Operator: Good day, everyone, and welcome to the Cintas Quarterly Earnings Results Conference Call. Today's call is being recorded.
At this time, I would like to turn the call over to Mr. Bill Gale, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.
William C. Gale - SVP and CFO: Thank you for joining us this evening. With me is, Mike Hansen, Cintas' Vice President and Treasurer. After some commentary on the results, we will be happy to answer questions.
The Private Securities Litigations Reform Act of 1995 provides a safe harbor from civil litigation for forward-looking statements. This conference call contains forward-looking statements that reflect the Company's current views as to future events and financial performance. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss. I refer you to the discussion on these points contained in our most recent filings with the SEC.
We are pleased to report third quarter revenue of $1.76 billion which represents record quarterly revenue for Cintas and growth of 6.3% from last year's third quarter organic growth which adjusts for the impact of acquisitions and the impact of one less workday compared to last year's third quarter was 6.9%.
As we noted in the press release, the organic growth in each of our four operating segments improved from second quarter levels. We indicated in last quarters call that we expect our Uniform Direct Sales segment to have a good second half of the fiscal year and that was certainly true in our third quarter. The execution of our global accounts and strategic markets and our global supply chain teams during the third quarter was outstanding as we rolled out several large new programs, on our way to over 15% growth in the Uniform Direct Sales operating segment.
Third quarter net income decreased by 1.7% to $75 million and there were a number of factors that contributed to this decrease. Our third quarter had 64 workdays which is one less than last year's third quarter. Keep in mind that a number of our large expenses including rental material cost, depreciation and amortization are determined on a monthly basis instead of a workday basis, and one less workday results in one less day of revenue to cover those expenses.
In addition, we have discussed on our last few calls that strong new business sales and the absence of meaningful customer hiring over the past few years have resulted in increasing rental material cost and capacity pressure on our routes. As a result, Rental segment material cost exceeded last year's third quarter material cost, just as it also did in this year's second quarter. We also continue to add route capacity during this quarter to ensure that we have the ability to continue providing excellent service to our customers.
In our selling and administrative expenses, our cost associated with employee related medical benefits increased by roughly 60 basis points compared to last year's third quarter. Keeping in mind that we are self-insured, this increase was due to new claims experience during the quarter. Medical costs have historically been in the range of 3% to 4% of revenue and this third quarter expense continued to be in that range.
In addition to higher medical costs, our expenses associated with auto and other liability claims increased roughly 50 basis points compared to last year's third quarter. Despite these added cost during the quarter, our earnings per diluted share for the third quarter did increase over last year's third quarter. This year's earnings per diluted share were $0.60, a 3.4% increase over last year's third quarter of $0.58. This was due to the positive impact of our share buyback program. During the third quarter, we purchased roughly $28 million of our stock, bringing our total purchases during the last 12 months to $309 million of Cintas stock. As of February 28, we have $191 million available under the current Board authorization for future shares repurchases.
As we enter our fourth fiscal quarter, we are updating our fiscal 2013 guidance based on our third quarter performance. We expect revenue to be in the range of $4.3 billion to $4.325 billion and earnings per diluted share to be in the range of $2.50 to $2.54. The guidance assumes the current U.S. economic environment continues and does not worsen going forward. It also assumes no impact for additional share repurchases.
Now, I would like to turn the call over to Mike Hansen for more details on the third quarter.
J. Michael Hansen - VP and Treasurer: Good evening. As Bill mentioned, total revenue increased 6.3% from the third quarter last year, with total Company organic growth being 6.9%. Total Company gross margin for the third quarter was 41.1%, which is down from last year's third quarter gross margin of 42.1% but slightly better than this year's second quarter gross margin of 40.7%. I will discuss these items in more detail by segment.
Before doing so, let me remind you that there were 64 workdays in our third quarter, which is one less than last year. Our fourth quarter will have 66 workdays which is the same as last year's fourth quarter. As a planning note for fiscal '14 we will have 65 workdays in each quarter for a total of 260 workdays, this creates year-over-year workday differences in each quarter except the second and results in one less workday for the entire fiscal year.
We have four reportable operating segments; Rental Uniforms and Ancillary Products, Uniform Direct Sales, First Aid Safety and Fire Protection Services, and Document Management Services.
Uniform Direct Sales, First Aid Safety and Fire Protection Services and Document Management Services are combined and presented as other services on the face of the income statement. The Rental Uniforms and Ancillary Products operating segment consist of the rental and servicing of uniforms, mats, towels and other related items. This segment also includes restroom supplies and other facility products and services. Rental Uniforms and Ancillary Products revenue accounted for 70% of Company revenue in the second quarter and totaled $748.9 million which is up 3.9% compared to last year's third quarter.
Organic growth was 5.5%, which is a nice uptick from the 4.5% organic growth rate in the second quarter. Sales rep productivity continue to be strong and we did see a slight pickup near the end of the quarter and our net adds stops metric.
Our Rental segment gross margin was 41.9% for the third quarter, a 120 basis point decrease from last year's third quarter gross margin of 43.1%. Energy related costs were down 10 basis points from last year's third quarter. Bill touched on the primary reason s for the decreased gross margin. The impact of one less workday, the higher material costs and service costs associated with added route capacity. The third quarter gross margin of 41.9% was the same as the second quarter. The negative impact of one less workday in the third quarter was offset by the impact of the processing system write-off in the second quarter.
Our Uniform Direct Sales operating segment includes the direct sale of uniforms, branded promotional products and other related products to national and regional customers. Uniforms and other related products are also sold to local customers including products sold to rental customers through our direct sale catalog. Uniform Direct Sales revenue accounted for 12% of company revenue in the third quarter and totaled $126.1 million, which represented sales growth of 15.6% compared to last year's third quarter.
As Bill mentioned, we had several rollouts in the third quarter in our Fortune 1000 business including the largest single customer rollout in Cintas' history. Uniform Direct Sales gross margin was 29.2% for the third quarter, down from last year's third quarter gross margin of 30.5%. This segment's gross margin can move from quarter-to-quarter due to changes in mix of product and timing of program rollouts. In this year's third quarter revenue, included a much higher mix of Fortune 1000 national accounts sales which tend to have slightly lower gross margins within our hospitality and gaming business.
Our First Aid, Safety and Fire Protection Services operating segment includes revenue from the sale and servicing of first aid products, safety products and training and fire protection products. First Aid, Safety and Fire Protection revenue accounted for 10% of Company revenue in the third quarter. Revenue was $112.9 million, which is up 11.3% over last year's third quarter revenue. Organic growth was 6.9% which is a nice improvement over the 4.8% organic growth rate in the second quarter. This segment's gross margin was 44% in the third quarter, which is up 80 basis points from the 43.2% in last year's second quarter and the 42.4% in this year's second quarter. Our First Aid and Safety gross margins were very strong due to continued efficiencies gained by the good performance in this business.
Our Document Management Services operating segment includes document destruction, storage and imaging services and it accounted for 8% of third quarter total Company revenue. Document Management revenue totaled $87.8 million, which is 8.9% higher than last year's third quarter. Revenue increased organically by 5.8% compared to last year. We have lapped last year's steep drop in recycled paper prices and now have better year-over-year comps. This year's third quarter average recycled paper price remained relatively low at $140 per ton, but this is slightly higher than last year's third quarter average of $135 per ton. This $140 average price also remains lower than are expected third quarter paper price of $160 per ton. Our updated guidance for the fourth quarter assumes that recycled paper prices will stay roughly at the $140 level. The third quarter gross margin of 47.1% is comparable to last year's third quarter of 47%.
Switching to selling and administrative expenses, SG&A was 28.7% as a percentage of revenue in the third quarter, which is up slightly from the 28.5% in last year's third quarter. As Bill mentioned medical and auto and other liability claims were up a combined 110 basis points. Offsetting these increases were better leveraging of our G&A function and constant challenging of our cost structure.
Our effective tax rate was 36.1% for the quarter compared to 37% last year. The effective tax rate can fluctuate from quarter-to-quarter based on tax reserve builds and releases relating to specific discreet items.
For the full fiscal 2013 year, we expect our effective tax rate to be approximately 37% which is slightly than last year's 36.8%. Last year's rate was impacted favorably by the resolution of federal audits.
Turning now to the balance sheet, our cash and marketable securities were $246 million at February 28, down $30 million from the $276 million at November 30. This decrease was due to the $80 million payment of our annual dividend in December offset by cash generated from operations. Included in the $246 million at February 28, was $54 million of cash located outside of the U.S.
Accounts receivable increased by $16 million since November 30, due to the higher sales level in the third quarter compared to the second quarter. DSOs were roughly 40 which is the same as that last year's third quarter.
New goods inventory at February 28, was $247 million, up $11 million from November 30, due mainly to inventory associated with several large Uniform Direct Sales customers. Despite higher sales this year, the inventory level of $247 million is down $29 million since last year at February 29 due to improved inventory management.
Accrued liabilities decreased $87 million compared to November 30, primarily due to the $80 million December payments of our annual dividend. Long-term debt at February 28 was $1.3 billion. As of February 28, our total debt to EBITDA remains slightly below two times.
Moving on to cash flow, cash provided by operating activities in the third quarter was $141 million, which is up from last year's third quarter amount of $132 million. CapEx for the third quarter was $52.7 million. Our CapEx by operating segment was as follows $38.3 million in Rental, $1.4 million in Uniform Direct Sales, $2.5 million in First Aid, Safety and Fire Protection and $10.5 million in Document Management. We expect CapEx for fiscal 2013 to be in the range of $190 million to $210 million.
This concludes our prepared remarks and we will now take any of your questions.
Operator: Sara Gubins, Bank of America Merrill Lynch.
Sara Gubins - Bank of America-Merrill Lynch: You saw a nice pick-up in the organic growth trends. I'm wondering if you could talk about the tone of your clients and any details on types of clients, maybe by industry that are adding programs or expanding their programs?
William C. Gale - SVP and CFO: Sara, what we saw was, we saw a weak, beginning of our quarter. December was relatively weak. January, first couple of weeks started out and then things got a little bit better. And as we got into February, I would say, the latter part of February began to show a little bit of life in the ad stop metric among existing customers. I would say the general tone that I'm hearing from our operating and sales management is kind of a little bit of relief that we got through some of these big issues that – the year-end fiscal Cliff and some of the other things that were going on and while I don't think there is a robust attitude that things are going to be really great, I think that there's just kind of a relief and may be a little bit more optimism in the marketplace.
J. Michael Hansen - VP and Treasurer: Sara, I would say that we did not see any significant – one segment has significant improved performance over another. It was generally pretty broad.
Sara Gubins - Bank of America-Merrill Lynch: Then it's a little hard to compare because of the year-over-year days not matching, but if I look at the guidance for the fourth quarter, it looks like you could be expecting a slowdown in the organic growth rate. So, first, is that correct? And second, if so, could you talk about why?
William C. Gale - SVP and CFO: I'm not sure that's totally correct. The low end of our guidance which show growth of about 5.6% and the top end about 8%, but I would say within that guidance we are looking at kind of a quarter relatively similar to what we saw this quarter.
Sara Gubins - Bank of America-Merrill Lynch: Then just last question, any update on the pricing environment, are we getting any marginally easier incremental optimism.
William C. Gale - SVP and CFO: I'd say the answer to that question is no, it's no different – the pricing environment appears to be no different than what we've seen for the last several quarters, which is a pretty competitive environment.
Operator: Nate Brochmann, William Blair.
Nate Brochmann - William Blair: Two things. I mean one, kind of following on that question, I mean I definitely encouraged to see kind of the organic growth picking up. And I'd assume that in spite of probably a little bit of a weather impact too, I'd assuming some of your region seen couple of lost days because of weather compared to last year where we didn't really how much weather –would that be fair to say that that was a little bit of headwind during the quarter?
William C. Gale - SVP and CFO: I'm not sure, I can really say that, there were couple of those winter storms but I didn't hear a lot of problems among our locations with deliveries and that sort of thing. So there's always a little bit of that in the third quarter and different parts of the country, but nothing out of the ordinary.
Nate Brochmann - William Blair: And then in terms of adding some of the rail capacity back to handle the new business. I mean have you feel about where you are with that right now, do you have more to go based on level of business that you have right now. And then also would it be fair that if we did see some pickup in the economy and the employment rate and that had stop metric and it shoot up a little bit. Hopefully at some point that we could see even a little bit greater road density than we normally would see in rising environment like that?
J. Michael Hansen - VP and Treasurer: That’s certainly our hope. What we have seen, we've had just some really nice new business over the last year or so far and as we spoke in the last couple of quarters we've had some to add some routes because we have more stops and we just needed to have the capacity in order to handle the new business. And there is no doubt that when we see adds consistently taking place in our existing customers, that is going to be very beneficial to route density and thus is going to have a nice marginal impact positively on our results, because not only will we get more revenue from a stop, but will be able utilize with adds more of our existing Stockroom inventory as customers do add employees to their headcount. Is that going to necessarily happen in the fourth quarter, I don't know. I hope that we'll begin to see some of that, but it's still been a pretty sluggish employment growth especially in the Uniform Rental wearing sectors, but with a little bit of uptick, we saw at the end of February, maybe that will continue. I know there has been a few analysts who have put out some reports of their surveys with private customers that indicate there might be some trends of that, so we'll have to wait and see, but we're certainly going to have the capacity on our routes to handle that – those adds if they do occur.
Operator: Joe Box, KeyBanc Capital Markets.
Joe Box - KeyBanc Capital Markets: So you put up two consecutive years of solid SG&A leverage and obviously that abated this quarter, and (indiscernible) medical cost and liability were up a combined 110 basis points. I guess I'm just curious, do you see those headwinds reversing in the coming quarters or could we be looking at an ongoing drag, and then I guess more importantly, how should we think about SG&A leverage going forward?
William C. Gale - SVP and CFO: I don't think we expect those type of spikes to continue. Of course we are self-insured for medical benefits and you are going to have quarters, when you have some relatively expensive cases and this happen to be one of them that we had several that must have hit. But I'd say that we would expect if you look over the average cost of our medical benefits over the past year or so, it's been a lower than what we saw in this most recent quarter. So, I have no reason to expect that to increase at least this year. Obviously, going into '14 all companies are going to face some additional costs associated with some of the requirements of the Affordable Care Act, but that's going to be every company is going to feel that. As to these cases, again, I think that's kind of an aberration. I can't say that it won't happen again, but it's more likely not to happen than to happen. So, with all that said, I'd say as long as we continue to see that top line growing, we're going to see some additional SG&A leverage, not necessarily to the same degree we've seen over the last two years, but some marginal continued leverage improvement in the SG&A line.
Joe Box - KeyBanc Capital Markets: Then maybe switching gears to the merchandise amortization component, can you maybe just help us understand the different moving pieces? Was there a benefit from lower cotton, but yet that was more than offset by newer uniforms going out? Just kind of curious for some color there.
J. Michael Hansen - VP and Treasurer: When we look at material cost, as we mentioned, it was higher this year than last year. But what we did see is that the increase in the third quarter over last year was less than the year-over-year increase in our second quarter and you know, we've talked numerous times in the past about how we expected cotton to peak mid-fiscal '13. And so we probably did get a bit of relief coming off of that but also we just saw a little bit of a decrease in the rate of the material cost increase. So, it was a positive sign during the quarter.
Joe Box - KeyBanc Capital Markets: And maybe can you just talk about some of the garments that you put out into service post-recession. I mean we are coming up against a couple years of pretty good growth, are you starting to replace some of those uniforms and products now or is that not really coming up yet?
J. Michael Hansen - VP and Treasurer: I think that certainly can come up and it just depends on the type of the customer and how they use their garments and we will always be replacing garments, but I wouldn't say that we've seen a serious uptick in the amount that we're pulling from the stock room based on these new accounts put in service over the last couple of years. I'd say the more of the impact is being – we are just continuing to sell new accounts.
Joe Box - KeyBanc Capital Markets: On the direct sales side, clearly a stand out. Can you just talk to the longevity of some of these programs. I mean are they met to last few quarters, last a year or are they generally more seasonal in nature.
J. Michael Hansen - VP and Treasurer: Well, I wouldn't say they are seasonal, but they are more related to a specific customer requirement to do the rollout. So our sales organization is constantly working on replenishing these type of big account rollouts, but obviously its dependent somewhat on the customer themselves. So, what you saw this quarter is probably not repeatable in the short-term. We would expect there still to be positive growth in the Direct Sales segment in our fourth quarter, but this certainly was a kind of an unusual event one that we knew was coming and that's the nature of the direct sales. We see this all the time where we can have these very, very high growth quarters followed by flat to somewhat down quarters and it just is the nature of the business.
Operator: Andrew Wittman, Robert W. Baird.
Andrew Wittman - Baird: So, you talked about the extra workday setting up for comparisons in the revenue side. It's kind of harder to peel out what the margins would be adjusted for that. Is it fair to kind of gross up the revenue from this quarter by that extra day, look at the same cost structure and then compare that to last year. Is that a fair way to look at it, or if we do that, are we missing something?
William C. Gale - SVP and CFO: That's a little too simplistic I think Andy. I mean you can do a little bit of that but, like when you look at maybe some of the Rental gross margins, but the problem we have is the quarter gets kind of complicated when you have some of these things that we talked about in SG&A. When you have a different mix for some of the Direct Sales business, than you have in previous quarters versus the Rental business and the Direct Sales business has – tends to have a little less margin. So, you have to be a little cautious. I think sufficed to say, that we certainly are impacted negatively on a margin standpoint when we have fewer workdays, because as Mike mentioned, with material cost, depreciation, amortization all being done on a monthly basis, that can have 50, 60 basis point differential just on the margins and then you get other things that are being factored in there.
Andrew Wittman - Baird: I guess that makes sense, but it sounds like, if you were to do it, the only segment that you'd even have a chance to be the core Rental segment and I guess if I do that math I see kind of a 20 basis point gross margin (hitting) 30 basis point rental hit which – it's not up, but it's not – there is clearly a very big impact from the extra day.
William C. Gale - SVP and CFO: I think I wouldn't make too much out of a 20, 30 basis change. I mean, your mix of new business, the mix of the types of the business, those type of variations are going to happen quarter-to-quarter.
Andrew Wittman - Baird: Just in terms of the routes, you kind of talked about this a little bit, but you split some routes, is the business supportive of continuation of that or is that now have you done the splitting of the routes and now it's just making those happen? Or should we see kind of the route splitting s maybe an ongoing headwind to near term level with long-term benefits?
William C. Gale - SVP and CFO: Keep in mind, I think the splitting of routes is a good long-term strategic move to enable us to serve more customers. And we will continue to I think be very successful in selling new business and therefore, we need to stay ahead of the game and having the routes available to handle that new business so that we can improperly take care of our customers. So, I see it going on. What I hope will happen is obviously we'll see some improvement in the attitude of businesses to hire additional people at existing stops and increase the amount of revenue without increasing number of stops in all our routes, but within a very large sales force that is very productive. And we think we have a some competitive advantages with product and with service systems, we will continue to see robust new business when you have new business you will have to have the route capacity to handle it.
Andrew Wittman - Baird: Is there any one of your segments that’s getting a disproportionate amount of new routes still?
William C. Gale - SVP and CFO: I'd say any of our route based businesses are all adding routes.
Andrew Wittman - Baird: And then just final question, Mike, Document, constant currency ex-paper, what was that for the quarter?
J. Michael Hansen - VP and Treasurer: We had a nice improvement in the quarter to 7.1%.
Operator: James Samford, Citigroup.
James Samford - Citigroup: Just wanted to touch on the few things, fuel prices and natural gas been on the rise here, you are still seeing some leverage on the energy cost side. Just wondering if you could comment on whether – how we should think about Q4 in terms of energy cost with the current levels of commodity prices. And how does adding new routes impact the energy cost line and just in general?
William C. Gale - SVP and CFO: Right now our energy cost as a percent of revenue were relatively consistent with what we saw in the second quarter. We were little over 3% of revenue, and the natural gas prices have shown a little bit of uptick, but not significant enough that you'd think that would be a big change. Quite honestly James, it's the price of the gas and diesel that – the more dramatic change in those prices have a bigger impact on our energy costs overall, because that's the biggest percentage of our energy cost by far. As to route capacity, whether more trucks you have on the road, the more gas you're going to use, so you certainly will see an increase in utilization of gasoline and diesel because you have more trucks and therefore we'll have that cost going on, we will get the leverage necessary on the revenue line that we would if we were not adding route capacity and we're just seeing revenue increases in existing accounts.
James Samford - Citigroup: From a capacity perspective, where do you stand right now in terms of total layers versus prior peak and maybe comment on what the mix of rental wearing versus other products is at this point?
J. Michael Hansen - VP and Treasurer: We still have fewer wears today than at the peak. I won't get into the details any more than that, but because of that we still have capacity generally speaking and more than we did in '08. Now, capacity is certainly a local issue and there are some spots that have grown faster than others in the last couple of years and we may have some capacity needs from a plants standpoint in the next few years. But generally speaking, we have some pretty good capacity and the – when I've talked about fewer revenues – fewer wearers today, our revenue is higher than it has ever been and that is because we've replaced those – the revenue from those loss wearers with other things like cleaning chemical solutions and hygiene products that don't require a lot of capacity. So, to answer your question, plant capacity is still pretty good.
James Samford - Citigroup: I guess, one quick question on the Affordable Care Act. I know you've talked about some impact on your business. Any sort of update on where you're thinking as the impact in 2014 might be and what kind of offsets you have or levers you have to change to absorb some of that cost.
William C. Gale - SVP and CFO: Well, I think, everyone is aware that it's getting a lot more press. There was an article on the Journal about a week ago that talked about the $63 charge that everyone is going to have to pay for every covered individual and their dependents. So, the rules are just getting announced and written. There certainly is going to be an increase. So, what is our strategy? Well, our strategy is got to be to provide our employees with a decent medical program. But because of the significant increases in costs they are going to have to share in some of that through higher weekly cost of their share of the cost, may be higher co-pays. We're offering some high deductible plans and inducing employees to get into those that we think you would help us control our costs and we continue to work with our various suppliers in trying to get the best deal possible in terms of the amount we have to pay per prescription drugs for medical coverage etc. there's just no doubt that there's going to be some increase in overall costs, both to the employee and to companies and we will do our best to keep that cost to a minimum but the year there's still a lot to be resolved just in terms of what the young government is currently forcing companies to do and that were just watching it and then will try to react accordingly.
Operator: Andrew Steinerman, JPMorgan.
Andrew Steinerman - JPMorgan: Let me ask about the Rental gross margin line which was down 120 basis, explain the reason. If it was not for the one last day, how close to even would Rental gross margin be in the third quarter. And is there a short that Rental gross margin will be up in the fourth quarter given your comments about add-stop and even days?
J. Michael Hansen - VP and Treasurer: If you would adjust for the workday in the third quarter, as Bill mentioned, we would see the Rental gross margins likely go up about 50 basis points, because of that one day – one less workday. It was a 50 basis point impact. Last year's fourth quarter gross margin and Rental was 43.3% and do I think we can get to that. It depends a bit again on how our revenue comes back if we continue to see a movement a positive trend in add-stops like we saw at the end of this quarter, then certainly we can see a very good gross margin in the fourth quarter. If however, that doesn't play out and we turn to a negative trend or a flatten trend, then because of the increase in routes, we may have a little bit more difficult matching that gross margin from last fourth quarter – last year's fourth quarter.
Andrew Steinerman - JPMorgan: And if you could go over the acceleration of Rental revenue growth in the third quarter, which pieces to revenue growth accelerated year-over-year?
J. Michael Hansen - VP and Treasurer: It really came through both the uniform wear as well as the facility services. We're kind of consistent. We've seen some very nice growth continuing all be it from a relatively low base in the chemical dispensing and the tile and carpet cleaning, but I was encouraged with seeing kind of across the board improvement with pretty much the core business, the dust business, the rental garment business. We've expanded into some different segments like health care with some microfiber mops and wipes and scrub rental and I think that has been somewhat of a benefit for us also. Again it was not consistent through the whole quarter. We had a touch – as I mentioned, we had a tough December, but we began to see a little life in mid-January and then it kind of tipped up as we moved through the end of February. So, I am – I'd like to say I am very optimistic for the fourth quarter, but I can't because I just don't know what's going to happen, but at least the trend is – was more positive as we excited the third quarter.
Andrew Steinerman - JPMorgan: Bill, often you describe that same thing in terms of new business loss business. So, if you take the third quarter as a whole, did new business accelerate the loss business ebb?
William C. Gale - SVP and CFO: Loss business ebbed a bit. New business again was very strong especially in the second half of the third quarter.
Operator: Scott Schneeberger, Oppenheimer.
Daniel Aliperti - Oppenheimer: This is (Daniel Aliperti) filling in for Scott. Can you take us little deeper on the strategy employed to drive some of that cost leverage in the business please?
J. Michael Hansen - VP and Treasurer: Well, the strategy has been always to get as much capacity and revenue on our routes and as we mentioned earlier, rough density is a key to that. Utilization in our plants is certainly something that we are always looking for in the SG&A leverage. So, our strategy has been always add routes as needed to handle additional stops and then do whatever we can to increase revenue at those stops.
Operator: Shlomo Rosenbaum, Stifel Nicholas.
Shlomo Rosenbaum - Stifel Nicolaus: Bill, is there anything (you bid) is different about the ad stop change at the end of the quarter. We've had a number of head fixed with the ad stops things. It's clearly the biggest lever of potential for your business, is there any sense that you have at this point time we might be filling the opposed to kind of the head fix we got a couple of times in the last few years?
William C. Gale - SVP and CFO: No, I couldn't that (I know you) that convincingly. I wish I could, but I can't. Yeah, and how long – I guess when you talk about the end of the quarter, I guess how long did you see it for? In other words, you guys manage your business I assume on kind of more weekly basis. What part of the quarter did you see that in. The last two to three weeks.
Shlomo Rosenbaum - Stifel Nicolaus: Did that continue going into this quarter?
William C. Gale - SVP and CFO: We really don't have anything yet. This is pretty early in March, so I would say I don't have anything that I could really look at and tell you whether it did because it's just difficult that we're so early in the month.
Shlomo Rosenbaum - Stifel Nicolaus: The trends in the business, have been improving and I'm trying to bridge that with the EPS guidance being narrowed down to the lower half, like, what are you expecting to change in the fourth quarter?
William C. Gale - SVP and CFO: A couple of things. One is, of course the paper price. As Mike alluded to, we've now reduced our expectation on paper price in the fourth quarter from what we had assumed back in December when we gave you that updated guidance and that probably cost us in that quarter alone a $0.015 or so. We're are also a little bit concerned that maybe we will not have a repeat performance on the lower medical expenses that we saw last year, and therefore based on what we saw in the third quarter, we ticked that up a little bit. We continue to expect there to be more impact, the material cost impact, although we've seen that trend come down a little bit. We still think that will be higher than last year's fourth quarter. I think the tax rate is a tad bit higher. So I'd say those are the major factors but with all that said, we're still looking at fourth quarter; our guidance still indicates a fairly nice improvement in operating income in the fourth quarter over last year, even looking at the low end of the guidance. So, I feel pretty good that it's going to be a decent quarter, assuming that the revenue comes in.
Shlomo Rosenbaum - Stifel Nicolaus: Just to quantify some of that, is it fair to say that the tax rate in total is $0.015 per quarter, so like $0.03 of the difference is in, not the tax-rate, I am sorry, the paper pricing?
William C. Gale - SVP and CFO: The paper price was – yeah, based on what we thought it was going to be in December, it's like $0.015, yes.
Shlomo Rosenbaum - Stifel Nicolaus: So is it $0.015 per quarter, or $0.015 per…?
William C. Gale - SVP and CFO: Per quarter.
Shlomo Rosenbaum - Stifel Nicolaus: So $0.03 out of the $0.04…
William C. Gale - SVP and CFO: Right, 2.5 to 3 slow mo.
Shlomo Rosenbaum - Stifel Nicolaus: And then tax rate is kind of a fraction of a cent?
William C. Gale - SVP and CFO: You're getting into minutia.
Shlomo Rosenbaum - Stifel Nicolaus: The bulk of it is – it sounds like it’s the paper pricing is what it sounds like?
William C. Gale - SVP and CFO: The bulk of it, I would say is the paper prices and a little less, a little more concern on some of these expenses like medical benefits, liability claims that sort of thing, because we saw a little uptick in the third quarter.
Operator: Gary Bisbee, Barclays.
Gary Bisbee - Barclays: You were kind enough to give us the impact of the one last workday in rentals gross margin. Can you give us sense either the actual numbers are directionally, the other two issues how much they contributed the new customer impact and the route investments?
J. Michael Hansen - VP and Treasurer: No, Gary, we haven't gotten into those to that level of detail and we prefer not to.
Gary Bisbee - Barclays: It's not very helpful, but I’ll move on to the next one. How about some color on, how the new businesses trended over the last 12 to 18 months? In particular, what I am getting at is when we will some of this amortization start to roll off? Has this really picked up a lot like in the quarter? So, is that, that expense is going to be there for a while, or is this the combination of new business having improved over the last year and so as you rolling off quarters, it wasn't strong when adding in several where you've had good growth that sort of the impact? I'm trying to think how long is this headwind, that's really the question?
William C. Gale - SVP and CFO: I guess, I would answer that question by saying if we were to stop selling new business, it wouldn't become ahead with. But the fact is, we still have an awful big sales force and they are continuing to be very productive. So, we are always going to have new business. And as a result of that you're always going to have that kind of injection of products. So, I'm not sure you're going to see a significant drop in the material costs because the amortization drops.
J. Michael Hansen - VP and Treasurer: As I mentioned Gary though, the rate of increase year-over-year in our third quarter was less than our second quarter. And so, we started to see a bit of that start to happen. In other words, the headwind was a little bit less in the third quarter than in the second quarter. If we get a little bit of help with net ad stops in the fourth quarter, we might get a little bit of – we might get a little bit more help in the fourth quarter. We did see some of that, was cotton from the second quarter to the third quarter but again this all little bit of improvement in the rate of increase and I would say rather than all of a sudden a headwind going away, it's probably going to be something that that goes away very slowly overtime unless we see a real change in net add stops.
Gary Bisbee - Barclays: Can you give us any color on where the improvement in ad stops came from? Was it more the wares or more potentially bad weather leading to more jackets which I've head you referenced in the past or anything like that as to help us exactly where it improve?
William C. Gale - SVP and CFO: It was more wearers and more facility services product adds.
Gary Bisbee - Barclays: Then just one last question from me, I know I've asked you this a lot over the last couple of years, but at what threshold do you think about breaking out the hygiene and facility services business into its own segment? I think with the fourth quarter of last year when you gave us the mix, it looks like it's getting close to that 10% threshold at which companies start to do that. Is that something you might do next fiscal year and if, why not?
William C. Gale - SVP and CFO: Because we cannot properly split up the costs since they are housed in the same facility and often on the same routes. So, it would set with a tremendous amount of allocations in order to split up the cost side; and as a result of that, we are not going to do that in the near-term.
Gary Bisbee - Barclays: I thought the Sanis business when you acquired that many years ago had its own route and a lot more of that was going off in different trucks, is that not the case?
William C. Gale - SVP and CFO: It's a mix. There is a lot of trucks that are mix trucks, there's trucks that are exclusively facility services, but it's not that clear cut.
Operator: Jason Rogers, Great Lakes Review.
Jason Rogers - Great Lakes Review: Just wanted to get an update on your business internationally as well as growth opportunities there currently?
William C. Gale - SVP and CFO: Our business internationally right now is, I think, we've said about $40 million, little over $40 million of revenue in Document Management in Europe, and not doing very well. They have experienced some difficulties in growing the business over there. In fact they shrunk a little bit from the third quarter last year. Profitability has improved somewhat and we've been spending resources trying to improve the profitability. But we have – we've had some issues with that and I think it is really caused more by the macro issues of Europe in total than by anything else. As far as other international business, we do uniforms to many of our U.S.-based customers, our North American-based customers throughout the world. We are seeing a pickup in that. We're interested in having to service them, but again it's a relatively minor piece of our overall business. Our focus continues to be in North America -- between 95% to 98% of our business is North American and that's really what our ongoing focus is going to be.
Operator: This concludes our question-and-answer session. At this time, I'd like to turn the conference back over to your presenters for any closing comments.
William C. Gale - SVP and CFO: Thank you, again, for joining us. Mike and I appreciate everybody's interests. And we will look forward to speaking with you on our fourth quarter earnings release some time in mid to late July and will look forward to talking to you then. Good night.
Operator: This does conclude today's conference. We thank you for your participation.