Terminix Global Holdings Inc (TMX) 2009 Q4 法說會逐字稿

Ladies and gentlemen, welcome to The ServiceMaster Company's 2009 earnings conference call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Marty Ketelaar, ServiceMaster's Vice President of Investor Relations and Assistant Treasurer. Mr. Ketelaar will introduce the other speakers on the call.

As a reminder, during the question-and-answer session, please limit yourself to one follow-up question. At this time we'll begin today's call. Please go ahead, Mr. Ketelaar.

Good morning and thanks for joining our 2009 year-end earnings conference call. Joining me for today's call is ServiceMaster's Chief Executive Officer, Pat Spainhour; Chief Financial Officer, Steve Martin; Treasurer, Mark Peterson; and Controller, David Martin. We'll make some prepared remarks and then we'll be happy to address your questions during the question-and-answer session.

Before we begin this morning I'd like to remind you that throughout today's call management may make forward-looking statements to assist you in understanding the Company's strategies and operating performance. All forward-looking statements are subject to the forward-looking statement legend contained in our recently filed Form 10-K and Form 8-K. These forward-looking statements are not guarantees of performance and are subject to risk factors contained in our public filings that may cause actual results to vary materially from those contemplated in the forward-looking statements.

Information discussed on today's call speaks only as of April 7, 2010, and any rebroadcast or distribution of information presented on today's call after such date is not intended and will not be construed as updating or confirming such information. The ServiceMaster Company undertakes no obligation to update any information discussed on today's call.

ServiceMaster recently filed its Form 10-K as well as an 8-K containing additional financial disclosures that we believe will enhance your understanding of our financial and operating results. We may reference throughout today's call non-GAAP financial measures such as adjusted EBITDA, comparable operating performance, and operating performance, which factor in adjustments related to such things as purchase accounting adjustments, restructuring expenses, a non-cash trade name impairment and non-cash option and restricted stock expense, among others.

We have included in our 10-K and Form 8-K, available on our website, definitions of these terms, as well as the relevant reconciliations to the most appropriate GAAP financial measure in order to better assist you in understanding our financial performance. During the question-and-answer session we ask that you ask any questions that you may have. Due to our disclosure policy and legal requirements, we are limited in our ability to hold follow-up conversations with our public side investors and as such we request that you please ask any questions during this public forum. I'll now turn the call over to Pat Spainhour for opening comments. Pat?

Good morning, everyone. I appreciate you taking the time to join today's call. This morning we'll be providing an overview of our 2009 results and an update on the progress of some of our key initiatives. As you have seen in our recent filing, we wrapped up 2009 with solid overall performance despite the very difficult economic environment. Like so many other companies, we saw slower consumer and commercial spending throughout the year coupled with the uncertainty around the economy as a whole.

Despite these challenges, particularly in light of the economic environment we encountered in the first quarter of 2009, we feel good about the year we just had. Our overall performance reinforced our confidence in the resiliency of our businesses and demonstrated that our leadership team has the ability to manage through these tough economic times.

Faced with a slower sales environment our operating discipline helped keep us on track as we improved our profitability. Moreover, our customer retention efforts helped put our company in a better position to achieve real growth in customer accounts in 2010. Steve Martin will be providing more details on our financial performance in a few minutes, but first, I'd like to share a brief summary of our results.

For the full year, the Company reported operating revenues of $3.24 billion, down 2.2% over 2008. As we reported all year long, the decline in revenues can be attributed to weaker discretionary spending and the fact that many homeowners and commercial customers cut back or delayed services. We made the strategic decision to maintain our customer base through discounting where necessary, which helped preserve our active customer counts.

We finished the year strong despite unusually inclement weather in the fourth quarter which contributed to lower revenues in TruGreen and Terminix and higher warranty claims in some parts of the country at AHS. That weather trend continued into the early part of the first quarter of this year and we'll have a much more detailed report for you in our first-quarter call.

Despite the lower revenues, however, we continue to generate solid growth in operating performance. 2009 operating performance rose 8.6% versus 2008. Strong year-over-year performance by Terminix and American Home Shield helped offset a nearly $4 million operating performance decline at TruGreen. In addition, five of our six business units showed operating performance margin improvement thanks to excellent cost controls and contingency planning across the Company.

Based on what we're hearing from most experts, we're not expecting a major rebound in the economy in 2010, but that's not going to stop us from pushing forward with our business transformation and long-term growth strategies. For some time now we've been talking with you about our customer retention efforts and we're pleased about the results in 2009. For the period ending December 31, retention at TruGreen stood at 68.1%, up 210 basis points over 2008. Retention at American Home Shield stood at 63.8%, up 200 basis points over 2008.

Despite a slow start due to the economy, and the continued downward trend in the overall termite market, Terminix ended the year within about 1 percentage point of its 2008 retention rate. Our experience the past three years has taught us that retention is our single biggest growth opportunity at ServiceMaster and we'll be putting even more resources in our retention strategies this year across all of our brands.

As we began 2010 our efforts to transform TruGreen into a more nimble customer-focused business are well underway. Our customers have told us what they want -- green, weed free lawns, and a company that's easy to do business with. With our customers' [fav] teams, better route manager communication with our customers and more flexible payment options like EasyPay and pre-pay, we are simplifying the way our customers interact with us and results are showing. As we mentioned earlier, customer retention at TruGreen was up 210 basis points with cancellations down 8.3%.

On the growth side, we're encouraged by the success of TruGreen's neighborhood sales program which added nearly 429,000 new accounts in 2009. That's up almost 40% over 2008 and accounted for 41% of all new TruGreen sales in 2009. That growth partially offset decreased activity in our other sales channels.

The TruGreen organizational realignment that occurred in the fourth quarter of 2009 achieved modest cost reductions that contributed to operating performance in 2009. But another story here is the work that began late last year to pull many administrative tasks out of our branches and centralize them in state-of-the-art contact centers.

Similar to what's been done in Terminix, this consolidation promises savings and more consistency in brand operations while enabling our branches to put their full attention on growth, retention and service delivery. Meanwhile, our contact centers will handle centralized inquiry sales, customer service, collections and other administrative services. Supported by a new national media campaign designed to reinvigorate the brand, we're excited about the potential future growth at TruGreen.

On the expense front, we finished 2009 much the same way it started, with a tight rein on discretionary expenditures. We also continue to comprehensively evaluate our functional business processes for reengineering and potentially outsourcing opportunities. With our IT outsourcing transition to IBM substantially complete, we'll turn our attention to financing human resources. These initiatives represent opportunities to further accelerate the transformation by standardizing practices in areas such as talent acquisitions, performance management, training and development, financial accounting and planning and analysis.

As we improve the way we select and retain associates, and provide them with the training, technology and tools they need to better serve our customers, we'll be positioned to deliver a better customer experience and explore new growth opportunities.

While each of our businesses continue to invest in growth, I also believe there are opportunities to further accelerate our growth by continuing the transformation of our company to a more customer centric culture. We've launched 2010 with a renewed emphasis on the ServiceMaster commitment, a foundational set of values that guide all of our business relationships with associates, customers, suppliers and communities. Our underlying strategy of operating as one company made up of many great brands with a foundational commitment to honor God in all we do gives us a strong platform upon which to serve our customers.

2009 was clearly a very challenging year for all of us, but we're approaching 2010 with the knowledge that we've performed, even under some of the most difficult economic conditions in a generation. With a strong leadership team in place to guide our company, I look forward to sharing news about our continued progress and success in the coming months. I'll now turn the call over to Steve Martin who will discuss our financial and operational results in greater detail. Steve?

Thanks, Pat. 2009 was a year of solid performances, although the economic environment was more challenging for us than in 2008, and the slowdown in consumer spending has negatively impacted revenue growth on a year-over-year basis. Despite those challenges, we were still able to grow operating performance, repay the borrowings under our revolving credit facility, and repurchase some debt at a very attractive price.

Additionally, we have continued to make solid progress toward our goal of streamlining processes to gain greater efficiency and those efforts are evident in our 2009 results. For the year, revenues declined 2.2% to $3.24 billion compared to $3.31 billion a year ago, driven primarily by soft consumer demand and discounting at TruGreen LandCare and reduced base maintenance and enhancement revenues at TruGreen LandCare.

For the fourth quarter of 2009, revenues totaled $716 million compared to $734 million a year ago, representing a 2.4% decline. Cost of services rendered and products sold totaled $1.91 billion or 59% of revenues for the year ended December 31, 2009, compared to $2.02 billion, or 61% of revenues a year ago, reflecting improved labor efficiency, lower vehicle fleet count, reduced fertilizer cost, favorable termite damage claims and the favorable impact of exiting certain fleet leases in 2008 offset in part by unfavorable trending in healthcare costs and a $5.5 million residual value guarantee charge associated with our synthetic real estate lease facility.

Operating performance, as set forth in the 8-K, increased 8.6% to $565 million compared to $520 million a year ago, a 170 basis point improvement in operating performance margin. Improved segment results, lower functional support costs and higher investment income were key contributors to the improvement in operating performance margin. I'll have additional comments on segment results in just a moment.

Cash flow provided by operating activities from continuing operations increased $30 million to $192 million in 2009. The increase in cash flows was primarily attributable to improved segment profitability partially offset by higher working capital requirements.

Turning to our liquidity, borrowings of $40 million under our revolving credit facility were repaid late in the year leaving no borrowings under the revolver at year end and $10 million remains outstanding under the AR securitization facility. We continue to maintain a strong liquidity profile.

We have once again elected to pay cash interest on our senior toggle notes on July 15, 2010, the next interest payment date. As we reported to you at the end of 2008, the credit market disruption has caused the market for leasing vehicles to change dramatically. While there are alternate sources of capital available for leasing, the current lease pricing being offered is significantly higher than our marginal cost to borrow on the revolver. As a result, we expect to fulfill our 2010 vehicle fleet needs by purchasing up to $60 million of new vehicles.

Lastly, we expect to make a net $43 million cash payment in July 2010 associated with the exit of our synthetic real estate lease facility.

Before turning to our segment results I'd like to briefly discuss the $28 million trade name impairment charge incurred during 2009. This non-cash charge was primarily attributable to the use of lower projected revenue at certain of our businesses due to the weaker economy as compared to the revenues used in the prior year analysis.

Moving now to segment results. At TruGreen LawnCare, revenues decreased $46 million or 4.2% to $1.05 billion. During the year, revenue was adversely impacted by soft consumer demand and $14.3 million in incremental customer discounting over 2008. However, customer counts increased nearly 1% over last year's level due to a 210 basis point improvement in customer retention.

Operating performance decreased slightly by 2.2% to $180.8 million compared to $184.8 million a year ago. Profitability was negatively impacted by increased sales and marketing expenses, unfavorable trending in healthcare costs and increased overhead expenses offset in part by improved management of seasonal staffing and production labor, lower vehicle fleet count, reduced fuel and fertilizer costs and the favorable impact of acquiring assets in connection with exiting certain fleet leases in 2008.

Turning to TruGreen LandCare, revenues decreased 17% to $262 million while operating performance improved 16% to $15.8 million compared to $13.6 million a year ago. The decline in revenue included a 12.4% decline of base contract maintenance revenue and a 26.9% decline in enhancement revenue. Revenue trends were adversely impacted by soft customer demand and pricing concessions.

Additionally, revenue in the first quarter of 2009 was adversely impacted by TruGreen LandCare's continued efforts to improve the quality of its customer mix by pruning less profitable jobs, implementing stricter pricing on new sales and increasing the average size of new proposals and sales. Operating performance at LandCare increased $2.2 million or more than 16% compared to 2008 primarily driven by lower fleet vehicle counts, improved materials management and lower overhead spending. This was partially offset like higher healthcare and fuel costs.

At Terminix, revenues were nearly $1.1 billion consistent with 2008 results. The mix of revenue changed slightly as pest revenue grew 1.6% while termite revenue contracted 3.5%. Growth in pest revenue was due to improved price realization partially offset by lower customer counts. The lower customer counts resulted from lower unit sales as well as a 30 basis points reduction in pest retention rates, which still ended the year at a strong 78.5%.

Termite renewal revenue declined 2.4% driven by a 110 basis point decline in customer retention to 85.7%. Termite completion revenues declined 4.9% to reduced average price on new treatments. Trends in retention and new unit sales for both pest and termite were adversely impacted by soft consumer demand.

Operating performance grew nearly 9% to $239 million compared to $219 million in 2008 reflecting favorable termite damage claim trends, effective management of seasonal staffing of production and sales labor, reduced fuel cost and overhead spending, lower vehicle fleet counts and the favorable impact of acquiring assets in connection with exiting certain fleet leases in 2008. These factors were offset in part by unfavorable trending in healthcare costs.

At American Home Shield, revenue increased more than 7% to $630 million compared to $588 million in 2008. Excluding the impact of purchase accounting in 2008, revenue increased 1.8% driven primarily by improved price realization. Customer counts are comparable to 2008 reflecting the decline in new unit sales in the first and second quarter, offset by a 200 basis point improvement in customer retention.

American Home Shield's sales in the real estate market in the first and second quarter were significantly impacted by the continued softness in the home resale market throughout most of the country. This was offset in part by increased sales in the real estate market in the third and fourth quarters.

Operating performance increased more than 20% to $107.5 million compared to $89.2 million a year ago due in part to a $10.2 million increase in interest and investment income from the investment portfolio. The 10-K contains additional details on the investment portfolio performance.

Lastly, we have a new segment disclosure for ServiceMaster Clean as it meets the segment reporting requirements. Revenues declined in this segment 3.2% to $125.6 million compared to $129.8 million in 2008. Trends in revenue reflect a decline in product sales to franchisees offset by increases in disaster restoration services and other franchise fee revenues.

Operating performance increased 2% to $57.5 million compared to $56.4 million a year ago reflecting reduced overhead spending. Our management team and associates at ServiceMaster remain committed and focused on strategies and initiatives that create and deliver long-term value. You can expect 2010 to be a continuation of the groundwork laid in 2009.

While the market conditions, including the credit and housing market, as well as consumer spending trends, continue to be challenging, we have seen some relief in fuel and commodity prices. However, with consumer sentiment remaining at near historically low levels, we believe the business environment will remain a challenging one for us during 2010. I look forward to providing you an update on our first-quarter 2010 results during our next earnings call. That concludes our prepared remarks and at this time we'd be happy to answer your questions. Operator?

(Operator Instructions). Todd Harkrider, Goldman Sachs.

Congratulations on a good quarter.

Thank you.

I'm trying to pin down some of your larger cost buckets for the year. You've proven your ability to manage the largest labor component. It looks like you successfully had your fuel requirements this here and I think you're locked on your termite product, so that shouldn't impact you negatively for this year. So, can you talk about some of the headwinds like fertilizer and healthcare costs and if there's anything else worrying you on the cost side? It seems like you've done a good job managing them already. Thanks.

Well, I guess just to highlight really the comments we just made. In 2009, healthcare was a headwind for us. We're evaluating the impact of the new healthcare legislation. We do think we'll see some relief from commodity prices, fuel in particular, and fertilizer, continue to be items that are -- seem to be under not significant pressure. So other than the comments we summarized just a moment ago, I don't think you'll see significant items trending against us that we haven't talked about.

Okay. That's good to hear. And can you talk about the drop-off in the LawnCare retention rate sequentially? Is that somehow due to seasonality since it looks like it's happened in each of the last several fourth quarters, even though your retention rates over the longer term keep trending up? So maybe how we can look at the drop in sequential and the fourth quarter. Thanks.

Well, historically, even though we report on a rolling 12-month basis of retention rates, historically you still see a little bit of a seasonality curve to it sequentially from quarter to quarter. Which is why we focus more on the year-over-year trailing 12-month retention rate at each quarter. So we view the year-over-year comparison more relevant than the sequential quarter-to-quarter comparison.

Okay, and -- glad to hear your neighborhood sales program is bearing fruit. I guess the question applies to both the LawnCare and Terminix -- with the credit still tight for small businesses, are you seeing any early indication that something will open up shop this year and could maybe lead to easier market share gains or make it easier for you to take pricing this year?

You know, we'll talk about the 2010 environment and impact on our results at the next call and as we go through 2010. But you know the environment out there, it's a lot of independent operators in every market and local competition is always there. It's something we deal with on a daily basis and we expect to continue to see independent competitors out there. But it won't change how we operate in terms of focusing on the initiatives that are driving our growth and profitability in our performance.

Appreciate it. Good luck for the rest of the selling season.

Thanks.

Yilma Abebe, JPMorgan.

Thank you. Good morning. Two questions from me. The first question is, has the discount program at TruGreen, has that ended or is it still going on?

The discount program was really a 2009 event and it was stimulated by the economic downturn starting in the fourth quarter of 2008 and in the first quarter of 2009 as things began to reach an apex out there and customer cancellations were beginning to stream higher than what our run rate should have been.

And so strategically we feel like it's more important to carry an increase in customer count. And so we developed different strategies and different ways to retain customers throughout the course of the first quarter into the second quarter. And as things began to level off, we have, in fact, gone back to our normal process without discounting either to sell or to save customers who want to cancel.

Okay, thank you. That's helpful. My second question is more of a big picture question. EBITDA is growing, free cash flow is nicely positive, but your leverage is still high. Big picture in the long term, how are you thinking about leverage? Should we expect to see more cash going towards debt pay down? How are you thinking about the overall leverage of the enterprise?

ServiceMaster We do, obviously, focus on it and our focus is to continue to grow cash flows and generate some deleveraging through our operating cash flows every year. And we'll also continue to monitor the overall market conditions to -- and make decisions related to refinancing transactions as we go forward. But from an operating cash flow standpoint, we do focus on generating positive cash flow growth each year so that we can deleverage through operations each year.

Thank you. That's all I had.

[Jack Burgess], PineBridge Investments.

Hi, guys. Thanks for holding the call, and a follow-up on an earlier question that was asked about costs. You referenced in your remarks fleet cost movement is something that helped your profitability this quarter. So what I wanted to ask is whether you feel that those movements are likely to be -- or that's a cost item that's likely to continue to be favorable for you or whether it might move in the opposite direction in future?

Jack, if I understood your question right, you're asking about the impact -- we referenced a positive impact related to our fleet?

Right.

Is that right?

That's correct.

And what was the rest of your question?

I'm sorry, Jack. We just had a little trouble hearing your question. It was in and out a little bit on us. Sorry about that.

I apologize for that. My question is whether you feel that the favorable impact in fleet costs that you enjoyed this quarter is going to be recurring or whether that item might move against you in future quarters?

Got you. As we say in the K, our plans are to continue buying vehicles, so from an EBITDA standpoint, operating performance standpoint, we don't expect to see that moving against us. From an overall expense standpoint you'll have the depreciation on the purchase costs running through the income statement.

Okay. Thank you.

Jeff Kobylarz, Stone Harbor Investments.

Good morning. Congratulations on the good cash flow this past year. Can you talk a little bit about the LawnCare reorganization and can you say when it was completed? And this centralization of core field functions and certain admin functions, how does it result in the change in the work focus of the employees?

As we've talked about it -- as we've presented it I think over the last couple of calls, these changes were really made to create a much stronger, more competitive organization with a focus in three or four critical areas, the first one being creating a standardized consistent customer experience. When you have the customer communication going on amongst 215 branches, there's a high level of discretion used by a branch. Bringing into a centralized capability allows us to control the scripts, control the actual communication and it's highly QA'd.

The second area of focus, what was building a very lean focus field organization and really getting to a very manageable span of control. We were asking a lot out of our field team to cover a lot of territory and therefore there wasn't the attention and the focus branch by branch that needed to be there. And so that, in fact, has taken place. That piece of it is complete. Another area of focus (multiple speakers).

(multiple speakers). I'm sorry, that changed -- that's just recently been completed, that more manageable span of control?

That's right. We announced this in the third quarter of last year and pretty much had that completed pretty shortly after we made the announcement there.

Okay.

We also, instead of having distributed sales organization and region by region managing their sales, we centralized that, so that the field can truly focus on customer service in a more directed way and that's done. The last area -- the major focus was streamlining business reporting, really looking at standards and KPIs that really drove the customer service areas and our performance in meeting those demands. And that's -- a lot of our progress has been made there. Still working on that to bring in the standardization across all of the brands. That's an ongoing thing.

There are really two phases of the restructuring. The first phase involved a geographical realignment of the field management structure and the elimination, to your point, of some administrative and sales positions. That phase has been completed. We've gone into a relationship with Convergys and really have a centralized call center to -- now across the whole company, to bring these administrative tasks that were done independently by each branch into a standardized way of managing those functions.

So a lot of the work, quote, has been done in terms of getting to the map direction we're going in, but the maturing of that is going to continue to build as we go through 2010.

Okay. Do you have any metrics qualitatively you could say about customer service? Based on these changes, customer service scores, are they better now? I know it's early in the season, but is there any way to measure?

Well, the only thing we can say at this point is, as we did last year, our retention rates continues to build and improve, which is really the key metric that we're really focusing on because that says customers want to stay with us because we're treating them the way they need to be treated.

Right, okay. Yes, and congrats on good retention scores for American Home Shield and LawnCare. But what is going on in the Terminix business where the retention was down a little bit there? Are there different initiatives that are going on in that segment or are there different dynamics in that market?

The biggest change in Terminix, was really the economic impact in the first quarter of last year when nobody -- when the consumer didn't know what was going on. We've always thought that Terminix was recession resistant, but the impact of the economy really caused some people to question what's going to happen after the first quarter. And so we had a -- in the first half of the year, an increase in cancellations that drove the retention down. But as things settle out, it began to build back up again.

And so, it's really a year of two different pieces, first half versus second half. Second half returned to normal. We're not concerned at all about the retention rates within Terminix, either termite or pest. They're very robust the way they are to go down less than a point here or there over the course of a year is an easy win back and the teams are very focused on getting that back and it's happening.

Okay, fine. And then you mentioned at the end of the call that it's a challenging 2010 outlook. And I would think tough the challenges that you're seeing for this year, that they're not say as foreboding as 2009. Can you comment at all how the environment looks for this year compared to last year at this time?

Well, I can say this, that as we went through 2009, the later in the year you got, the more stability that began to take place with the consumer. And we approached 2010 expecting that same level of much less volatility than what we saw in the first half, but at the lower run rates that we experienced during 2009 in the second half.

So we're not looking for the economy, in terms of our thinking and planning, to really help us out and build us out a lot in 2010. We're going to continue doing the transformation work that we've been doing. We're going to continue to perform while we transform as we've done for the last three years.

Okay. Thanks very much.

(Operator Instructions). Emily Shanks, Barclays Capital.

Good morning. I wanted to see if you could give us a bit of color around how you're approaching the deleveraging with operating cash flow that you responded to in an earlier question. And specifically I was curious if you would look at actual debt reduction, specifically potential buybacks of some of the existing bonds and/or term loans for these repayments?

You faded out that the last telling of that question. Would you repeat the last half of that, please?

I apologize. Can you hear me okay?

Yes, much better.

Okay. My question is, as you speak about deleveraging through operating cash flow, are you considering paying down debt? And specifically, can you comment how you approach potential open market repurchases of your bonds and/or term loan facility repayments, please?

Sure. We definitely anticipate and our intent is to continue to deleverage through our operating cash flow. So we'll continue to drive EBITDA growth and manage our CapEx spending with that goal in mind.

With respect to paying down the revolver, we do -- excuse me, the term loan -- we do have requirements to pay down as we go and we'll continue to meet those requirements.

In terms of open market purchases, we'll keep our options open, although the pricing of those bonds, as you know, are significantly higher today than they were at this time last year and we haven't bought any since last year, so we'll continue to evaluate that option. But it's obviously not as (inaudible) today as it was before.

And we will also keep our eye on just the market for refinancing transactions, either a bond offering or other transactions, to amend and extend or refinance our debt. And we'll continue to evaluate that with our equity partners and our financial partners. So keeping all options open and we watch it carefully every day, but that is our thinking as we stand today.

Thank you for sharing that, very helpful. My follow-up question and last question is, could you give us an update as to how the sponsors are looking at their investment in ServiceMaster? Now that we've come out of or are starting to come out of a consumer driven recession, how are they looking at the investment in the hold period of ServiceMaster?

We certainly can't go there. You know, I think they like the way we're running the Company and we're certainly delivering good performance. And I know they're satisfied with where we are so far. But the question you asked is really more in their court and we'll deal with that as it comes up.

Great. Good luck. Thanks.

Jeff Kobylarz, Stone Harbor.

Curious about -- it was mentioned early on the call about -- that the cost to lease the fleet, that the implicit rate was higher than your -- at too high of a rate, so that's why you were -- I believe that's why you were increasing your purchases of your own fleets to around $50 million or so this year. Can you say what that rate is, the cost would be under the traditional leasing rate?

Lease financing -- this is Mark Peterson. Lease financing that is in the market is close to double-digit rates for us. And when you take a look at all of the aspects of putting a fleet leasing package together for the type of equipment that we've got, it just is not cost effective for us. And so we've chosen to go ahead and purchase the fleet vehicles and the equipment necessary to put on those vehicles for the near term.

Right, okay. So the amount that was spent in 2008 was $52 million and then it was $31 million last year and now around $50 million in 2010. Is $50 million a year, is that kind of the run rate if you were just replacing your trucks and your equipment?

Right, and that's -- as we disclosed in the K, that's the run rate we expect going forward, particularly in 2010.

Okay, that's 2010, but is that like an annual kind of rate? Can you say?

Yes, I think that's a reasonable approximation of what the run rate would be. That can always change and we look at the fleet -- our fleet strategies all the time and our realignment of our operations in the field. But that run rate we put forth for 2010 is the way we're thinking about it as an annual run rate.

Okay, fair enough. And then the expenditure for the synthetic lease, can you explain what the economics are of that use of cash?

Yes, Mark, why don't you summarize that as well?

The synthetic lease that's on our books is currently about $65 million, comprising a number of properties that we sold through the lease. $52.5 million of it is an operating lease comprising 25 properties and $12.5 million of it is a capital lease comprising seven properties. We own $22 million of that financing, of the $65 million, so we have an investor interest in that facility.

We took a look at the role -- it was rolled in 2007 through 2010 and so we've always known that we had this maturity coming up and we took a look at the synthetic lease market and the options available to us and we made a decision to go ahead and collapse the lease.

The way we look at it here is it was a piece of debt that was on the books, even though some of it is off-balance sheet through the synthetic lease vehicle. And we took a look at replacing it with other debt and we chose -- we'd rather use our existing cash flow to pay down that piece of debt than roll it for another period of time. It was a very clear economic decision -- if you take a look at these obligations as debt instruments, you'd be making the same decision.

Sure. With your good cash balance it makes sense to do that. And you have short-term debt of $64 million at year-end. You don't have any revolver debt outstanding. So is that -- short-term debt, is that mostly your free cash flow sweep to the term loan? Can you describe what's in that short-term debt?

Yes, it also consists of our obligations to companies we've acquired as part of our tuck-in acquisition programs (inaudible) includes the maturities that are due in 12 months for that.

It's term loan amortization, it's amortization of debt on tuck-in acquisitions and any other item that's coming due.

Got you. Okay. So there wasn't a free cash flow sweep from 2009's cash flow?

No.

All right. Thank you.

Thank you. And there are no further questions at this time. I'll now turn the call back to the speakers for closing remarks.

I want to thank you all for being on the call today. We appreciate your interest and support and we look forward to talking to you at the end of the first quarter.

Thank you. And ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.