Aramark (ARMK) 2009 Q1 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen, to the Aramark Corporation first quarter 2009 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 after the presentation. I'll now turn the call over to Chris Holland, Senior Vice President and Treasurer. Please proceed, Chris.

Thank you, and welcome to Aramark Corporations conference call to review the results of our first quarter of fiscal 2009. 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 for 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 10Q we filed earlier today which contains our first quarter results for fiscal 2009. This 10Q can be found on our website at www.aramark.com. In today's discussion of results, we mention certain non-GAAP financial measures. The 10Q as well as schedules we posted to our website this morning include 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 in each instance exclude the incremental intangibles amortization and property and equipment depreciation expense resulting from the going private transaction as well as the impact of stock option expense under FAS 123(R). These items are detailed in the schedule 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 10K and the Form 10Q filed earlier today. We disclaim any duty to update or revise such forward-looking statements whether as a result of future events or otherwise. Now I'd like to turn the program over to Fred Sutherland.

Good afternoon, and thank you for joining us for our first quarter 2009 results call. I'd like to first review our businesses and operating results and then have Chris cover a few additional details on our performance this quarter. As we all know, the overall economic environment is challenging, and as we would expect some of our businesses have been affected by employment levels fall, discretionary spending declines and more companies going out of business; however we are fortunate to have a portfolio of services and sectors that continue to offer us reasonable balance and an experienced and talented team of managers to lead us through this difficult period. Of course as the current conditions warrant, we are also even more focused on managing our cost structure, and as we move through 2009 we believe these efforts will help somewhat offset the profit impact from the demand softness we expect to continue to experience for some time.

Now let me turn to our consolidated results for the quarter. We achieved sales of $3.2 billion down 5% from the prior year quarter and down about 1% on an organic basis, which as you all know adjust for the impact of currency which was significant due to the strengthening of the dollar and to the effect of acquisitions and divestitures which was minor. In addition, the quarter sales and profits were affected by a shift in the calendar related to last years 53rd week. This caused a reduction in the number of service days in our education sector and in a number of major league sports events in our sports and entertainment sector. We estimate that this had the effect of reducing sales in the quarter, additionally by about $75 million and our operating profit by about $10 million. Operating income adjusted to exclude the items that Chris described earlier decreased 13% to $179.4 million. Excluding the negative impact of currency and the calendar shift I just mentioned, the percentage decline in overall operating income was down in the mid single digits.

In our North American food and support services segment, first quarter sales were down 5% to $2.1 billion with growth in higher education being more than offset by declines in the business and industry and sports and entertainment sectors. Organic growth was down in the low single digits but would have been slightly positive excluding the impact of the calendar shift that I just mentioned. Our business and industry sector had sales decline at mid-single digit rate as our business clients reduced employment levels as well as their discretionary spending on services such as catering. We expect that this sector will continue to be challenged throughout the course of fiscal 2009 and we are focusing on managing the business cost structure appropriately.

The education sector had a sales decline at the low-single digit rate, with growth in higher education being more than offset by a decline in K-12 due primarily to the impact of lost business during fiscal 2008, and the impact of a calendar shift on our education business. Excluding this effect the sector overall would have had positive sales growth. In our healthcare sector, sales declined at a low single digit rate primarily due to the negative effect of currency translation on our Canadian sales and to lost business in the previous year. We anticipate this sector will return to more typical rates of sales growth as we move through 2009.

Our sports and entertainment sector had a sales decline at a low-double digit rate primarily due to softness in convention center, cultural attractions and national parks, as well as I mentioned earlier to the impact of 45 fewer major league sports games in the quarter as compared to the prior year. Adjusted operating income in the North American food and sport services segment declined 11% to $129.3 million consistent with our expectations. Excluding the negative effect of currency translation on our Canadian operations and the calendar shift in the quarter the percentage operating income decline was in the low-single digits.

Now turning to our international food and support services segment, first quarter sales of $601.5 million were down 9% due to the negative impact of currency translation in the quarter. Organic growth was a positive 9% led by solid organic growth in Chile, the UK, China and Spain, primarily due to strong new business results. First quarter adjusted operating income was $21.4 million compared to $26.6 million in the prior year quarter, consistent with our expectations. Foreign currency translation had a negative impact of approximately $3 million in comparison to the prior year. In addition to the currency impact, segment profit performance was constrained by restructuring costs associated with streamlining our management structure in several countries.

In our uniform and career apparel segment first quarter sales of $429.7 million were down 4% from the year ago quarter with positive growth of 2% in uniform rental being more than offset by an 18% decline in sales in our direct marketing business. The segments overall organic sales growth was negative for the quarter down in the mid-single digits with positive rental organic growth in the low-single digits. The apparel direct segment is particularly challenging and we anticipate continued significant demand softness for this business at least throughout fiscal 2009. As you know the uniform rental business is also sensitive to employment levels and is facing increased softness in customer demand given the rise in unemployment, an increasing trend of companies going out of business. Our uniform rental team is quite focused on managing the business through this environment with a particular focus on client retention, continued strong customer service and profitable new business while moving aggressively to reduce the cost structure.

Uniform segment adjusted operating income was $37.4 million down from $41 million in the year-ago quarter. The direct marketing businesses were particularly weak in the quarter given the significant decline in demand across most customer segments. We will continue to work towards aggressively adjusting our cost structure in the direct marketing business in the face of this new and much lower level of apparel demand. Corporate expenses, adjusted to exclude the items that Chris described earlier, were $8.6 million in the quarter compared to $7.1 million in the year ago quarter, reflecting somewhat higher staff spending and other administrative costs; however for the full year we expect our corporate expenses to be roughly flat to the prior year. Now let me turn it back to Chris for some additional details on the quarter.

Thanks, Fred. I'd like to comment on our capital structure and cash flow. For the trailing 12 months ended January 2nd, 2009, our adjusted EBITDA was $1.083 billion compared to $1.108 billion at October 3rd, 2008, and $1.065 billion at December 28, 2007. The decline in EBITDA was primarily due to the negative impact of currency translation and the effect the calendar shift had on the most recent quarters results. Interest and other financing costs were $125.2 million for the first quarter compared to $129 million in the prior year. Approximately 83% of our total debt portfolio is at fixed interest rates and our overall weighted average cost of debt at quarter end was approximately 6.73%. Total reported debt at the end of the quarter was $5.953 billion and our secured debt as defined in our credit agreement totaled $4.159 billion. This includes the term loan balance of $3.702 billion and a revolver balance of $122 million at the end of the quarter. Our $250 million accounts receivable securitization facility was also fully utilized.

We enjoy a strong liquidity position and as of quarter end we had more than $450 million of available capacity under our revolving credit facility. This use of the facility reflects our normal use in order to fund our seasonal working capital needs. Based on our trailing EBITDA and the seasonally higher debt level, our secured debt ratio was 3.77 times as of January 2nd, compared to 3.6 times at our fiscal 2008 year end and improved from 3.86 times in the year ago quarter. Capital expenditures for the quarter were $78 million compared to $70 million in the prior year quarter. For the full year, we expect our capital expenditures to be roughly in line with the prior year level. As expected, and consistent with historical patterns, working capital was a use of cash for us during the first quarter. The increase in working capital over prior year was primarily due to the timing of interest payments and our overall working capital performance exceeded our expectations. Working capital management will remain a key focus and priority for us as we move through the balance of 2009.

During the quarter we spent a total of $19 million on several smaller acquisitions and we will continue to seek to invest strategically but prudently in certain sectors and geographies. Now let me turn the call back to Fred.

Thanks, Chris. In the face of an economic environment as challenging as we have probably ever seen we are comfortable with, but not satisfied by, our overall performance for the quarter. As we anticipated our reported results reflect the negative impact of currency translation and fewer service days compared to last year. And while the economic environment certainly constrained our results somewhat especially in our market cyclical sensitive businesses we continue to believe that our sector geographic diversity are important fundamental strengths of the Company which should serve us well in these challenging times. We also have an appropriate heightened focus on managing our costs and our cash flow which will assist our profit performance as we move through 2009. As we look across our businesses we continue to see many growth opportunities in most of our sectors, importantly including the ability to grow significantly with our existing clients, and we believe we were very well positioned to seize these opportunities both in 2009 and in the years ahead. Thank you again very much for your time this afternoon and for your support of Aramark, and we would now be pleased to take questions.

Today's question and answer session will be conducted electronically. (Operator Instructions). Our first question comes from Reza Vahabzadeh. Your line is open.

Good afternoon, Fred and Chris.

Hi, Reza.

Good afternoon. On the cost savings fronts and productivity front that you alluded to at the beginning, can you comment on that a bit more?

Sure, this is Fred. We have been pretty active in looking at costs up and down the P&L, looking at improving our food costs as a percentage of sales through some appropriate menu reengineering, increased standardization of the productline, sku reduction and also more standardization of our labor input at the unit level. And we frankly have done this both in the food business around the world and in the uniform business, and this has been a pretty focused effort that's been led by our operating teams really across the country, and we see reasonably good opportunity have an affect on some of our cost structure and of course in a way without damaging the business.

Got it. And do you think that we're going to actually see material benefits of such an action in this fiscal year?

Yes.

Okay. And then how do you see the cost environment and frankly the competitive environment right now and sort of going forward?

The cost environment in general is I think increasingly neutral. If you look at our major cost inputs, we certainly at this point don't see any particular on labor costs, any unusual costs on labor costs. The year-over-year increase in food costs which as we've talked about in past calls and which have been significant are starting to decline. We're not seeing absolute decline in the cost but we're seeing certainly a decline in the rate of increase. Fuel costs clearly also are much more aligned with the cost last year, so that rate of increase is coming down, so all of that is pretty favorable. It's a competitive environment. When the business is under some pressure, clients are under pressure, they are cutting back and clearly the business tends to become more competitive but not unexpectedly so.

Got it, okay, and then on the education business, would you expect a return to mid or low single digit growth going forward and what are your expectations for the business and industry as well as the sports groups in your USFS business?

I think in the education sector, Reza, adjusting for the calendar shift that we absorbed in the quarter, the higher education business frankly continued to grow in that mid-single digit range that they've been in for quite some time now, and while that sector is not without its pressure, we would expect that business to continue to be in that range moving forward. The business and industry sector is obviously on the food and support side.

The one that would be most pressured in this kind of environment, we would expect it to be down as Fred said in the comments, it was down in the mid single digits this quarter, and frankly, I think you would expect until we see some turn in the economy, you would expect that business to remain under pressure. In the sports and entertainment sector is really as you know a compellation of subsectors, a couple of which will certainly remain pressured including: the convention center business which is clearly down, the national parks business which we would expect to continue to be pressured and likely be down, and then the stadium and arena business. Baseball obviously is a number of months away yet, but as we look at the portfolio in the fiscal first quarter, the NFL actually held up pretty well, the NHL held up pretty well, and the NBA was a bit soft on the attendance and the per cap line, although we think you got to also look through to the product and the NBA has been a little bit weak over the last number of years. So baseball, we're I think cautious about baseball, but we've got a broad portfolio of teams, and in a lot of cases you see performance in the stadium being driven by how the team is performing, and if attendance holds up, you'd expect to see some softness on the per cap side, but hopefully not anything too significant.

Got it. And then lastly, would you anticipate being free cash flow positive for the year and is that a focus of the Company as well as maintaining leverage levels?

Yes, absolutely. We would expect to be free cash flow positive, and in this environment I'd say we're doubling or redoubling our efforts on the cash flow side in addition to the efforts on the cost side, where we'll focus hard on the capital expenditures and on the working capital, and try to drive them in a way that they offset whatever profit shortfall there might be, so we end up in pretty good shape at the end of the year.

And Reza just to add to that, this is Fred, our cash flow statement and the 10Q for the first quarter of working capital as you know normally in the first quarter is a fairly significant use of cash and that's a seasonal use, and the headline number, working capital as a use is actually higher than last year, but that's due more than entirely to the timing of cash interest payments which is driven by the calendar shift. So I believe, Chris, we actually paid about $60 million or so more in cash interest during the time.

The accrued interest was $66 million less use for us this year as compared to last year, and so with a $30 million increase in working capital in the quarter, we obviously did better year-over-year in all of the other categories.

Right, and the interest is purely a matter of a couple of days between the interest payment date and the quarter end.

Got it. Thank you very much. Appreciate it.

Your next question will come from Bryan Hunt with Wachovia.

Thank you. I was wondering if you could frame the magnitude of the restructuring charges in the UK or the international [FSS] business during the quarter?

Overall, it's in the $1 million to $2 million range, and it's a combination of some management streamlining, and we also had several country presents who retired in the ordinary course so there was some on boarding cost in recruiting and bringing on board several country presidents.

So there's no credit for that under your credit agreement?

No.

Okay so --

No it's an ordinary operating cost that occurs from time to time, so and in absolute amount, it's not a huge amount, but relative to the reported results of international for the quarter it does change the trend line.

Got you. And then as you examine your other businesses, especially the ones that are slowing, such as the uniform business, there have been some headlines in local papers that there's been some layoffs in that business. Should we expect some restructuring charges in the coming periods in uniforms?

We are taking a very hard look at our labor cost and uniform business, and that is at every level in the organization including the individual markets center level, and we would expect that there would be some reduction in headcount as a result of that, but I don't think you should expect any significant restructuring charges. The cost associated with any headcount reductions will basically be absorbing on the ordinary course.

Okay. And then if I look at your -- in your Q, you talk about you lost some contracts in the K-12 as well as healthcare, and those were partially responsible for the decline in revenues in those divisions. Is there any major driver behind those lost contracts? Is this something where you analyze contracts and you decided that you're not making enough money or is the competitive issues? I was just wondering if you could give us a little bit more flavor on the lost business.

The lost business last year which was in a couple of market segments was a relative handful of contracts and we have, as you would expect, taken a look at those. The reasons pretty much varied from contract to contract. Our retention rates in the first quarter have been quite acceptable and are very consistent with our overall target of about 95% across the business, so but until you lap the loss of a few contracts like that, it does have an impact on your reported growth rate.

All right, and then last question. If I look at your interest coverage ratio calculation, it appears you got roughly $100 million cushion on EBITDA to maintain that two times interest coverage ratio. One, Chris I was wondering if you can confirm that's roughly the number. And then second, do you feel like given the economic tempo in your cost savings initiatives that you're in danger of bumping up against that?

I think the rough number is correct, and remember that's an occurrence based test, that's not a maintenance test for us, and there's no that we have in terms of bumping up against it. The single maintenance covenant is a secured debt covenant and as you know we've got a very significant amount of room, so frankly that coverage test while we're focused on it we see we've got a lot of room and again it's an occurrence based test only.

Thank you very much.

You're welcome.

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

Thanks, obviously you see softness in the business with the economy. What are you seeing in terms of consumer behavior particularly at the corporate level? Are they more value conscience, obviously? What are you doing to position yourself to stay competitive in that segment?

Well, what we've seen in the corporate market is the two -- really two effects. One is reduction of headcount within our corporate client locations due to layoffs and then secondly as we've mentioned, a reduction in some of the ancillary spending, so this would be caterings for meetings, and we certainly saw a reduction in holiday parties that employers would have on site around the holidays compared to last year. With the event, there's not a lot that we can do but with the headcount reductions, we can certainly do some reengineering of our menus, the development of value meals and combinations that attract people to stay inside the employee location inside the venue. Because remember, we in the business market, typically capture on average 60% or so of the folks who were in the bidding any particular day, so we have opportunity to capture more spend within the headcount in the building. So we're very focused on those sorts of programs to drive up participation and to maintain check average.

Great, and conversely obviously, again, other businesses are facing cost challenges. Are you finding a pick up in prospecting activity as companies now more shift to outsourcing in the different environment or have you not seen that yet?

We're seeing some interest, but to be fair it's slow, because in uncertain times like this, sometimes -- or either organizations in total or the individuals in organizations that are responsible for these areas are very cautious about making any changes. But generally given that we can improve the effectiveness of a service, provide the service more cost effectively and even more importantly improve the satisfaction of the consumer, the employee, the patient, the sports fan, the college student, I think this economic environment actually plays well up against that set of capabilities. But to be fair I can't say in the last 30 or 60 days we've seen an upsurge.

And Karen, one thing just to remember, when you're talking about the business sector, that's by far the most outsourced sector already, so most large companies have previously made the decision to outsource. The large self-operated opportunities remain in healthcare education corrections, and those again are not necessarily as driven by economic factors as certainly a corporation might be.

Great. Fair enough, thank you.

Our next question will come from Karru Martinson with Deutsche Bank.

I guess if we look back on the past quarter those are some of the worst months we've seen just in the markets in total. Have those trends continued here at the same intensity into this current quarter?

Well, we typically wouldn't comment on the quarter that we're in. I would say that I would agree with you that we saw the results get progressively worse as we move through our first fiscal quarter, and yet we recognize that we're operating now at a lower level of activity. So we're adjusting our cost structure to be cost effective at that lower level of activity, and to be fair we're not just assuming that it may not get a little worse, so we're preparing for that.

Okay and then one with the corporate expenses being up modestly I think $2.5 million or so? Are those the kind of areas, top of the line that you're going to be attacking for cost structure?

Well I think some of that increase if you look at total corporate is the FAS 123 expense.

I think the adjustment is about $1.5 million and frankly there's some timing of one-off expenses that occur at different times throughout the year. So I think for the full year we would expect that corporate line item will be pretty close to flat, and certainly to the extent and certainly there are cost reduction opportunities in that line we'll go after those as well, but frankly the lion's share of the opportunities will be within the businesses themselves.

Okay. And when I'm reading about the outlook here and looking at the uniform services am I reading this correctly that we could be seeing a writedown in asset impairment here for the segment?

We're taking a very hard look at the overall direct marketing business given, as you know and as we described the business in the first quarter, was down close to 20%, and the business was down last year in 2008 versus 2007. So we have been pretty aggressive in adjusting our cost structure as the sales have declined, but there's a point at which you really have to look at more comprehensive reengineering of the business and the processes. And so there are alternatives in that regard and we're taking a look at those. And I think it would really be too early to comment on what that might lead to, but I think probably safe to say that any action we would take would be in our economic interest regardless of what the P&L impact might be.

Okay. Just lastly, as you look out to the kind of the credit health of your customers, how are you feeling on bad debt reserves? Are you seeing any change in delinquencies, write-offs or anything along those lines?

I think in general, rest assured there's a lot of focus on that, and certainly in terms of extending credit to new and existing customers, we're being very careful and deliberate in doing that. DSOs actually performed very well in the quarter and as we said overall, working capital and accounts receivable in particular, actually were better than we anticipated. There's clearly problems out there, right, among the overall customer base given how large we are, but I think at this point with the amount of focus we have on it, we think it's something we can manage through without any real material issues. Now, clearly we have exposure to some of the sectors that are particularly weak in the economy on the auto side etc., so there's certainly exposure there, but we don't think exposures that are outsized given the level of the relationship.

Thank you very much guys.

You're welcome.

Our next question will come from Carla Casella with JPMorgan.

Hi, a couple questions. Of the $75 million reduction you talked about in food and support services in North America, can you say how much was the education days versus the sporting events?

I guess I could say that more of it is in the education side than in sports and entertainment side.

Okay. And was it a full week of lost service days?

Pretty much.

When you think about that week in late September/early October where the schools are sort of going full guns, you take that week out and give us a week at the end of December/early January where basically every school we service is closed.

Okay, great. And then I think you answered this, but the lost business in education as well as healthcare, both of those were second quarter last year, so you'll cycle it in second quarter; is that correct?

I don't think we attributed it to any particular quarter last year, so those accounts were lost at different quarters during the year last year.

Okay. So we won't annualize it fully until the end of this year probably?

Yes.

Okay, and then I notice there's no change in defined benefit contribution in Q1. When will be the next time that you have to reevaluate and do you anticipate any changes there?

Each of the plans -- again we have plans in various countries around the world. They are on different cycles. I don't think we've actually in the process in several countries of that reevaluation, and at this point we don't anticipate again material changes just given the sizes of those plans.

Okay, great. And then on your international growth opportunities, in your growth there, would you say you're more taking share or -- from competitors as contracts come up, or are these new businesses outsourcing?

It's really a combination of both. The percentage of most markets that is not outsourced outside of the US is higher, and therefore, the mix of new sales tends to be a little bit more weighted towards self-entities that have provided the service in house, but it is not exclusively one or the other.

Okay. And I'm sorry I forgot to ask on the last question, on the businesses that you lost in '08, were some of those businesses that you walked away from because of low margins?

Some were and some weren't.

Okay. And are there anymore in your mix right now that you would anticipate walking away from businesses that are either less profitable or declining in profitability?

Given again the number of customer contracts we have and given the environment we're in, it certainly is fair to say there could be some. We're constantly evaluating the performance of our contracts and our relationships, and again given the thousands and thousands we have, there will always be a couple that we're certainly considering how to best move forward with them.

Okay. I guess I'm trying to get a sense for as you do this, it looks like it's a sales hit, but it should be a margin benefit.

In some instances it could be and in some it may not be. There may be other reasons why we would choose to part the Company.

Okay, great. Thanks a lot.

You're welcome.

And our next question will come from Teresa Fox with Stone Harbor.

Thank you. I missed when you told me the balance on the term loans and the revolver. If you could repeat that, please?

Sure, the revolver was $122 million and the term loan was $3.702 billion.

And your comments on current availability, can I assume then that in the 10Q that you've since reduced the revolver by another $63 million?

A little less than that but I gave a approximate of the $450 million of availability at the end of the quarter. And again during this period, which is a seasonal use for us, we do bounce around a bit, so yes, the Q indicated that we had reduced revolver outstandings between the end of the quarter and the end of January by roughly $50 million.

Okay. And looking across at your FX on your Company as the dollar continues to strengthen versus the -- well let's look at your top three currencies, the UK, the Euro, and should I look at China or --

Canadian dollar.

The Canadian dollar. Now, how much, could you give me a sense of what percentage of that revenue is in each of those currencies?

In general, the Canadian dollar, I would guess, is probably, these are just broadest estimates, maybe 5% of the total.

Okay.

The Euro I would guess is maybe 15%, between 10% and 15%, and -- I'm sorry I had the pounds in there, so that's excluding the UK.

The UK is probably in the 6% to 7% range and Euro probably like amount.

Yes, or maybe a little higher.

All right, thank you.

You're welcome.

Our next question comes from Andrea Cowen with Aries Management.

Hi, good afternoon, gentlemen. Just out of curiosity, typically you said that you would expect to spend around $150 million a year for acquisitions. Is that still the right number for us to be thinking about, or do you think that will come down this year and potentially next as you move forward to sort of cost savings mode?

Yes. The $150 million wasn't sort of the target. It's just as you look over the last three or four years again just --

An average yes.

That's how we ended up -- that's the level we ended up spending at. I think it's fair to say that we're being pretty disciplined in this environment, but if we find acquisitions that we find strategically attractive and can get them at the right price we will continue to do them. I would say that sellers and sellers' expectations probably is a general statement have not adjusted to the new reality yet, and so that may slowdown the level of activity that we see at least probably through the balance of this year. So I think that it's probably a fair assumption that that's too high a number when we look at the kinds of things, the bolt-on acquisitions in the uniform side and the office coffee side and the like.

Okay. And potentially in this environment do you see further debt paydowns this year?

Again, when we get to the end of the fiscal year, depending on what acquisitions have come to fruition, we've always said that we will continue to use free cash flow to reduce debt. So again, I think we got a little ways to go this fiscal year, but the assumptions should be that we will continue to do that to the extent we've got free cash flow at the end of the year we'll reduce debt.

Okay, great. And just a point of clarification, because the language is a little confusing, your senior secured leverage ratio, is that as long as you have a revolver committment that that is in effect or as long as you have something drawn on the revolver?

It's as long as you, we're in and out of the revolver every day, so, I think it's effectively the same thing.

Okay. All right, thanks very much.

You're welcome.

And our next question will come from [Jack Burgess] with AIG.

Hi, guys. First of all I wanted to ask so we can attempt to its it mates the extent to which we will benefit from lower interest rates, if you could give us some idea of what the approximate notion all amount is that you have on interest rate swaps and what the average rate is that you're paying on those in substitution for LIBOR?

Yes, the total average of all of the swaps we've done is just under 5%, so call it 4.90%ish or so.

Okay. And on about how much?

$3.7 billion roughly.

Okay. Great. And secondly, within the uniform segment you've characterized the direct marketing portion as the one -- as the part where you're having the most headwinds right now. Can you give us any sense, any color, on how much that makes up of the total segment?

Relatively -- from a top line point of view, relatively small percentage of the total.

About 20% to 25%.

Okay, great. And finally, can you just give me some sense of what the seasonality is of your working capital? I know the first quarter is a usage one. What happens after that?

Yes, the second quarter is more neutral. The third quarter is modestly positive and then the fourth quarter is significantly positive. That's the general trend and again the one the calendar actually cuts off at any given quarter it can have an impact on that, but that's the general trend.

Great. Thanks very much.

Sure.

And our next question will come from [Thomas Sherr] with Federated Investors.

So for this year, you're going to have a 52-week year versus the 53rd week last year; correct?

Correct.

What would you expect that to cost you from a sales and EBITDA perspective?

Well we actually disclosed the 53rd week last year was about $250 million on the top line and about $16 million on the EBIT line.

Okay. And since we're going to be shifted all year long, can you talk about a little bit within the quarter what the shift in the calendar is and how that's going to play out?

It becomes positive. It is negative to the tune of $10 million or so roughly on the EBIT line in the first quarter, it will become a positive but less than the first quarter negative impact, sort of modestly negative in the third quarter and then sort of neutral in the fourth quarter.

So it's a net negative for the year. It doesn't wash out for the full year. There's actually one less week of school this year, given when our fiscal -- given the beginning of our fiscal year.

When Labor Day falls. Right.

So it's a significant negative in Q1, it's a very slight positive in Q2. It's a moderate to slight to moderate negative in Q3, and Q4 is the same, but overall, it's a negative.

Okay. And you've talked a little bit about working capital is consistently a use during this quarter, can you talk a little bit about what drives that?

Sure. It's -- a lot of it is the education business and sports and entertainment business, so in our fiscal fourth quarter where baseball is in full bore, the NFL has started, etc., those are big cash businesses for us as well as our national parks business, so we're collecting a lot of cash during that period. And then the higher education business is a business where we actually get pre-payments or advances from the schools on a semester or an annual basis, so in August and September, we're collecting advances from colleges for the provision of service that will then deliver in the subsequent quarter or semester or two semesters. And we do pay our bonuses in our fiscal first quarter for the total Company for the full year, and so that's a cash use as well. So when you combine those factors, that drives the lion's share of the variation.

Okay, thank you.

Sure.

Our next call will come from [Tech] Young with Archview.

I was wondering if you could break down on the business side of being down sort of mid-single digits between what is sort of like-for-like consumption and what is sort of because of companies going out of business as you talked about?

I think in the food and facilities side, the lion's share is reduced headcount at our client locations, and frankly, just reduced discretionary spending by the corporate clients. Again using the financial services clients as an example, we saw very significant reductions in the amount of spending on catering for example, as Fred said both for events but also in location meetings. And so on the food and facility side very modest impact from lost clients going out of business. The uniform side is where you'd start to see a material amount of that reduction somewhere in the 20% range coming from companies who were ceasing operations or going out of business, and again, that typical customer sect is a very small mom and pop business. We've got more than 300,000 clients in the uniform rental business.

Thanks.

Okay.

Our next question will come from Andrew Berg with Post Advisory Group.

Hi.

Hello? Do you have a question?

(inaudible - bad connection) -- as to what your customer attrition rate was?

Sorry, we didn't pick up the question.

If you go back to the 90% to 91%, last time we were in a recession, and obviously this one is worse than the last one, what was your customer attrition rate? What did you lose?

I think overall for the Company, that our client retention rate was in the, between 90% and 94%. About 90%, 94%, 95%, somewhere in that range.

Okay. And then separately, can you tell us what percentage of your business relates to the corrections industry and how much of that is government versus private?

The vast majority of it is government to answer the second question, and I'd say, Chris, 5% of our total.

Yes, it's a little less than that, probably 4% of the total Company revenue.

Okay, thank you very much.

Sure.

And our next question will come from Frank Duplak with Prudential Financial.

Hi, guys, my questions have been asked and answered. Thanks.

Okay, thank you.

And our final question will come from Reza Vahabzadeh with Barclays Capital.

Thanks. The growth in new business that was accomplished in the international business, is that sustainable over the balance of this fiscal year, or is that going to cycle against some gains in the prior year?

I think in general, we would expect the growth rate in international to come down somewhat. We signed up an extraordinary level of new business last year, and while we continue to expect our international business to generate new sales relative to the size of the business at a higher rate than our North American business, I don't think it's reasonable to expect that they will continue to generate new sales at the rate that they did last year.

The same goes for base business performance?

No, I think base business growth, outside of the impact of the economy, we would expect base business growth to be maintained, but you have to take into account there the economic impact, and our international food and facilities business between 50% and 60% of our sales are to business clients, so it's more weighted towards business clients than it is in North America.

Right. And then is there opportunity to get new business in the US in healthcare and education in this environment given increased pressure on some customers who haven't outsourced yet?

Yes. We think so.

Is that likely to happen in this calendar year or is it going to take longer for people to decide to outsource?

I think it could certainly start to happen in this calendar year, but we wouldn't expect it would have any material impact on our reported sales this year.

Thank you much.

Okay.

You're welcome. Well, thank you, everyone for your participation today. We certainly appreciate your attention and hope you have a great afternoon.

And that does conclude today's conference call. We appreciate your participance and have a great day.