Aramark (ARMK) 2009 Q4 法說會逐字稿

Good afternoon a welcome, ladies and gentlemen, to the Aramark Corporation fourth quarter 2009 earnings conference call. At this time, I would like to inform you that the conference is being recorded for rebroadcast and that all producers are in a listen-only mode. At the request of the Company, we will open up the conference for questions 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's conference call to review the results of our fourth quarter and full year of fiscal 2009. Here with me today are Joe Neubauer, our Chairman and Chief Executive Officer, and Fred Sutherland, our Executive Vice President and Chief Financial Officer. Joe, Fred , and I will present an overview of our fourth quarter and full-year results and business operations after which there will be a chance for phone-in participants to ask questions. I would like to remind you that any recording or other use or transmission of this audio would not be done without the prior written consent of Aramark.

As we discuss the results, you may want to refer to the Form 8K we filed earlier today which contains our fourth quarter and full-year results for fiscal 2009 and can be found on our website at www.Aramark.com. In today's discussion of results, we mention certain non-GAAP financial measures and as required by SEC rules, reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are available on our website. Our discussion of adjusted 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 as well as the $34.2 million charge we recorded in the second quarter of fiscal 2009 to reposition our uniform and clear apparel segment. All of these items are detailed in the schedules posted to our website before this call.

As a reminder, organic revenue growth excludes the effects of acquisitions, divestitures, and currency translation as well as the impact of the 53rd week which fell into the fiscal 2008 fourth quarter. The 53rd week affect as a particularly significant impact on the fiscal 2009 fourth quarter comparison to prior year, reducing both sales and adjusted operating income by 7% to 8% in comparison to 2008. In addition, the 2008 full year results included approximately $73 million of revenue from the Beijing Olympic games, $43 million of which was recorded in the fiscal 2008 fourth quarter.

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, MV&A and other sections of our Form 10K and Form 10Q. We disclaim any duty to update or revise such forward-looking statements whether as a result of future events or otherwise. I would now like to turn the program

Thank you, Chris. Good afternoon and thank you for joining us for the fourth quarter and the year end 2009 call. Let me take this opportunity to share some thoughts with you and then turn the call over to Fred and Chris who will detail our operating and financial results for both the quarter and the full year. Let me start by thanking our management team and the entire Aramark global family which now numbers over 260,000 members for their continued commitment to our clients and customers. As we finish a challenging 2009 and continue to be inspired by the quality and dedication of our people and their passion for service. Throughout our 73 year history, it has always been our people that has made Aramark successful, and by rising to the significant challenges presented in 2009, they proved once again that they remain a key to our continued success. It is truly a privilege to lead this team.

I'd like to reiterate my strong belief in the fundamental , long-term attractiveness of our business model and of the many growth opportunities that we have across our portfolio of services, sectors, and geographies. As we move into 2010, the goals of our executive leadership team, that is the top 250 owner managers of Aramark, remain unchanged. We are committed to grow our business and improve our profitability and cash flow by winning in the marketplace, by adding value to our clients and through our people, programs, and innovative capabilities to be disciplined stewards of our capital, in order to generate strong cash flow and strong returns. While the unprecedented economic climate of 2009 made the achievement of all of these objectives challenging, our commitment to them it remains true.

We delivered respectable levels of sales and profits and very strong cash flows as well as solid new business and good client retention rates. The economic environment remains challenging and during the fourth quarter, we saw continued we is in those sectors that are highly correlated to employment levels and consumer discretionary spending such as our business services, our sports and entertainment, and our uniform groups. Despite the challenging macroeconomics and ongoing figures competitive environment, our business model remains quite robust as we finish fiscal 2009 with solid new sales levels and stable client retention rates. In fact, annualized new sales in North America food and support services were ahead of prior year and out international sales were solid, although somewhat below last year. Last year was a record year for them.

In our uniform rental, new sales were only slightly lower than last year despite the economy. Our annual retention rate of 94% is consistent with our overall targets and essentially the same as prior-year level. Having achieved solid new sales levels and a stable retention rate, the bulk of the decline in our growth rate in 2009 was due to lower customer populations and reduced consumer spending at our most cyclical client locations. While we are beginning to see some signs of a more stable customer populations and a flattening in consumer spending, we do not expect our more economically sensitive sectors to return to growth until the second half of fiscal 2010. In the meantime, we remain quite focused on pursuing the many growth opportunities available in our less cyclical sectors such as education, healthcare and corrections.

Now a couple of brief comments about our financial results. In the year that was as challenging as I have witnessed in my 30 year career at Aramark, I am satisfied with the overall results that we have delivered. Full-year fiscal 2009 reported sales were $12.3 billion, down 9% from 2008 with organic growth down just 3%. Our adjusted operating income was $635 million, down 11% from 2008 with seven points of the decline due to the combined impact of the 53rd week in fiscal 2008, currency translation, and severance related expenses in North America. With consolidated operating margin was essentially flat for the full year, I'm pleased with our team's efforts to largely mitigated profit impact of the weakest sales results that we saw in our cyclical sectors. This is also a result of that client sector and geographic diversification of our broad contract base.

I am particularly pleased with our strong cash flow performance for the year. During fiscal 2009, we generated nearly $380 million of free cash flow before acquisitions. This was well above our internal plan and prior year and demonstrates the strength and resiliency of management ownership and predictable cash flow model. As we begin fiscal 2010, we continue to enjoy a strong and stable capital structure with a significant amount of committed liquidity. Will also continue to pursue attractive acquisitions and recently closed the purchase of a facility management business in Ireland. Now let me turn this over

Thank you, Joe. I would like to first take you through our consolidated financial performance and then I will discuss our business segments. We reported fiscal 2009 fourth quarter sales of $3.1 billion, down 14% from the prior year quarter and down 6% on an organic basis. The larger reported growth decline is principally due, as Chris mentioned, to the impact of the 53rd week in 2008 which increased sales by approximately $250 million and adjusted operating income by approximately $16 million in last year's fourth quarter. As Chris mentioned earlier, last year's fourth quarter also included about $43 million of sales related to the Beijing Olympics.

Our adjusted operating income for the quarter, which again excludes the incremental depreciation and amortization related to the 2007 going private transaction and stock option expense, was $168.7 million, down 17% compared to the year ago period with the effects of the 53rd week severance related expenses in North America and currently translation accounting for approximately 11 percentage points of the 17% decline. For the full-year fiscal 2009 we reported sales up $12.3 billion, down 9% over last year and down 3% on an organic basis. Our adjusted operating income for the year was $635.3 million, down 11% from 2008 with the effects of the 53rd week severance related expenses in North America and currency translation accounting for approximately 7 percentage points of the 11% decline.

Now, turning to our North American food support services segment. As reported, fiscal 2009 first quarter sales were down 11% to $2.1 billion with organic growth down in the low single digits. Positive organic growth and higher education and healthcare was more than offset by declines in the business and industry and sports and entertainment sectors. For the full year, segment sales were down 6% to $8.4 billion with organic growth down in the low single digits. The full year results are also less led by the performance of our higher education and healthcare businesses.

I'd now like to make a few comments about the major sectors within the North American business. For comparability, my comments on the growth ranges for the sectors within North America exclude the impact of the extra week last year. Our business and industry sector had a low double-digit sales decline for the quarter and a high single-digit sales decline for the full year as a business food service and refreshment services sales were down due to lower populations and reduced discretionary spending across our account portfolio. While this sector's annualized new sales were comparable to last year and our retention rate in business food services was improved, this sector is especially sensitive to employment levels and until there is improvement in unemployment levels, we expect it to remain soft. In recent weeks we have begun to see some signs of stabilization and demand across our account portfolio but it is too soon to feel confident about these trends and our teams will continue to maintain a disciplined focus on the cost structure in this sector throughout 2010.

The education sector had mid-single digit sales growth for the quarter and low single-digit sales growth for the year. With solid-based business growth in our higher education food and facilities business in both periods offset somewhat by sales decline in K-12 primarily due to lost business. We continue to be pleased with our performance and position within the higher education sector and our team's ability to add value to our clients and customers good delivery of our broad and integrated offering of food and facility services.

In our healthcare sector, we realized low single digit sales growth for the quarter and low single-digit sales decline for the full year with solid-based business growth in both facility services and in our Canadian business. Our healthcare sector enjoyed a particularly strong net new sales year in fiscal 2009 and, as a result, we expect that business to deliver somewhat improved organic growth rates in fiscal 2010.

Our sports and entertainment sector had a mid-double-digit sales decline for the quarter and high single-digit sales decline for the full year reflecting lower average attendance and spending levels at major league baseball games and at our parks locations as well as the continued weakness in convention centers. Improved consumer confidence and consumer and corporate discretionary spending trends will likely be necessary in order for this sector to show better performance in 2010 compared to current levels. Adjusted operating income in North America and would support services segment was $123.9 million in the fiscal 2009 fourth quarter, down 14% from the prior-year period. With the impact of the extra week, severance related expenses and currency translation accounting for 11 percentage points of the 14% decline. Solid profit growth in education and healthcare was more than offset by profit in the business and sports and entertainment sectors. Reflecting lower employed populations at our business client locations and, as I mentioned, overall lower attendance and consumer spending at stadiums, arenas, parks, convention centers.

For the full year 2009, segment adjusted operating income was $450.2 million, down 7% for the prior year with the impact of the extra week, severance, and currency translation accounting for 6 percentage points of the decline. Full-year performance reflected strong profit growth on a higher education, health care, and corrections which is more than offset by profit declines in the business and industry and sports and entertainment sectors. Overall, we are satisfied for the segment's performance this year given the unprecedented challenges posed by the economic environment with our adjusted operating income down only slightly, on the low single digit sales decline. Our diversified portfolio of clients, sectors, and services continues to be a relative source of strength and stability. Our business model provides us the flexibility to react to softness and demand by fairly quickly reducing cost , thereby allowing us to mitigate a significant portion of the demand driven profit impact we experienced in certain sectors in 2009. Going forward, our teams will continue to pursue both revenue enhancement and appropriate cost control efforts. As we expect our more cyclical sectors term aim somewhat challenged in 2010 until we see a sustained improvement in employment levels and consumer confidence and spending.

Turning to the international food and support services segment. Fiscal 2009 fourth quarter reported sales of $580.4 million were down 21%. Organic growth in the quarter was down it by low double digits with the Beijing Olympic games in 2008 accounting for 6 percentage points of the decline. Chile and China adjusting for the Olympics impact both had solid organic growth in the quarter driven by strong new business results offset by sales declines and many of our other country operations primarily due to lower populations and reduced spending. For the full fiscal year 2009, segment reported sales were down 16% to $2.3 billion with organic growth down by low single digits. When further adjusting for the Olympics, growth would have been positive for the year.

Segment organic growth for the year reflected a strong new sales driven performance in Chile and China, again offset primarily by sales decline across our business services accounts in certain of our country operations. Fiscal 2009 fourth quarter adjusted operating income was $22.1 million, down 10% from the prior-year quarter with the extra week last year and currency translation accounting for the entire decline. Adjusting for these factors, profit growth in the quarter would have been positive as our country teams work hard to manage their cost structure in the face of weakened demand. For the full fiscal year 2009, segment adjusted operating income was down 14% to $90.6 million with the extra week last year and currency translation accounting for the entire decline. Full year results were driven primarily by profit growth in Chile, Germany, China, and Japan.

In our uniform career and apparel segment, fiscal 2009 fourth quarter sales of $369.1 million were down 20% from the year ago quarter with negative organic growth in the low teens. Uniform rental business had negative organic growth of about 10% as to quiet continue to reduce employee headcount in spending during the quarter across many of our client service locations. The direct marketing business remained weak as customers continue to delay or to defer spending across many of the channels.

For the full-year fiscal 2009, segment sales were $1.6 billion, down 10% from the prior year, with the rental business down about 6%. Organic growth for the full year was negative in the high single digits for the segment with the rental business down in the mid-single digits organically. We're pleased that the WearGuard repositioning and integration into the larger rental business is currently on schedule and is proceeding according to our plan. We expect to complete the operational integration over the next several months and have reduced our working capital investment significantly as a result.

Uniform segment adjusted operating income in the fiscal 2009 fourth quarter was $29.3 million compared to $42.8 million of the prior-year quarter with the impact of the extra week accounting for approximately 6 percentage points of the decline. In a difficult environment, the team worked to mitigate the profit impact from the lower sales volumes, reducing headcount by about 11% over the year and controlling the cost throughout the year as the economy and client employment levels further deteriorated. For the full year 2009 adjusted operating income was down 19% to $126.2 million with the rental business profit down by high single digits in the direct marketing operations having generated losses. Because of the sensitivity of the uniform business to employment levels, we will need to see stability and ultimately growth in jobs for this segment to begin to generate better performance. This is the case with our business and industry sector within food and support services. We are seeing over the past week some signs of stabilization in the uniform client base as well. In the meantime, we will maintain an intense focus on the cost structure while continuing to deliver high quality service to our clients and customers.

Excluding the items that Chris mentioned earlier, corporate expenses were $6.6 million in the fiscal fourth quarter compared to $8.1 million of the year ago fourth quarter. For the full-year fiscal 2009, corporate expenses were $31.7 million compared to $32.7 million in the prior year. The decreases in both periods reflect reduced staff spending. As Joe mentioned earlier, we had a good new sales year and while our loss of business was up somewhat over last year, we did reach our target client retention rate for the year with a retention rate of 94% across the portfolio of food, facilities, and uniform. We were pleased with the levels of business growth we generated in certain sectors during the year, most notably our higher education. Let me turn it back to Chris for some additional details on the quarter and

Thanks, Fred. I'd like to now comment on our capital structure and cash flow. For the trailing 12 months ending October 2, 2009, our adjusted EBITDA was $1.035 billion compared to $1.064 billion at July 3, 2009, and $1.108 billion at October 3, 2008. The prior period amounts both include approximately $23 million in EBITDA related to the extra week that fell in the fourth quarter 2008.

Adjusting for the extra week, as well as the impact of currency translation, adjusted EBITDA would've only been down by low single digits for the year on the demonstrating our ability to mitigate much of the negative profit impact from the lower sales volume. Interest and other financing costs were $108.5 million for the fourth quarter fiscal 2009 and $472.3 million for the full year. Approximately 77% of our debt portfolio is at fixed interest rates and our overall weighted average cost of debt was approximately 6.65% at October 2, 2009. Total reported debt at the end of the year was $5.722 billion, down from $5.86 billion at year end 2008.

As of October 2, 2009, our secured debt as defined in our credit agreement totaled $3.919 billion including a term loan balance outstanding of $3.623 billion reflecting a $100 million term loan principal retained we made in September 2009. Our accounts receivable securitization facility had $235 million utilized at fiscal year end. We also closed out the year having a full $600 million capacity of our revolving credit facility available to us in addition to having approximately $150 million in excess cash on hand. We've already utilized a portion of our year-end cash balance to fund our purchase of an Irish facilities management business for approximately $75 million which we closed on October 30 of this year.

As you know, we are also entering our seasonal working capital cash use period so we anticipate that we will utilize the remaining excess cash in the coming months in the ordinary course to fund of the business and/or acquisitions. Despite the significant economic and currency head winds we faced in 2009, we are pleased that our secured debt ratio as of October 2 was 3.72 times, only slightly higher than 3.60 times a year ago and down nicely from an initial level of approximately 4.5 times when we went private in January of 2007.

Net capital expenditures for the full fiscal year 2009 was $330 million, down from $350 million in fiscal 2008, as we continue to demonstrate discipline in our deployment of capital. We certainly intend to maintain this disciplined approach during 2010 as we evaluate investment opportunities. Consistent with our expectations and historical patterns, working capital was a significant source of cash for us during the fourth quarter allowing us to finish the year with strong overall working capital which showed significant improvement compared to both prior-year and to our own internal expectations.

While part of the working capital benefit we achieved in 2009 was a result of the decline in reported sales, our teams also did an excellent job in managing our receivables. Our days sales outstanding improved as compared to the prior year in most of our businesses and country operations. Working capital management will continue to be a key focus and priority for us. However, as we look forward, we would anticipate that our working capital performance in 2010 would be more typical of previous years in which working capital is generally a modest use of cash for us during the full year.

As Joe mentioned, free cash flow before acquisitions was very strong as we generated $377 million in free cash flow this year, reflecting in part the results of our capex and working capital discipline and performance. This is more than 2.5 times the prior-year level, and we are pleased that we could deliver this overall performance in the face of a challenging environment in 2009. During the year, we spent a total of $138 million on acquisitions primarily contractually stipulated performance payments related to our 2006 acquisition of Seamless Web as well is the purchase of the remaining 20% of our Chilean subsidiary that we hadn't already owned. As we move forward in 2010, we will continue to invest strategically but prudently in certain sectors and geographies as we did in our recent investment in Ireland. Now, let me turn the call back to Joe.

Thanks, Chris. Summing up our performance for fiscal 2009, adjusted for currency translation the extra week and severance expenses in North America, our global food and support services delivered a solid performance a nearly flat operating income on modestly negative sales growth. Our uniform rental business, while being challenged in today's high unemployment environment, is performing relatively well and we are on track to integrate our direct sales activities in the second quarter of this fiscal year. Importantly, new sales and client retention rates have held up across the board and our favorable business mix and ongoing cost reduction actions have significantly mitigated the negative impact of higher unemployment and lower consumer spending. We have shown good discipline in our use of capital, both our capital expenditures and working capital management. Our cash flow performance was very strong. As a result, we ended the year with solid stable capital structure and plenty of liquidity.

Today's environment continues to be challenging and we expect it to remain so for a while. So year-over-year sales decline throughout the first half of our fiscal 2010 as sales declines experienced in some of our businesses in 2009 our annualized. However, as we said before, we're seeing the first signs of stability in our more cyclical businesses and we will continue to be very excited about Aramark's business mix and our ability to achieve continued growth in sales, profits and cash flow. We're quite focused on pursuing the many attractive opportunities before us, especially in our less cyclical sectors of education, health care, and corrections as well is the growing and existing client services portfolios across all of our businesses and geographies. With the talent and dedication of our teams and the scope and breadth of our service portfolio, we believe that we are well positioned for the future.

Finally, Aramark's broad management teams continue to have a significant ownership stake in the company and are very focused on delivering results. I can assure you it will continue to work hard to seize the opportunities that we see across all of our businesses around the world. Thank you again for your time this afternoon and for your continued support of Aramark. We be happy now to answer any questions that you have.

Thank you. Today's question and answer session will be conducted electronically. (Operator Instructions) Our first question comes from Karru Martinson with Deutsche Bank.

Good afternoon. When we look at growth not returning until the second half until next year, are we predicting that on continued business wins or are we basing that off of expected turn in the economy?

This is Fred. Part of it is lapping the weaker performance successfully as we move through this year. We are expecting a higher level of new business this year, but it's not a material impact in year and the overall growth rate.

Okay. Could you provide a little color, what are some of these signs of stabilization that you have been eating in these couple of weeks? Is average spending going up on the business side or what are you seeing there?

Well, in the uniform business, for example, which you may know, is a weekly sales business, we are seeing our weekly sales which had been dropping week by week throughout fiscal 2009 as the economy declines. We are clearly seeing it stable and pretty much flat week to week to week. So that is an improvement over the downward slope before. And in the food service business, likewise in refreshment services, we're seeing week by week stability and the revenue stream and were seen some improvement of business food services, for example, in checks and that sort of thing. So, it's really looking at the business week by week, month by month, just over the very recent past.

Okay. And then, the breakdown of the business segments in terms of business versus education, health care and so forth, are the percentages of sales for North America pretty much still in line with when you guys did the deal, or have those moved around significantly?

They have moved significantly but because the noncyclical sectors, principally healthcare, education, and corrections, have had higher growth rates, the mix is readily shifting more towards those sectors.

Okay. So were seen that take a larger share. Okay. Just lastly in terms of if you want to reiterate your priorities for cash flow usage, are we still looking at acquisitions versus debt paydowns or how should we think about that going forward?

Our approach is listening to use excess cash flow to reduce or debt. Having said that, given the strength of the operating cash flow in the company we look critically at acquisitions and if acquisitions advance the strategy, either in terms of your or geography, then we make those acquisitions. But it's really on a case-by-case basis.

Thank you very much guys.

To welcome.

Thank you very much. We'll now take a question from Carla Casella with JPMorgan.

Hi. You mentioned some account losses, I can't remember which segment it was looking back, could you just talk about what your win loss ratio was in the quarter and if there are any notable ones that we should focus on?

Sure. I think it was probably K-12 that we had mentioned. I think, as we talked about, for the year overall, new sales were quite strong. In North America they were above prior year's level, international they were solid and as Fred had mentioned, uniform generated new sales that were just slightly below 2008 and given the deterioration in the economy, that's pretty solid performance as well. So, again, I think the messages, we continue to generate good levels of new business and we continue to post retention rates that are very solid and consistent with 2008 and consistent with our targets. That was true in the fourth quarter and it was true for all of fiscal 2009. So the challenge again has been lower spending and lower populations in the business sector, the uniform sector, and lower consumer spending in S&E.

Are you seeing your competition compete any differently in going after contracts in any of these specific segments, like K-12?

Overall answer is no. The uniform business, as you expect in this period of the cycle, probably is more price competitive than it has been historically. But, again, we've seen that in other recessionary periods and so frankly competition is behaving as we would have anticipated they would. I think in the food and support side, were not seeing any behavior that is odd or surprising to us.

Okay great. Thanks.

You're welcome.

Moving on. Will now take a question from Bryan Hunt with Wells Fargo Securities.

Thank you. Good afternoon. I was wondering if you could talk, Chris, a little bit more about the working capital improvement. If I look historically at your Q4, this was a working capital benefit greater than you've managed historically. How much of this do you think is permanent or is there a timing difference in here due to the shift in the week calendar?

I'll take a shot at that. There are probably three affects in the working capital. One is working capital, there's some release of working capital simply as a result of the decline in the overall growth rate. Secondly, we've had working capital be a source because we've improved our what we call DSO days sales outstanding, particularly in our North American business and in our uniform business. Thirdly, as I mentioned in my comments, we've had some improvement in working capital as a result of what we call the WearGuard transformation project, which is the downsizing of WearGuard and integration of WearGuard into the rental business. And, having said that, the DSO impact, the improvement in days sales outstanding and receivables, and the reductions in inventory we would hope would be permanent so that a pretty decent portion of that working capital source would be maintained next year and beyond. But as Chris mentioned, particularly as we move toward the back half of the year as a year over year growth rates improve, we would expect that working capital would be a use of cash in 2010 . But obviously not anywhere close to the magnitude that it was a source of cash

Thank you , Fred. I was wondering also, could you talk about the acquisition opportunities in the market today and given maybe the recent economic environment, are you targeting more -- potentially targeting more

I think, the strategy hasn't changed really because of the economy. Clearly we are focused on growing our healthcare education and corrections business. We've got terrific organic growth opportunities in all three of those areas and are pursuing those aggressively. And certainly we are interested in acquisitions as they make sense and are available in those sectors. But I think the majority of opportunities as we've seen historically are in consolidating sectors of uniform rental, refreshment services , and as we recently did in Ireland, an example of again, continuing to broaden our facilities capabilities in other geographies around the world. So I think the economy hasn't necessarily changed our acquisition strategy and I don't think we've seen different opportunities because of the economy. Certainly on the facilities capabilities front, building capacity in those countries where we have well-established food service capabilities but may lack scale on the facilities side is part of the strategy and has been for a while and will continue to be

Okay. And my last question and I'll hand it off. A big concern for education is overall K-12 and higher education has been the H1N1 virus and we've seen schools close down, whether it's higher education or elementary. Could you talk about the potential impact of your current quarter from those types of phenomenon and the reduction in your food service and what type of the fact that may have on your revenue line?

We don't see that having a significant impact, knock on wood, for the first quarter. We do have pretty extensive policies and action plans procedures in place in our units to react to individual local conditions. And, clearly, as you read in the press we are seeing an impact in individual school locations. But, overall, our expectations is not going to be a huge impact on the business for the quarter.

Thank you very much.

Thank you very much. Moving on a question from Reza Vahabzadeh from Barclays.

Good afternoon. On the US FS business, I think you mentioned you had mid-single digit organic revenue decline in the fourth quarter?

Right.

Is at about the same as the third quarter?

I think it's actually a little bit slower than the third quarter. Am I right, Chris?

Yes.

And was that driven by an improvement in one of the weaker sub segments or just a better healthcare education trends?

The organic growth rate in the fourth quarter was actually somewhat weaker than in the third quarter, just to correct that. And it was driven principally by weaker lower organic growth or greater organic decline, in the more cyclical businesses. So, uniform, for example, stands alone. You can see, if you look at the organic growth in uniform business in the third quarter was the fourth quarter, you see that that business weakened in the fourth quarter. That's pretty consistent with what's been reported in other companies in the industry. And so you've got both cyclical and noncyclical businesses essentially composing the overall North American business.

So refreshment service is a service, and then finally, the mix of business between say education, sports and entertainment and business, changes between the first part of the year and the last part of the year. And particularly in the fourth quarter, the sports and entertainment are is a much more significant part of the overall North American business as education is more or less a lower level and sports and came in is that a very high-level because of the parks and major league baseball. And so, the fact that sports and entertainment had negative organic modest negative organic growth in the fourth quarter was not inconsistent with where it's been during the year, but was a bigger factor in the overall picture because of the business mix change. It is simply seasonal.

Right. But the underlining revenue, organic revenue trends, adjusting for the mix of businesses in the two quarters, it's about the same as the third quarter, right?

It's not materially different.

Right. And then as you we're moving into the fourth calendar quarter, your first quarter, are you saying that you're seeing a bit of a slowdown in that rate of decline?

The challenge is, Reza, the year-over-year comps are challenging, particularly in the first quarter. But, again, were seeing signs of stabilization off of recent run rates in the business sector and the uniform sector. Again, compared to last year's first quarter, those are pretty challenging comparables.

Think of it as a business where non-seasonal and our sales month to month to month were flat, each of those months would still be down versus the comparable month the prior-year.

Right. So essentially you bought them down some time late in the fourth quarter.

We're hoping so.

Likewise. And then how about international business? Is that about the same or international still weakening on a sequential basis?

It appears to us that particularly in Europe our business, the economy in general, the downturn, has lagged the downturn in the North America. In Asia, it's a different picture. In Latin America, it's a different picture. So, the international segment, which our European operations are a large component, we clearly saw a weakening of the year-over-year performance pretty much due to a weakening, we think, of the overall business environment in Europe in our fourth fiscal comport quarter compared our third.

Got it. Okay. What about cost savings? You talk about cost efficiencies all year long, where are you on that initiative? What were you able to realize and what do we have going into 2010?

We realize significant cost savings overall. We were pretty aggressive in going after those cost savings early in the year. I think it's fair to say that most of those cost savings that we targeted have been realized as we stand here today. So clearly, we'll benefit from those cost savings as we move forward. We're hoping that we have largely completed those actions but we'll have to pay close attention to, particularly in the more sensitive businesses, to what the top line looks like.

Okay. And then, lastly, did you mentioned, Chris, what the CapEx outlook is for 2010?

I did not. Obviously 2009 was below 2008. 2009 did have several sports and entertainment related investments that were previously committed to and those aren't expected in 2010 and, again, the general comment that we will continue to be very careful and disciplined and investing into 2010.

Got it. Thank you very much.

Welcome.

Thank you very much. Moving on will take a question from Reade Kem out of Banc of America.

Thanks. Just, pursuing the question on the cost reductions a little bit more, I mean hopefully we haven't bottomed out here but if we haven't, do you think that there's more cost, especially in your labor, that could be reduced more cost, especially in labor, that could be reduced next year compensated for more revenue declines are have seen a more discretionary sectors?

It's a possibility. We've been pretty aggressive at labor reductions overall, so at some point you don't certainly want to compromise the level of service and we're not going to do that. But there is also pretty significant ongoing opportunities, for example, to further reduce our food cost. That can be done through menu engineering, just changing the composition of the offerings in a way that still provides a lot of value and a lot of quality to the client, but reduces our overall cost. And that of course is very distributed right down to the unit level in terms of food production systems and menu engineering changes. So, I think it's fair to say that while we've made a lot of progress there and created a fair amount of cost savings, that that is an area that the teams continue to work on.

Okay. And, could you give us a sense of maybe whatever positive impact in margin points the inflation may have had for you in the fourth quarter?

I'd say that the overall impact of food prices has been modestly positive but there are other factors as well. And again, this gets back to food mix. So, for example, margins on beverages are higher than margins on food. And to the extent that we've seen declines in beverage volume, that can offset the fact that individual commodity prices are lower than they were a year ago. So there are a number of things going on. Clearly were not seeing, on the plus side, were clearly not seeing 8%, 9%, 10% food cost increases that we were seeing a year ago. At this point I'd say that it's pretty much, if you look at the profit to gross margins that we have on look at the profit to gross margins that we have on various product categories and overall food costs and how the mix change, I'd say it's pretty much neutral which is is an improvement.

Okay. And then I was also curious, you talked about the renewal rate, but it doesn't sound like things are getting overly competitive. I guess, the contracts that you renewed in the quarter when you say net net they were neutral to the prior contracts in place or slightly less accretive or better. If you could just characterize that broadly in the portfolio?

I think in general, when contracts renewed, and some meaningful percentage of them, the economics are less favorable but then over time, the become more profitable. The market is very competitive and, as Chris mentioned, extremely competitive in the uniform side. So there's no question that the contracts we renew our often at lower prices than the expiring contract. And the food and facilities business is also pretty darn competitive. And, so I'd say we're, I imagine everybody in the industry is really challenge to maintain their pricing and maintain their margin on renewal.

Okay. And a follow up on that one and it's my last one, especially the US food service business within [BNI] and sports, did you have a higher than average renegotiation rate this year just given what happened in the economy?

In the sports and entertainment business, they tend to have much longer contracts in general. So, they sort of have a life of their on that are not going to be impacted necessarily by the economy. And I don't think we've seen any material change in business coming out per se, but certainly in those businesses that are being re-bid or being bid out for the first time, as Fred said, it's certainly a very competitive situation.

Thank you.

You're welcome.

Thank you very much. Moving on we'll take a question from Sam Epee-Bounya with Columbia Management.

Good afternoon gentlemen. I just have some housekeeping items to revisit. I didn't hear the detail on the balance sheet. If you can just state what the cash balance was and your liquidity, if you don't mind, at the end of the quarter.

Sure, we had $224 million of cash on the balance sheet, and just to remind you, the business needs about $75 million in the ordinary course to support the operation. So, in my comments, I indicated we had about $150 million of "excess cash." We have zero outstanding on our $600 million revolving credit facility as well.

Okay. That's helpful. And, just to go back to the stability comment that you had earlier, can you provide a little more details. I understand that you've seen sort of the weekly sales flat instead of declining, but which segment do you think will emerge sort of faster than the rest?

Well, as we said, our less recession sensitive sectors are growing now, higher education, healthcare and corrections and we expect them to continue to grow at these rates that are growing at now. So I think it's fair to say that in those sectors, we don't expect this any big uplift but we expect to see continued acceptable organic growth. Amongst the others, principally as we mentioned earlier, our business and industry group, our sports and entertainment group, and uniforms, I don't -- I think business and industry in particular, business and industry, food and facilities in our uniform group are actually moving pretty much in lockstep. It's very interesting to see. So I'd would think they would come out and start to show improvement pretty much in parallel. And, sports and entertainment is a little harder to predict because it's really driven as we move into the fall by how strong attendance is at hockey games and basketball game and whether the convention center business start to pick up.

Okay. Thank you.

You're welcome.

Thank you and our final question will calm is a follow-up from Carla Casella with JPMorgan.

Hi. I was wondering on the EBITDA adjustment, you talked about an adjusted EBITDA figure. Have you, is there -- I didn't see it this in the press release. Are those published somewhere yet?

Adjusted EBITDA is a non-GAAP posted to our website. It is $1.035 for the LTM period.

Okay great. Thanks.

You're welcome.

We have no further questions at this time.

Thank you everyone for your participation this afternoon. We appreciate it and hope you have a great evening.

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