Aramark (ARMK) 2010 Q4 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the ARAMARK Corporation fourth-quarter 2010 earnings conference call.

At this time, I'd 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 will now turn the call over to Chris Holland, Senior Vice President and Treasurer.

Thank you. Welcome to ARAMARK Corporation's conference call to review the results of our fourth quarter and full year of fiscal 2010. Here with me today are Joe Neubauer, our Chairman and Chief Executive Officer, and Fred Sutherland, our Executive Vice President and Chief Financial Officer. Joe, Fred and I will present an overview of our fourth-quarter and full-year results and business operations, after which there will be an opportunity for phone-in participants to ask questions.

I'd like to remind you that any recording or other use or transmission of this audio may not be done without the prior written consent of ARAMARK. As we discuss the results, you may want to refer to the Form 8-K we filed earlier today which contains our fourth-quarter and full-year results for fiscal 2010 and can be found on our website at www.ARAMARK.com.

In today's discussions 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 Career Apparel segment. 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'd now turn the program over to Joe.

Good afternoon and thank you for joining us as we review our fiscal 2010 fourth-quarter and full-year results. Let me begin by broadly discussing 2010 performance and financial position. Then I'll turn the call over to Fred and Chris to detail our operating financial results for the quarter and year-end.

I'm pleased to report that, during fiscal 2010, we delivered solid results in sales and profits and another year of strong cash flow, even within a weak and uncertain economic environment. We also improved our levels of new business and delivered solid client retention.

During the fourth quarter of 2010, we achieved our second consecutive quarter of year-over-year organic growth rate, reversing several quarters of organic declines. While unemployment levels and other factors continued to constrain consumer discretionary spending and population-driven growth in sectors such as business and industry and uniforms, we're beginning to see stability and some pockets of improvements in these businesses.

We are particularly encouraged by our achievement in new sales and client retention, which we believe present opportunities for additional growth and improvement in the years to come. In 2010, ARAMARK exceeded $1 billion in annualized new sales for the first time in our history, representing a solid increase over 2009 period.

Turning to client retention, our overall retention rate of 94% was consistent with our 2009 performance, despite challenging retention years in several of our international operations. In fact, our key North American Food and Support Services business delivered solid improvement in retention in 2010, as did our Uniform and Career Apparel segment. So the improvement in new sales level and retention rates achieved in 2010 provide a solid base for us to build upon as we move into 2011, and we'll continue to invest significant resources to strengthen our teams.

Now, a few comments on our 2010 financial results. For the full year, sales were $12.6 billion, up 2% from 2009, with flat organic growth for the year but positive organic growth in both the third and the fourth quarter. Our adjusted operating income for the year was $637 million, flat with 2009, with profit growth in the fourth quarter.

I am particularly pleased with our strong cash flow performance in 2010. We generated $370 million of free cash flow before acquisitions, which was well above our internal plan and nearly matched the very strong results we delivered in 2009. I believe that our cash flow performance during the economic challenges over the past few years has demonstrated the strength and resiliency of our financial and business model and the dedication and commitment of our owner/managers. Our financial performance has allowed us to consistently reduce debt, improve our credit statistics, and enable us to reinvest into our businesses in pursuit of growth opportunities.

So as we move into 2011, we enjoy a strong and stable capital structure with significant amount of committed liquidity. We'll continue to manage our capital and liquidity positions in a prudent and thoughtful manner.

Let me now turn over the call to Fred.

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

As Joe mentioned, we reported fiscal 2010 fourth-quarter sales of $3.2 billion, up 3% from the prior-year quarter and up 2% on an organic basis. Our adjusted operating income for the quarter was $176 million, up 4% compared to the year-ago period, with no material impact from currency translation in the quarter.

For the full year of fiscal 2010, we reported sales of $12.6 billion, up 2% over the prior year and flat on an organic basis. Our adjusted operating income for the year was $637 million, flat with 2009, with currency translation adding about 1 percentage points of profit growth for the year.

Now, turning to our North American Food and Support Services segment, fiscal 2010 fourth-quarter sales were up 3% on both a reported and an organic growth basis to $2.2 billion. Growth was led by education, business and industry, and healthcare sectors, which more than offset a decline in sports and entertainment.

For the full year, segment sales were up 3% to $8.6 billion with organic growth of 1%. Full-year sales results were led by the performance of our higher education and healthcare businesses.

I would now like to make a few comments about the major sectors within the North American business. Our business and industry sector had a mid-single-digit sales increase for the quarter and was flat for the full year. Similar to the third quarter, the sector's results in the fourth quarter benefited somewhat from sales relating to our contract to provide support services for the security detail that served the G8 and the G20 meetings in June, north of Toronto. Excluding the impact from this single event contract, sector growth in the quarter would have been in the low single digits.

During the quarter, we did see some improvement in discretionary spending on the part of corporate clients, but we have yet to see an increase in employee population levels at most of our business food service and refreshment services accounts.

The education sector had a high single-digit growth rate for the quarter and mid-single-digit growth rate for the year with solid base and new business growth in our higher education food and facilities business in both periods and with strong new business growth in K-12 food in the fourth quarter. We're pleased with our performance and position in higher education and our team's ability to add value for our clients and customers by delivering our broad product offering of food and facility services.

We are also encouraged by the performance of our K-12 business during this past year as it delivered strong new business results and solid retention rates, which position us very well going into 2011. Going forward, the education sector overall will remain a key priority for us from a resource and an investment perspective.

In our healthcare sector, we realized low single-digit sales growth for the quarter and mid-single-digit sales growth for the full year, led by solid new business growth in our clinical technology services business as well as base and new business growth in healthcare food. Across our healthcare service portfolio, we continued to see numerous new and base business growth opportunities and our current new business pipeline is strong. However, in the current economic environment, we have experienced some pressure on base business as existing healthcare clients attempt to address their own budgetary issues and pressures.

Our Sports and Entertainment sector had a low single-digit sales decline both for the quarter and for the full year, primarily reflecting lower average attendance levels at Major League Baseball games, a lower number of games in the quarter compared to last year, and the impact of prior-year lost business in the NFL. It is likely that improved consumer confidence and discretionary spending trends will be necessary to drive stronger performance in this sector in 2011 compared to current levels.

Adjusted operating income in the North American Food Support Services segment was $125 million in the fourth quarter, up 1% from the prior-year period. Solid profit growth in business and industry was offset by a profit decline in Sports and Entertainment, reflecting lower overall attendance, as I mentioned, and consumer spending in stadiums and arenas, base business softness in healthcare and lower education profits partly due to substantially higher new business startup expenses because of the much higher level of new business signed this year versus last year and incremental investments in sales resources.

For the full year, segment adjusted operating income was $454 million, up 1% from the prior year, led by solid profit growth at education and good cost control in Sports and Entertainment offset by a profit decline in business and industry and softness in healthcare profitability. The stronger Canadian dollar contributed about 1 percentage point of profit growth for the quarter and 2 points for the full year. In addition, we recognized some severance expense in last year's fourth quarter related to cost reductions within the North American business. As we move to 2011, to support improved operating performance, we will continue to take a disciplined look at our cost structure and seek to achieve additional efficiencies and savings when and where we can identify them.

Now, turning to the International Food and Support Services segment, fiscal 2010 fourth-quarter sales of $602 million were up 4% on a reported basis. Organic growth was 3% in the quarter, led by Chile and China, offset by weakness in the UK, Ireland and Korea. For the full year, segment reported sales were up 7% to $2.5 billion. Organic growth was flat, led by strong growth in Chile and China offsetting organic declines in the UK, Ireland and Korea.

Fiscal 2010 fourth-quarter adjusted operating income was $20 million, down from $22 million in the prior-year quarter, with currency translation accounting for about half of the decline. For the full year, segment adjusted operating income was down 7% to $84 million with currency translation accounting for 2 points of growth. The decline in operating income for both the quarter and the year was driven primarily by weakness in the UK and Ireland that was only partly offset by solid profit growth in Chile and Japan. While the overall economic environment in the UK and Ireland will likely remain quite challenging for some time to come, we do anticipate improved financial performance from these countries in fiscal 2011 as we focus on our cost structure and the efficiency of our operations. We have taken some additional actions in our first quarter of fiscal 2011 to further reduce our above-unit costs, which will have a negative impact on Q1 but will definitely be positive for the full year.

In our Uniform and Career Apparel segment, fiscal 2010 fourth-quarter sales of $371 million were flat from the year-ago quarter on both a reported and organic basis. For the fourth consecutive quarter, the segment did show sequential improvement but the market environment remains extremely price competitive. For the full year, segment sales of $1.5 billion were down 6% from the prior year on both a reported and an organic basis. As with our business and industry sector clients in Food and Support Services, we have seen stabilization among our uniform client base. Price competition remains challenging, although we expect to continue to follow a disciplined approach to pricing in order to assure that we continue to sign and retain profitable business. As we move into 2011, our outlook remains cautious and we await signs of meaningful employment growth among our client base.

Uniform segment adjusted operating income for the fiscal 2010 fourth quarter was $38 million, compared to $29 million in the prior-year quarter. The strong year-over-year profit performance in the quarter primarily reflects the successful repositioning and integration of the WearGuard direct marketing business into the rental business, which we completed earlier this year, as well as improved performance in our Galls direct marketing business and continued solid cost control in our base rental business.

For the full year, adjusted operating income was up 3% to $130 million, reflecting our cost reduction efforts across the segment, the end-year benefits from the WearGuard repositioning and integration, lower energy costs and significantly improved year-over-year performance at Galls.

Excluding the items Chris mentioned earlier, corporate expenses were $7 million in the fiscal quarter, fourth quarter, compared to $6.6 million in the year-ago quarter. For the full fiscal year of 2010, corporate expenses were $29.8 million, compared to $31.7 million in the prior year. The full-year decrease primarily reflects reduced staff spending.

As Joe mentioned earlier, we had a very good new sales year and a solid retention year as well. We exceeded $1 billion in annualized new sales and reached our targeted client retention range for the year with a retention rate of 94% across the portfolio of food, facilities, and uniform.

Given the environment, we were pleased with the levels of base business growth we generated in certain sectors during the year, most notably in our higher education business.

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

Thanks Fred. I'd like to now comment on our capital structure and cash flow. For the trailing 12 months ending October 1, 2010, our adjusted EBITDA was $1.036 billion, compared to $1.035 billion at October 2, 2009. Interest and other financing costs were $108.7 million for the quarter, compared to $108.5 million in the prior-year quarter.

For the full year, interest and other financing costs were $444.5 million compared to $472.3 million in the year ago. This year's total includes approximately $8 million of expenses related to the credit agreement amendment and term loan extension we completed in March. Approximately 80% of our total debt portfolio is at fixed interest rates and our overall weighted average cost of debt is approximately 6.6%.

Total reported debt at the end of the year was $5.402 billion, down from $5.722 billion at the year-end 2009. As of October 1, 2010, our secured debt as defined in our credit agreement totaled $3.569 billion, including an outstanding term loan balance of $3.302 billion.

Reflecting our strong free cash flow performance in the fourth quarter, we made an additional $150 million optional term loan principal repayment in September 2010, which brought our total term loan repayments for fiscal 2010 to $315 million.

Our Accounts Receivable securitization facility had $221 million utilized at fiscal year-end. We also finished the fiscal year having a full $600 million capacity of our revolving credit facility available to us in addition to having approximately $70 million in excess cash on hand. As you know, we are in our seasonal working capital cash use period, so we are utilizing the excess cash in the ordinary course to fund business operations.

We are pleased that we reduced our secured debt ratio as of October 1 to 3.37 times, down from 3.72 times a year ago and down from an initial level of approximately 4.5 times when we went private in 2007.

Net capital expenditures for the full fiscal year 2010 were $264 million, down from $330 million in fiscal 2009 as we continue to demonstrate discipline in our deployment of capital. We intend to maintain this disciplined approach during 2011 as we evaluate investment opportunities across our portfolio of businesses, but we do anticipate somewhat of an increase in capital expenditures during the coming fiscal year.

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 performance.

During the year, our teams did an excellent job in managing our receivables and our days sales outstanding were comparable to the very strong levels achieved in the prior year. Working capital management will continue to be a key focus and priority for us. However, as we look forward, we do anticipate that our working capital performance in 2011 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 $370 million in free cash flow this year, reflecting in part the results of our CapEx and working capital discipline and performance. This is nearly in line with our very strong results last year, and we are pleased we could deliver this level of performance in the face of a still somewhat challenging overall environment.

For the full year, we spent a total of $86 million on acquisitions, compared to $138 million in the prior year. This year's spending relates primarily to the acquisition of an Irish facilities management company that we closed in the first fiscal quarter and we funded out of our cash resources at that time. We continue to seek to make strategic investments in certain sectors and geographies, but we'll be prudent and disciplined in pursuit of those opportunities.

Now let me turn the call back to Joe.

So summing up performance in fiscal 2010, the global Food and Support Services business delivered solid performance overall. The uniform rental business, while challenged by high unemployment, is performing relatively well with improved profit performance from the uniform segment compared to last year.

Importantly, our level of overall new sales has improved, and we delivered solid retention rates across the portfolio. We ended the year with a stable capital structure and improving credit profile and plenty of liquidity.

Today's macroeconomic environment continues to be somewhat challenging, but we have seen a number of months now of stability in our more cyclical businesses and we continue to be positive about our overall business mix and our ability to achieve continued growth in sales, in profit and cash flow.

So 2011, we will continue to systematically streamline our operations and improve our efficiency through increased standard processes. And more than ever, we are focused on pursuing the many attractive opportunities we see in our less cyclical sectors of education and healthcare, as well as growing our existing client service portfolios across all of our businesses and geographies. With the talent and dedication of our teams, the scope and breadth of our services, and the fundamental opportunities existing across our portfolio of sectors, we believe that we are well-positioned for growth and success in 2011 and beyond.

Let me just conclude by thanking our management teams and our 254,000 employees around the world for their continued commitment to our clients and customers, to our communities and our shareholders. ARAMARK this year will celebrate its 75th anniversary, and the fundamental principles that we were founded on -- that is dedication, passion, commitment to deliver high-quality service and solutions to our clients, and always do it with integrity -- continue to be the principles which guide us today and underpin our success. I am proud of the accomplishment of our many people over these 75 years and remain quite optimistic about our future and the many opportunities that lie ahead for us in the future years. Thank you again for your time this afternoon, and your continued support. We would be happy to take questions.

(Operator Instructions). Karru Martinson, Deutsche Bank.

Good afternoon. In terms of the organic growth and the new wins here, where is that market share coming from? Is it coming from your competitors? Is it folks looking to outsource? Where is that shift coming from?

This is Fred. It's coming pretty much across the various channels. We are doing well versus our major competitors. We track wins and losses, and generally we are pleased with those results. We continue to win business from the [self-op] portion of the market.

In terms of the raw material front, what are you seeing there and is the expectation for 2011 that we are going to need to push through some pricing?

On the food side, we are currently seeing year-over-year increases in the overall market basket of what we buy in the range of 2% to 3%.

Sorry, 2% to 3%?

So it's a level that's -- 2% to 3%. It's a level that's manageable, but to be fair, it is above what it was six months ago. So we're watching it carefully. We'll be aggressive as we need to be on the pricing front if that continues to escalate. But right now, it's at a level that is certainly manageable.

Okay. Certainly great to see that there is some stability in Uniform and Career Apparel. Just if you could remind us -- when did you guys start taking costs out of that business and when will we anniversary that?

We started to take costs out of that business actually more than 12 months ago. So some of that has been lapped, but it wasn't a one-time effort. So we continue, on longer-term plans, to increase the efficiency of our operations, our plant costs, our route costs through route optimization, more efficient merchandise issuances which controls our merchandise costs. So, we have certainly lapped the big effort that we made on the front end when the economy took a plunge. But we continue quarter by quarter through longer-term programs to improve our efficiency.

Lastly, when you guys look at your capital structure, the market has been relatively robust, this past week notwithstanding. How do you guys feel about upcoming maturities when you look forward?

I think, as we did in March of this past year and as Joe said in his comments, we're certainly going to continue to prudently manage the maturity profile. But we still have a fair amount of runway until we have any real material maturities. The 2012 notes we can easily handle out of free cash flow or through revolver borrowings. Despite the obviously very attractive historical levels that you can issue at, there is still a not insignificant negative carry that we would be taking on. So clearly, as we move through '11, we will continue to monitor the markets and look for opportunities to extend out maturities. You can rest assured we will try to do that prudently and sequence it in over time.

Thank you very much, guys.

Reza Vahabzadeh, Barclays Capital.

Good afternoon. You touched on your wins and I guess a contributor to your wins is the outsourcing of services done internally. Is that a trend that has remained consistent in the last couple of years? Is it likely to accelerate going forward? How are you thinking about that outsourcing trend recently and going forward?

This is Fred. I think we see it as a steady trend. It's not -- to be fair about it, it's not an overwhelming wave, but there is a steady net trend towards outsourcing. There is some movement occasionally. Sometimes the movement is in both directions. So occasionally, we will have a contract where the decision is made to go back in-house. But I think, if you look at the traffic in both directions and net them out, it's a pretty steady trend in the direction towards outsourcing.

One of the things -- and we talked about this in the last couple of calls is -- and this is clearly on the back of the macro environment, but there are a couple of sectors like K-12 and corrections in particular where we have historically high new pipeline opportunities. To Fred's point, the key is on converting those opportunities over time and certainly in 2011 in the case of K-12, we had a very strong new business year there. So as those institutions are increasingly stressed in this environment, they are increasingly at least contemplating and looking at outsourcing as an opportunity for them to become more efficient.

Did you mean 2010?

Excuse me, 2010.

Got it. Then you talked on about the healthcare sector pressures on margins. You talked about this obviously last quarter. Is that a trend that is -- is that level of pressure, is it about the same as before? Is it accelerating, decelerating? Is it likely to stay with you for a while? Can you talk about that?

Let me try that. It is Joe. I think that with the uncertainty about healthcare reform coming down the road here and the squeeze that's being put on healthcare providers, particularly hospitals, they are trying to reduce their operating costs. That is both a threat and opportunity for us, because obviously, as Chris just mentioned, outsourcing, you really have got to look at it by sector. In the healthcare, I think it's an opportunity for us in terms of new people, new organizations who are looking to outsource.

On the other hand, the ones where we are, they are trying to become more efficient. More efficient means new processes and reduction in overall cost structures. So that's where we feel the pressure. So I think net-net we've got to adjust, which we're doing at the moment, and I think it will be a plus for us. But we're going through a transition which might last another couple of quarters.

I see. Then on the international side, you touched on the weakness in UK and Ireland, and the strength in Chile and some other countries. Can you talk about the relative size of UK and Ireland to your international business?

Yes. UK and Ireland are in the probably 25% to 35%-ish range overall. Ireland a little bit larger now with the acquisition that we made in the early part of fiscal 2010. To be fair, it's a smaller portion of the portfolio than it was even three years ago because of the rapid growth we've seen in Chile and in China, and the fact that, as we've said now for a while, the UK had a very difficult retention year on top of the fact that the base business across that country, as well as in Ireland, were very challenged. So, those two factors have, at least at this point, made it a less significant overall portion of the portfolio.

Are the UK and Ireland trends likely to continue in 2011?

We think we see an improvement in the overall level of lost business. We had some challenging retention rates, particularly in the UK. We expect to improve upon that. We're expecting to have rates of new sales that are as good or better than they were in 2010. We have taken some pretty significant actions, both during 2010 and as I mentioned in my remarks in the first quarter of fiscal 2011, to right-size the cost structure. So we don't expect, given the overall economies and the economic situation, and clearly Ireland is very much in the papers today with respect to the possibility of a bank bailout -- we don't expect 2011 to be clear sailing, but we are driving for improved performance in both countries in profitability 2011 over 2010.

Got it. Thank you much.

Carla Casella, JPMorgan.

Hi. One question on acquisitions -- you talk about you're still looking. Can you just talk about whether the amount of the opportunities you are seeing have increased, just given the market, and what you're seeing in terms of multiples, both international and domestically?

I think, over the last six months or so, the number of opportunities has probably increased somewhat, but not dramatically. That's both in North America and internationally. I don't think multiples, at least from the things we have seen and have been involved in, have changed all that significantly from where they were 12 or 18 or 24 months ago and I think are still consistent with what historically we have seen as making sense from a valuation standpoint.

Again, we are continuing to look in several geographies and certainly in North America. Again, when we find targets that fit in the right sectors with the right profile and we can get them at the right price, we will make them.

Great. Then one more question just on the international -- they decelerated a bit sequentially and on the margin front. I'm wondering. Is that all Ireland, UK, or -- and do you think we've seen the trough? It sounds like it's stabilizing somewhat, but do you think we've seen the trough there yet?

I think we did lose -- a lot of the UK business that we lost in fiscal 2010 did occur late in the year and early into -- late of '09 and early into '10. They have been trying to lap that for a while. They are in, I think, a more stable position today from that perspective, and Ireland similarly, which had a tough retention year, should be lapping the majority of that in the next quarter or so. So to Fred's point, we expect at least more stability, assuming we perform better on the retention side. Certainly on the cost side, we're being aggressive in making sure those infrastructures are the right size for the opportunities we're pursuing now.

I may have missed it. Did you say where that retention -- where it went? Was it to competitors or was it to insourcing? Was it a pricing issue or something else?

A couple of the large losses in the UK were in the financial services sector and around some of the government forced mergers that occurred at the time, at the depth of the crisis, where the surviving party was consolidating vendors. We were on the losing end of several of those consolidations. Those were big dollar tickets for us in the UK. For the most part, I would say the losses have been to the competition and not to self-op.

Thank you.

Karen Eltrich, Goldman Sachs.

Following up on the inflation question, what about in the apparel business? Obviously, that's been a huge headline of cotton and related sources. Is that something you can pass through in your rates and how are you managing that?

This is Fred. It is something that we are working to pass through, and we are also working on the supplier side to try to control the increases. As you would expect in the uniform rental business, our garments are not primarily cotton, but there is a cotton component to them. So, it doesn't have the same impact on us from a product -- from an input cost point of view that it would have, let's say, on a retailer who is selling clothing at retail. So we're doing everything we can, and our product mix is not too different from that of our competitors. So if there's any good news here, the good news is that it's pressure on the input side that is being felt pretty much equally by all the companies in the market.

So you're expecting a pretty rational environment?

Hoping for it.

The nice trends in K-12, as you mentioned, obviously schools are under budget. I was also wondering with the renewed focus on health trends, is that also something you have been able to capitalize on and differentiate yourself within the marketplace?

There is that movement throughout the whole portfolio, not just in the K-12 market. It's clearly in the higher education market. It's clearly in the healthcare market, but it certainly is in the K-12 market. We actually do better when we have a little more to say about it, that is, that we can design the portfolio of offerings and the menus rather than those mandated by third-party payors, governments of all kinds. So, we see that again as a great opportunity, and we see that as a great education opportunity for the children.

Great. Final question -- it was nice to hear China as one of the larger growth areas. What areas do you find that you're gaining traction in and as you get deeper into the market, how big is the potential there?

Well, you know, we have over 15,000 people working for us in China. But you have to keep the unit labor costs and the unit product costs in perspective. So the volume that those 15,000 people generate is not equivalent to the volume, the dollar translated volume, that one generates in, frankly, all other parts of the world for us. So we think that the opportunity is very great, but we are growing it 20%, 25% a year. But even at that rate, you've got to go a long way for it to be very significant as part of the overall international portfolio until several years down the road.

We are seeing significant opportunities in the healthcare market there, and we are seeing significant opportunities in the facilities side of the healthcare market as well as the facilities side of the B&I market. So the facilities side in China, the way to think about it for a second is facilities, buildings, equipment, really have an international value rather than a domestic value. That's why taking care of them is a little more rewarding than providing food from a sales dollar point of view translating into dollars and from a profitability point of view.

Great. Thank you very much.

Bryan Hunt, Wells Fargo Securities.

Good afternoon. Thank you for taking my questions. Hi, how are you? When you look at the timing of the business wins throughout fiscal 2010, could you talk about whether they were front half or back-half weighted?

I would say they were middle to back-half weighted. Certainly, some sectors were more consistent throughout the year, but given some of the sales cycles that some of the sectors naturally have, in particular in the education part of the business, they were back-half loaded. Now, to the extent you are bringing them on in the next school year, which in most cases you're not in every case, they certainly should benefit fiscal 2011 and the education sector in particular, but overall probably middle to back-half weighted.

Looking at timing, I believe you all had mentioned in last conference calls you were getting off-cycle requests for proposals. Have those off-cycle requests continued?

We were speaking specifically about the K-12 sector where typically there is a single sales cycle, which is in the spring, and if you're transitioning food or facility services, you're doing it in the September timeframe. Really for the first time in anyone's memory in the business, we were seeing a relatively significant amount of opportunities for transition over the Christmas break. We are still in the middle of a number of those opportunities and certainly working hard to convert as many of those as we can. But it's really going to be -- it's really this timeframe that we are in right now, so December to January wins and conversions and then you'll have the same typical spring sales season that you'll convert in September.

So again, to our earlier point, the pipeline overall in K-12 is as strong as it's ever been, same thing in a couple of the other sectors. The fact that K-12 is considering midyear conversions I think is just a reflection again of the pressure some of the districts are under and the flip, the opportunity that we have to help them.

Simplistically, if I look at your $12.6 billion in revenues, your 94% retention rate, and your give or take $1-plus billion of new wins, should I be looking at $13 million in revenues for fiscal '11?

By that math, that's where you get. Right?

Just making sure my math works.

That's the math.

It's different in different school districts.

Then lastly, you had some nice -- I don't know if you want to call them one-time or event-type wins with these G8 and G20 business. Do you have any additional business wins upcoming in fiscal '11 that are similar in size, or similar in scale you can talk about?

We do have the Asian games, which we have won. Outside of that, probably not anything that would affect 2011.

Thank you for your time. I appreciate it.

Micah Kaplan, Bank of America.

My apologies if I'm repeating. I had to jump on a little late. Just two quick ones. On the -- I think in the past, you've talked about some of the pressure in the healthcare business, especially on some pricing pressure. I just wanted to know. Is there -- are there any contracts that are -- that don't make sense or are getting close to not making sense for you guys from a profitability standpoint, or is there still kind of cushion there even though there is some margin pressure in some of those contracts?

Generally -- one of the nice things about this business is the vast, vast majority of all your contracts are profitable. And so even as we experience price pressures, the number of contracts that generate losses is a very small percentage of the portfolio. The other advantage that we have, which is particularly true in the healthcare market, is that these are contracts notwithstanding our very high retention rates that are more or less at-will contracts, which in many cases would fairly limit -- fairly short notice on both sides per cancellation.

So we are not in a position at all where we have significant numbers of lossmaking contracts. To the extent that we, through these pressures, get into a position where we have contracts that we feel are just not sufficiently profitable, to the extent we can't work it out with a client, work collaboratively to try to make the operations more efficient or control cost, at the end of the day, if we don't think the level of profitability is there, we always have the option of terminating the contract, or typically we would.

So it would be fair to say there are some unprofitable contracts right now but they are ones that you guys feel like, for whatever reason, they could obviously become profitable in the relatively near term?

Yes. It's typically just a handful when you have thousands of contracts (multiple speakers).

Of course. Then my last one is just on -- I think you mentioned kind of maybe taking some pricing to offset some of the food inflation. Is there any -- just given there's been kind of a rise across the board here in a lot of things, are there any menu mix adjustments that you guys are thinking about that could potentially offset some pressure, you know that you are seeing more on one commodity versus another? Then I'll hop off.

We do that in the ordinary course. Actually, I think we are much better and much more systematic about it than we were a few years ago. So that is another tool in the toolbox to help control the impact of food inflation. Absolutely.

Appreciate it. Thanks.

At this time, we have no further questions in the queue. I'll turn the call back over to Chris for any additional or closing remarks.

We appreciate everyone's attendance today. We hope you have a wonderful evening.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.