fair enough. Final question. I believe you had said in this the past. With regards to the Olympics as you said it is not a huge P&L driver, but do you get a lift afterwards just by the exposure, in terms of new business?

I think that certainly our hope and expectation. Again we have a very nice relatively small, but growing business in China. As you know we have made two acquisitions in the last four years, both a food and a facilities company. We have got now north of 12,000 employees in China, with a focus on businesses, hospitals, and higher education, so this is really a terrific way for us to raise our profile, in what is obviously a very dynamic economy, and very important one for us as we look out five years and ten years from now certainly.

So we are certainly hopeful. I don't think we are making predictions about a benefit associated with the Olympics, but certainly we would expect the business overall, and our profile to benefit post the Games.

Thank you very much.

Sure.

Next up we have from JPMorgan, Carla Casella.

Did you say how much the Easter benefit was for the quarter, or how much it affected last year?

We didn't. It is relatively modest in both last quarter and this quarter, but again, just worth mentioning because it causes a little bit of year-over-year variability. Probably a little more significant to the international business certainly than the domestic business overall pretty immaterial, to the education business has a little bit of a benefit.

Okay. And then I may have missed this. Did you say what percentage of your contracts now are under the fixed price fixed cost?

Yes, again if you look at the North American business, about 25% of the overall business is client interest, or fee contracts, and the rest is P&L.

Okay. Great. Thanks.

And the one reminder, we talked about this the last couple of calls, just in terms of getting a sense of the magnitude of the exposure to food costs, there is a $1.5 billion facilities business within the North American business, where there is obviously zero exposure to commodity costs, so you need to take that off of the top, and then about 75% of the remaining businesses is going to be P&L, and obviously we then have all of the levers we have talked about try to manage those costs.

Great. Thanks.

Sure.

Our next question is a follow-up from Reza.

Just as a follow-up, with the more cautious outlook that you were talking about, Fred, are there other levers that you can pull, whether it is cost savings or other stuff, to offset the slower rate of growth and higher costs?

In the food and facilities business, the teams continue to really focus on what they focused on earlier in the year, and I think they are doing quite a good job at, and that is a combination of menu reengineering, and as we have mentioned on earlier calls, we have a lot of flexibility with respect to the breadth and type of product that we offer, and our locations, really focusing on more efficient management of labor costs, pushing hard for appropriate price increases, looking for additional services to provide in our existing locations, which themselves have good incremental drop-through, renegotiating contracts when we need to.

In the uniform business, we have done a good job offsetting the real driver of our cost increases there, which is fuel costs and energy costs. We have absorbed in Q3 somewhere north of 100 basis points, I think 110 or 120 basis points of negative impact of energy costs, and still managed to improve our rental margin slightly in the face of that, and that is becoming much, much more standardized and process driven, in how we manage our plants to improve our efficiencies.

We continue to become more efficient in our merchandise costs, through various programs and supply chain initiatives. So we are very focused on all of our other costs really across the board. So it is really reducing our SKUs, both in the uniform business and the food business. So it is really across the board focus on managing our operations as efficiently as possible.

Got it. And how do acquisitions fit into your near term and intermediate term strategy, and what is your appetite for them?

I think our appetite for acquisitions is the same as it has been. We are interested, continue to be interested in appropriate acquisitions in both food and facilities domestically and internationally, and in our uniform business, either acquisitions that I might call a little more strategic, because they might add a service capability or a platform, as we expand our services logically, or a bolt-on acquisition that would be from a synergy point of view, a value-added acquisition for us to add into our network. So we continue to be interested. I would say since we, over the years have acquired a number of other companies, that in general the activity level today, and I guess it is no surprise, is higher than it has been.

Activity level as far as potential targets?

Yes.

I see.

Remember, a lot of the companies, Reza, we would be potentially interested in, especially on the uniform side, are privately held, tend to be smaller, regional, or local, and face the same kind of pressures, and as a result may find this kind of environment frankly the time to sell.

Would these be of the smaller bolt-on size, like sub-$100 million, or much larger?

Not much larger.

That is helpful. With the free cash flow that you are generating, is the basic game plan more of the same as in the last few quarters? Debt reduction?

We will say the same thing. I think we have been very consistent on this. The objective is to use free cash flow to pay down debt, absent us finding acquisitions that we think make sense economically, that we think make sense strategically. If we find them, we will do them. If we don't we will continue to reduce debt.

I think as we have shown since going private, every quarter you see improvements in the credit statistics, and part of that is that the business continues to move forward from an EBITDA perspective. Really I think debt paydown will be really based on the level of acquisitions that we end up finding and funding.

Got it. Thanks.

And next we have in follow-up from Bryan Hunt with Wachovia.

Just a follow-up on our K-12 contract discussion earlier. When do you anniversary those big contract losses?

I think they anniversary --

We lap them towards the end of the year, the end of the fiscal year.

Yes. The larger ones were both in really all of fiscal '07.

Okay. And then could you comment on customer retention rate, and maybe revenue run rate, and new contract wins? Again, the retention rate of any renewed contracts in the quarter.

Again, I think just to remind you, we have always talked about and targeted a mid-90s retention rate overall for the food and support business. The uniform business tends to be a little lower than that.

And so far in 2008, we continue to track with those levels, consistent with our expectation coming into the year, so really no difference. You always have a little bit of pluses or minuses based on a given sector in a given year, but overall we continue to track in that same range.

Okay. And then is there anything you can quantify along the lines of revenues on new contract wins?

I think, it continues to be an important component of growth, probably more so in the international business more recently. We have got strong new client years in Chile, for example, we have a large mining business where we are serving mining clients, and as you know, that sector is really growing quite nicely. And so China, as I had mentioned, and a couple of other geographies are having very good new sales wins.

We continue to sign good rates of new business across the domestic portfolio. We talked about K-12, where retention rates may have dipped a little bit there, and other than a couple of cases like that, we continue to sign new business at rates that we are pretty happy with.

And then my last question is, I was wondering if you can give us the amounts outstanding. I know you commented on the capital structure earlier, but I didn't catch it, amounts outstanding on the revolver, the term loan B, and any other cap leases or other debt?.

Sure. There was 27 million outstanding on the revolver at the end of the quarter, and that is total, all of the currency tranches. There was 250 million outstanding under the Accounts Receivable facility. I actually don't have the term loan number. I can give you that. Actually, you can figure it out from the Q. I can give you a ring later if you can't figure it out, but it is the fixed notes are obviously the 1.780 billion. The 2012s are at 232 million on the books. And the AR facility at 250.

Okay. All right. Thank you very much.

Sure.

And we next go to Doug Kahn with RBS.

Good afternoon. Couple questions on the international operations. Just wanted to double-check to make sure that the growth we saw this quarter that was all organic?

We said about 10 percentage points of the growth was related to currency, so the organic growth in the quarter was in the mid-teens, and for the full year it was in the low-double digits.

Okay. If we look at those types of numbers going forward, it seems pretty consistent with last quarter. Are you expecting that type of growth for the rest of the year, or what is your perspective on that?

We have seen some weakness outside of the US, similar to what we have seen in the US as a result of the overall economic situation. At least it has affected our business, it seems like it has come a few months later than we have seen it in the US. So we would expect to year-over-year growth rates in international to come down.

Currently, international represents somewhere between 20 and 25% of total revenues, is that a number that you are comfortable with going forward? Do you expect that to grow in your long-term plans to be a higher number? What is your perspective on that?

In general we would expect that number to grow as a percentage of the total, because we generally expect that our non-North American business will grow somewhat faster, since the rate of outsourcing there has traditionally been lower. We wouldn't expect there to be any radical changes in those percentages over the next three to five years, but generally we would expect the percentage to be up.

Okay. And then in terms of the operating margin that you reported, slightly less international versus domestic, is that something that we should model going forward, or do you think we will see he some improvements overseas as that business matures?

I think we have talked about this pretty consistently too. Over time we would expect the gap to narrow for a couple of reasons. One, today the international business is still more weighted to business and industry clients than the domestic business, and that tends to be a lower margin sector overall, so as the international business becomes more diversified, and grows our presence in healthcare and education, and some of the other sectors, we would expect that to have margin benefit.

Then as we get larger in each of the countries we are in, you do get a benefit from leveraging the scale in country from a purchasing standpoint, and from an overhead standpoint, and so we would expect the international business to benefit from that as well. So over time, and we have seen this historically, the gap should narrow.

And my last question, in terms of your --

Are you still there?

I am sorry, we have lost connection at this time. And also that is all the time we have for questions today.

I would like to remind everyone that a rebroadcast of this conference is available starting today, August 5th at 6:00 p.m. Eastern Time, and will run until August 12th, 2008, at Midnight Eastern Time. You may access the rebroadcast by dialing 888-203-1112, or 719-457-0820. Please reference passcode 6144671.

That concludes our conference call for today. Thank you for participating, and have a nice day. All parties may now disconnect.