Kate Pearlman - Vice President of Investor Relations Eric Foss - Chairman, President and Chief Executive Officer Steve Bramlage - Executive Vice President and Chief Financial Officer.

Toni Kaplan - Morgan Stanley Andy Wittmann - Robert W. Baird & Company Hamzah Mazari - Macquarie Research Equities Manav Patnaik - Barclays Capital Gary Bisbee - RBC Capital Markets LLC Dan Dolev - Nomura Securities Carla Casella - JPMorgan.

Good morning and welcome to Aramark's Fourth Quarter 2016 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded for rebroadcast, and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the company's prepared remarks.

In order to accommodate all participants in the question queue, please initially limit yourself to one question and one follow-up. I will now turn the call over to Kate Pearlman, Vice President of Investor Relations. Kate, please proceed..

Thank you, Caylin, and welcome to Aramark's conference call to review operating results for the fourth quarter of full year 2016. Here with me today are Eric Foss, our Chairman, President and Chief Executive Officer; and Steve Bramlage, our Executive Vice President and Chief Financial Officer.

I would like to remind you that our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website www.aramark.com and is detailed on page 2 of our earnings slide deck. During this call, we will be making comments that are forward-looking, including our expectations for fiscal 2017.

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 annual report on Form 10-K and our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures.

A reconciliation of these items to U.S. GAAP can be found in this morning's press release, as well as on our website. With that, I'll turn the call over to Eric..

Thanks, Kate. Good morning and thanks to everyone for joining us. Before starting, let me just take a moment to acknowledge a changing of the guard that you just heard in our investor relations function. Ian Bailey, whom you all know, has been promoted to our VP or Corporate Planning.

Ian has led IR for us since the IPO and I’d like to thank him for his leadership and invaluable service to everyone on both sides of this call. I also want to welcome Kate, who just opened the call. Kate is our new investor relations leader and joins with her distinguished investor relations and finance back ground.

You will find Kate every bit as reliable and helpful as Ian and we remain committed to communicating openly, transparently, and proactively with you. With that last point in mind, let me turn to our latest performance.

This morning we reported a strong quarter and a record fiscal 2016 financial and operating results with the highest margins in profitability in Aramark’s history.

The consistent execution of our clear and focused strategy resulted in strong 11% adjusted EPS growth on a constant currency basis and 80% improvement in free cash flow, and we continue to strengthen our balance sheet.

2016 marks our third consecutive year of double-digit earnings growth since taking the company public and the Board's recent decision of the ongoing moment in the business.

It really has been a great year and I'm very proud of and want to thank our 270,000 team members for their passion and commitment to deliver against our brand promise and to elevate the customer experience each and every day. This year, we also completed two strategic tuck-in acquisitions.

We acquired Avoka, a small Irish specialty food company, which brought a European brand and new offerings to our portfolio. And we also added HPSI, a company with industry-leading technology in the group purchasing space.

While these transactions were smaller in nature, they are illustrative of the moment that we've got in the business, the profitability, balance sheet, and line of sight on food and productivity and how that is giving us the ability to behave more strategically and longer term focused.

We expect this focus to pay off meaningfully in areas such as portfolio optimization, pricing, as well as group purchasing. Turning to our financial results for the full year, adjusted earnings per share was $1.71, an increase of 11% over prior year on a constant currency basis.

Total company organic sales were up 2%, net of portfolio strategic actions of about 100 basis points, as well as 50 basis points of energy headwinds that we have mentioned previously. When you take those factors into account, our underlying growth was roughly in the middle of our multi-year growth framework.

Turning to our focus on revenue, we continue to achieve strong mid-90s retention rates with 2016 closing the year at 94%, despite about a point of strategic portfolio actions. As a reminder, while revenue headwind these strategic actions are accretive to margins.

What is very encouraging from my perspective is that the growth in our business is broad based across segments, which I think reflects the strength of our well-balanced portfolio. North America organic sales were up 2%, bolstered by new business wins and education and sports and entertainment, as well as increases in our base business.

Our international organic sales increased 1%, due to growth in both Europe and emerging markets. And I’m pleased to report our uniform business grew 3% in the year, as we continue to leverage recent capacity expansion in our uniform business to support growth.

In addition to our revenue momentum, we drove significant improvements across food, labor, and SG&A productivity while continuing to balance ongoing reinvestment in the business.

As a result, we drove almost 40 basis points of margin expansion to 6.5% and an increase in adjusted operating income to $939 million, which was up 8% on a constant currency basis with all reporting segments showing both margin expansion and improved profitability.

Our improvement in adjusted operating income also helped to strengthen our balance sheet with a 30 basis point reduction in our leverage ratio to 3.9 times. 2016's results also reflect meaningful progress against our three key strategic tenants, accelerating growth, activating productivity, and attracting the best talent.

As we've discussed, in the near term, we will continue to place a strong margin filter on our growth strategy, but outsourcing prospects remain very robust and our sales pipeline remains encouraging.

As part of our accelerating growth pillar we will continue to identify new growth opportunities as evidenced by some recent wins in our North America business. In our own backyard here in Philadelphia, we’ve recently signed two leading universities, Drexel University and Temple University, as well as the Pennsylvania Department of Corrections.

In our uniform business, we added Publix, the largest employee-owned grocery retailer in the U.S., and outside of North America we gained a new business dining client, Shafer Technologies in Germany. We’ve also kicked off another successful NFL season where we serve more than 6 million fans annually at 11 stadiums. We opened the new U.S.

Bank Stadium, home of the Minnesota Vikings and recently expanded our partnership with the Super Bowl champion Denver Broncos to manage their retail operations in their team store. And switching gears to the NHL, we opened the new Rogers Place Stadium in Edmonton, home of the Edmonton Oilers.

This quarter we also went back to school with several new contracts in our K-12 business with 250 new recipes based on student feedback and our own research. We’re offering more options designed to meet current student preferences such as grab-and-grow breakfast items and fresh made-to-order lunch entrees.

Innovating every day is what enables us to win, both new clients, as well as retaining and expanding our existing client relationships. And as we accelerate growth in a food business, we are doing that through an innovation framework centered around promotions, celebrity chef partnerships, and proprietary concepts.

This framework is driving revenue and consumer satisfaction and loyalty through quarterly on trend limited time offers, as well as restaurant rotation and seasonal menu highlights.

In addition, we continue to expand our celebrity chef partnerships with celebrity chefs like Cat Cora, Andrew Zimmern, Jimmy Vanos, and Danny Meyer, including the debut of the first ever in-arena Shake Shack at the Wells Fargo Centre, home of the Philadelphia Flyers and Philadelphia 76ers.

In our international segment, we’re expanding our partnership with Chopped Ireland. Chopped is a successful, healthy fast food franchise working with Aramark to expand its presence in the corporate, education, and industry sectors in Ireland.

And turning to our own health and wellness initiatives, I’m pleased to report the year-on results from our American Heart Association Healthy for Life by 20x20 Partnership are in. Over 30% of our main dishes now are vegetarian or vegan, and over 50% of the entrees or sandwich items now contain 500 calories or less.

And in underserved communities where we are piloting this program, we've increased fruit and vegetable consumption by almost a cup per serving per day. A critical component of our company's progress is reflected in our second strategic initiative, activating productivity.

This year, we delivered substantial improvement in food labor and SG&A productivity resulting in almost 40 basis points a margin expansion. Our base productivity remains strong, which facilitated further investment in growth and capability.

It’s important to note that the productivity improvement is broad-based across our portfolio, as adjusted operating margins increased 30 basis points in North America, 30 basis points in our international business, and 40 basis points in our uniform business.

We also continue in our efforts to establish a repeatable business model across the portfolio that allows us to attack inefficiency across our supply chain, everything from menu design to reducing waste.

We’re also reducing our labor spend through a proactive approach that includes a standard labor model of flexible model for scheduling and a relentless focus on managing over time in agencies.

Finally, turning to our third strategic initiative, attracting the best talent, and engage a productive workforce is critical to our ability to consistently deliver excellent customer service. Core to this is building diverse and inclusive culture where our team members are rewarded and recognized for selling and serving with passion.

And one way we do this is through what we call our ring of stars program where we recognize frontline employees who embody Aramark's core values and abiding commitment to customer service, a passion for innovating, and a dedication to involvement in the communities we serve.

I’m also proud that our engagement efforts were recently recognized by black enterprise magazine, which once again named Aramark as a Top 50 Best Employer for diversity. In closing, we’re energized by the progress we continue to make in 2016 along our transformation journey.

We also achieved record profitability and we’ve reported the third consecutive year of double-digit earnings growth. All while continuing to reinvest in the business for future growth and value creation. With that, let me turn the call over to Steve for a more detailed look at the numbers..

Thank you, Eric and good morning everyone. Quickly touching on the fourth quarter, aside from a stronger than anticipated free cash flow generation our results are broadly consistent with our previously communicated expectations.

Organic growth was flat as we continue to face headwinds from energy in all of our lines of business, as well as the lingering impact of several strategic portfolio actions. In North America FSS, the incremental benefit of the Yosemite business, was partially offset by weaker topline performance in our healthcare sector.

We delivered meaningful improvement in adjusted operating income and margins due to broad-based productivity gains. Reconciliations of adjusted operating income and adjusted EPS for the fourth quarter are provided in the appendix. In the interest of time, I will address the remainder of my comments to the full year.

Before I begin, for those of you less familiar with our story, our multi-year framework for the company envisions 3% to 5% annual revenue growth mid-to-high single-digit AOI growth, double-digit adjusted EPS growth, and specifically by 2018 100 basis point improvement of our AOI margins versus 2015 levels.

Turning to Slide 5, we reported $14.4 billion in sales on a GAAP basis during 2016, compared to $14.3 billion last year. This is an increase of nearly 1%. As you can see from the slide, currency headwinds related to stronger U.S. dollar reduced our sales by approximately 2% or $260 million.

Our results were most affected by the Canadian dollar, Chilean peso, each of which weakened in the mid-to-high single digits on average over our fiscal year. In addition, we're continuing to exclude from organic sales, approximately $50 million in revenue related to the Avoca acquisition that we completed earlier in the year.

Adjusting for the currency headwinds of the M&A impact organic sales growth for the company was a positive 2%, our strategic portfolio acquisitions reduced growth by approximately 1%, combined with about a 50 basis point headwind globally from energy clients in the year. This is represents about 150 basis point headwind to growth.

Therefore our underlying organic growth was in the middle of our multi-year framework that I just mentioned. Let’s now move to Slide 6 for a discussion of our adjusted operating income year-over-year performance.

Given we are reporting record levels of adjusted earnings and profitability, we clearly made significant progress in 2016 driven by productivity initiatives and our strategic portfolio actions. In the centre of the page, full year 2016 adjusted operating income was $939 million, which is approximately 7% higher than the prior year.

We incurred a 1% currency headwind, which is the drop through of the revenue impact I mentioned earlier. Therefore on a constant currency basis, our adjusted operating income increased 8% year-over-year, which is at the higher end of our framework.

Our AOI margin, on a constant currency basis increased to a company record of 6.5% for the full year, which was up 36 basis points versus the year ago figure, and a solid start versus our three year goal of 100 basis points improvement.

All three segments delivered strong improvements in adjusted operating income with North America FSS up 7%, International FSS up 8%, and uniforms of up 6% on a constant currency basis. Productivity momentum was broad-based across all the segments, while the portfolio actions favorably impacted North America and International.

Turning to Slide 7, which provides a roll forward of our adjusted EPS year-over-year. Our adjusted EPS increased to $1.71 in the year versus $1.57 in 2015. Taking into account approximately $0.03 of currency headwind this represents an 11% increase on a constant currency basis.

Both our adjusted tax rate and our interest expense, exclusive of refinancing related costs were comparable to the prior year. Let me spend a minute discussing the reconciling items between our adjusted earnings per share and our GAAP results.

We continue to experience a gradual decline in LBO-related intangible amortization and our share-based compensation figure was down as expected given a large amount of IPO related activity in the prior year. As we get closer to the completion of our current transformation program, our severance-related charges continue to decline.

On Slide 8, I’ll comment on our cash flow and our balance sheet for the year. We grew free cash flow, which we define as cash from operations less CapEx by 80% in large part due to an increase in net income, a reduction in pension contributions, the timing of certain capital expenditures, and declining transformation spending.

The record results reported today strongly contributed to strengthen our balance sheet and financial flexibility in at the close of 2016. Our year-end liquidity remains strong and our cash and revolver availability was approximately $865 million at the end of the year.

Our total debt to covenant adjusted EBITDA, declined by approximately 30 basis points to 3.9 times and net capital expenditures for the year were $486 million or approximately 3.4% of sales. Our debt profile was significantly improved with approximately $1.4 billion and refinancing, extending maturities to 8 years to 10 years.

We have no require refinancing needs before 2019. However, we will continue to look for attractive market opportunities and be opportunistic as conditions warrant. The increase in our dividend that Eric mentioned, will allow us to maintain a payout ratio of approximately 20% to 25% of earnings.

This is consistent with our commitment and past practice with regards to balanced capital allocation. Our capital allocation priorities remain unchanged.

Absent strategic opportunities, we expect to allocate the majority of our 2017 free cash flow beyond what’s required to service the dividend to debt repayment as we continue to approach our leveraged targets.

I expect leverage to end 2017 in the range of 3.6 to 3.7 times, which will be achieved through a combination of both debt repayment and EBITDA growth. Slide 9 details our initial expectations for 2017.

We are highly confident that 2017 will deliver another record year performance for the company and while the year is going to be quite solid, I will remind everyone that quarters will continue to be lumpy as the business does not and it won't start operating on a straight-line.

With this in mind I will start on the left-hand side of the page with some 2017 modeling aids.

Adjusted EPS is currently expected to be between $1.85 and $1.95 per share, although double-digit EPS improvement from the framework, from higher adjusted operating income, combined with a modest tax rate benefit, and slightly offset by $0.01 or $0.02 of currency headwind should land us near the centre of that range.

Capital spending should be consistent with the last few years in the range of 3.25% to 3.5% of sales. Interest expense should be comparable to 2016 levels, excluding the impact of the prior year's refinancing costs as lower debt levels will be offset by longer average maturities. We expect to see a modest decline in the tax rate.

This is largely due to some tax planning activity coming to fruition, as well as the adoption of new accounting standards related to employee share-based compensation. And we expect to generate at least $300 million in free cash flow.

Turning to revenue expectations for the full year, we expect that the underlying growth in our business will be near the midpoint of the multi-year framework.

However, we do anticipate about 100 basis points of headwinds from the tail end of our strategic portfolio actions carry over, a less favorable major league baseball play-off schedule in our sports business, and ongoing pressures in the energy sector, which are now effecting all lines of business.

Due to these headwinds, we expect reported revenue growth for 2017 at the lower end of the framework.

The facing of the various items impacting our revenue outlook for the year will be felt most heavily on the first half of the year will likely incur several hundred basis points of revenue headwind early in the first half and our performance will improve as the year moves along.

Therefore, for the first half we’re still expecting modest revenue growth in all segments, except FSS international, which will be flat relative to the prior year period. In addition, we expect our uniform business to grow at a slightly slower pace in 2017.

We’re anticipating AOI growth across all segments due to our continued productivity initiatives. However, consistent with prior years, we expect our productivity gains to accelerate in the back half of the year, due to higher investment levels in the first half as we continue to lean into margins drivers and opportunities aggressively.

Adjusted EPS should follow the same pattern. And before I turn the call over to Eric again, I would like to thank Ian Bailey for his contributions to building out from scratch our Investor Relations function over the last three years.

I’m thrilled to have someone of Kate's experience joined the team and I wish both of them good luck in their new roles. With that, I’ll turn it back over to Eric..

Thanks Steve. So, in closing, let me just to reiterate our confidence, we’ve got the right strategies in place, and continue to be relentless in our focus on executing against that. And while we're all pleased with our 2016 results, I think we are even more excited about the future.

And so with that let me turn the call back to Caylin, and we're ready to take any questions..

[Operator Instructions] Your first question comes from the line of Toni Kaplan. Your line is open..

Hi good morning..

Good morning.

Good morning..

So in North America food services it is a little bit later on the organic constant currency growth side this quarter, aside from energy and the strategic actions that you called out, could you talk about sort of the operating environment there how the retention is trending new business wins and are you seeing anything sort of in the pricing environment, specifically as it relates to the food services in North America?.

Sure Tony. Well a couple of things. I think as you look at our North America business, again up 2% for the year, I think we saw strong performance out of our education, sports, and leisure business. So those trends continue and we would expect to continue as we get into 2017.

I mentioned in my prepared comments, but let me go just a little bit deeper, relative to new business we've had a pretty good run. I think we started the year pretty strong as well. Particularly in the education space, we’ve picked up a couple of new departments of corrections as well.

And so I think the net of all of this is the pipeline continues to be look encouraged and as we think about 2017, we would expect, there is no doubt we are going to face some headwinds relative to this strategic decisions as well as the energy sector, but I think as we look at our North America growth we would expect to see, again, continued strong performance in 2017.

From a pricing perspective, I think there is really nothing that has changed. I mean we continue to be - the pricing approach has been consistent with past years..

Great.

And then in the past you mentioned reinvestment in the business, did you pull back on that at all this quarter just given that margins were very strong despite the slightly lower topline?.

Yes. I think if you look at it again, what we’ve done it was fairly consistent both in the quarter, as well as all on a full-year basis.

So, if you think about what we call our base productivity, you saw that up about 50 basis points in the quarter and up about 60 basis points on a full-year basis, then if you net out the investments in those two areas of growth and transformation, I think you had about 10 points of impact in the quarter of about 20 points of impact on a full-year basis..

Yes and Toni that would be consistent with the pattern we've really had the last couple of years and consistent with what we would expect to happen in 2017 as well just based on our budget cycle we tend to start the investments early in the year in the first half and start to get the lion’s share of the benefit from those investments in the second half.

So you should expect the same kind of cadence related to how it drops through..

Terrific, thanks a lot..

Your next question comes from the line of Andy Wittmann. Your line is open..

Great, good morning.

Wanted to just dig into the comments that you had on the healthcare segment you mentioned that there was a headwind to growth, can you talk about how much of the headwind and what types of issues came up that presented that headwind?.

Sure. Well, I think a couple of things.

One, let me kind of backtrack and if you look at the historical performance of our healthcare business really as we enter 2016 that business has grown for us, I think each of the five years prior and again not like, Andy, other businesses for us, what drives that growth is really our ability to on-board new business and obviously retain our existing business.

In Q4, we began to see that shift a little bit and again I think we continue to see that sector probably be impacted a little bit by some disruption in consolidation, so I think we’re likely to see for the next couple of quarters that pressure continue, having said that, I think as we look at our healthcare business during the later part of the year and going forward, again there continues to be a large outsourcing opportunity, I think our right to win is pretty clear and I think our prospects look pretty bright..

Yes, I would just add that within a given particular period of time, obviously the pace at which we grow in any of our segments is just a function of new business we add relative to the existing business that we don't retain.

And so we did see in the fourth quarter those numbers flip against us and as Eric referenced, you know the consolidation in the healthcare space we often say we tend to win or lose business based on the team that we have on the ground, based on our ability to innovate, based on our ability to provide a great customer experience.

In healthcare, sometimes you win or lose also based on the consolidation game and when two systems combine depending on the system that is the winner of that there is generally two providers and they tend to go to one.

And in the fourth quarter, we had a couple of those where it did not go away our way and so I would expect that for another couple of quarters it will take us to work through the fact that we've been on the wrong end of some of those consolidation place as well..

That's good color. I guess my follow up question then Steve is for you and it has to do with tax rate guidance that you gave here.

In the past, you've talked that you saw an overall opportunity for tax rate for things that you can control, but it seems like your commentary on the conference call says that this is more of an accounting change, but I wanted to understand in more detail, if you could talk about the accounting change that is leading you to be able to recognize maybe 200 basis points of tax rate decline and how that is the same or different from the internal opportunities that you see?.

I believe, I think our rate will be lower in 2017 for sure then it was in 2017. And I think it’s a combination of the two. We will certainly get a benefit from the implementation of some of the planning that we’re starting now.

I think we've got further to go on some of our planning opportunities, but you're starting to see kind of the baby steps in that direction.

The accounting change and the specific number of escape me, but essentially relates to guidance that requires us to treat the tax benefit from share-based compensation, a little bit differently than we had done in the past and so historically when we take deductions for share-based compensation we would not have run that through the tax provision.

And going forward the guidance would have us recognize a portion of that. How much benefit we ultimately get is very much a function of how much activity there happens to be around equity exercises over the course of the year or what the share prices et cetera.

So, I think we’re trying not to get too far ahead of ourselves and trying to guess what people will do in that space, but I believe the planning certainly will provide us a solid benefit on year-over-year basis all by itself..

All right. Great, thanks..

Your next question comes from the line of Hamzah Mazari. Your line is open..

Good morning, thank you.

Just had a question on the GPO acquisition, how big could that be for you over time? It seems like one of your larger competitors has a big exposure to that and has helped margins, just trying to understand how that impacts your margin profile, if that gets bigger over time?.

Yes, let me start and I’ll ask Steve to comment specifically on HPSI.

I think as we’ve thought about the margin opportunity on our business, I think we look at it holistically and as we've talked about our margin march, I think the majority of that margin march is really kind of controlling what we can control, which is managing the existing buckets of food, labor, and SG&A.

So certainly as we put that line of the demarcation on the 100 basis point march over the next three years that is largely just through pure focus on productivity across those three levers.

We obviously, currently are a big procure of food and we do all of that buying directly for ourselves, but as we get into some of these other opportunities we do believe GPO is an opportunity and while HPSI is small in nature, your point about the untapped opportunity I think is correct.

Steve you want to comment?.

Yes, I would certainly echo that and just, the 140 million or so we spent on HPSI, the margins of that particular business, they will be accretive so what the company has is a total, it’s a higher margin business than what we have today.

It’s not material to the entity and I would not expect frankly it to be material for the medium term, but it does provide a platform as Eric mentioned for us to go to market on behalf of parties other than ourselves, which we have not historically had access to..

That is helpful.

And then just a follow-up question, I know you've got you - guys have talked about the impact of wage inflation, food inflation on your business, maybe if you could just remind us given the results of the election, what your thoughts are on inflation and how that impacts you? And then maybe any other positives or negatives as it impacts you as a result of the U.S.

election result? Thank you..

Sure. Well, let me start. Again, I think from my perspective, at this point relative to the election I think it’s really impossible to know any specific impacts on our business. I think the market's reaction certainly the last week has indicated that generally it seems to be positive relative to the business climate.

So from our perspective we’ll play a wait-and-see game relative to that. I think relative to your question on inflation, again we've seen I think the last several years certainly in 2016, a fairly benign inflationary environment when it comes to food.

Again, we purchase a very diverse market basket and have a lot of levers to us, not just pricing lever, but because we have opportunities to change our menu, we can deal with any type of inflationary pressures, pretty definitely.

On the labor side, I think as we’ve said in the past while there has been a lot of talk and even in some states some action on this front we feel like we've got a very good plan of action on how to deal with that and you've been able to mitigate that with the lot of the productivity efforts that we’ve put in place across the labor front.

Everything from a more structured in unit labor model to making sure we schedule our headcount appropriately. We flex that labor and attack over time in agency labor. So, I think when all is said and done relative to inflation, we would expect it to continue to be fairly benign and very manageable and within our control to offset it..

Great, thank you..

Your next question comes from the line of Manav Patnaik. Your line is open..

Thank you, good morning guys. .

Good morning..

Maybe just a follow-up on the tax part, so, I mean in your new EPS guidance there is obviously some benefit from that tax change that you have assumed right, so I was hoping you could help us quantify how much of that was the benefit versus when you try and do the apples-to-apples versus last year?.

Couple of pennies, I mean if you just do the bridge on a year-over-year basis, if you start at $1.71, which we’re reporting and you see that goes up around 10% or so, you are getting into the highly $1.80, a couple of pennies of tax benefit offset by a couple pennies of currency headwind get you somewhere in the middle of that range..

Okay, fair enough.

And then just on the free cash flow guidance as well, I think you did $320 million this year I guess and your guiding to, equal to or greater than 300, I guess what would the size of the timing impact of this year and maybe why you don't expect them to repeat next year or may be some color there?.

We are certainly pleased with what we generated this year obviously, it was more than we thought we would print at the end of the day of course given what we had communicated previously. We will take the same approach that we did last year. I think this is a number we’re confident that we can deliver as a general rule.

We still have opportunities on the working capital side, it was a use of cash for us again this year generally.

I would expect that we will spend a little bit more on capital in just absolute dollar terms in 2017 than we did on 2016 and I think the timing of some of our interest payments associated with a lot of the refinancing and conversion of term loan into bonds will probably require physically higher interest payments within the year.

So, I’m confident on the 300, I certainly will look to do our best to achieve that or exceed that, but I think that’s a good starting point for us..

Okay and then the last one to me is, just around the energy headwinds and the portfolio rationalization correct me if I'm wrong, but it sounds like there is some more headwind from both those and maybe what you guys had originally talked about, I was hoping you could just contextualize what’s going on specifically in those areas then?.

Yes, I don't think there is any additional pressure, I mean what we try to characterize was relative to the strategic decisions we were taking there was going to be a kind of 18-month run or so relative to some of those decisions we would take, and then I think on the energy side, while we've had pressure one of the things that is a little bit of a lagging indicator relative to energy is the whole employment scenario, particularly as it applies to a lot of our uniform customers.

So, I think that is the one additional and that’s been a little bit of a lagging indicator relative to some of the other energy headwinds we’ve talked about for the last couple of quarters, but I don't think there is anything changed relative to what we’re experiencing or what we had expected to see..

I would agree and the fact that it continues to carry into 2017, which is obviously not the preferred outcome for any of us. It’s just a function of how we experienced the energy in the prior year. We experienced continuing and growing headwinds over the course of the year.

So, it takes a couple of quarters for us to lap that as we get into 2017?.

All right. Thanks a lot guys..

Thank you..

Your next question comes from the line of Gary Bisbee. Your line is open..

Hi guys good morning.

Let me follow on that last question, so I think we all understand there is some variability quarter-to-quarter in your growth as things move around, but the year-over-year organic growth rate North America food fell 3 points and you are saying the energy drag isn't materially worse, the exits isn’t really different than your expectation.

I think you don't really have many contracts larger than 1% of revenue.

So was this multiple things in healthcare, help us understand what’s happened here and quickly that bounces back in 2017? It just seems like, you are telling the message that everything is in line with plan, but it was definitely a lot different than what I think your investors expected?.

Well again, I’ll start and I’ll let Steve comment. Relative to the fourth quarter growth I think it was very consistent with what we had expected. And I think it somewhat indicated Gary on earlier calls.

Again, as we all know there is going to be quarter-to-quarter volatility on this business and as a result of some of the strategic actions, as a result of some of the energy sector pressures, and as a result of some of the sports you did see in Q4 and will continue to see the early part of 2017 those headwinds.

So, again if you look at our North America business as I said earlier, what we've got, any time you have a business portfolio that is this diverse you're going to have puts and takes across the portfolio.

So the sectors that are performing well that we called out are sectors like education, sports, leisure and the ones that are more pressured are kind of the B&I energy headwind and impact and the healthcare sector that we talked about.

So, again from my perspective it was very consistent with what we expected and again Steve, if you want to add anything..

I mean [indiscernible] but full year landed exactly where we told everybody that it would land and so I can't do everybody squeezing that necessarily, but I don't think there were any surprises for us, and we’re trying to be as clear as we can moving into 2017.

There is no doubt we will face proportionally more headwind in the first half of the year for all the reasons that we've talked about, and so I would just encourage people to make sure that’s incorporated in their own internal expectations of how our revenue will print over the course of the year..

Just a follow-up. You said a couple pennies on tax. When I plug in 2%, it looks more like $0.07 or 4% or so of the growth.

What am I missing there? Is that 200 basis points a rough approximation, and maybe there's a range that's not that big? Or is there some other reason the math isn't as simple as taking you pretax income and taking a 2% haircut?.

It is a couple - it will be a couple of pennies. We're not trying to be overly precise and I think it will be somewhere in the neighborhood of 200 basis points or could be a little bit higher, a little bit lower.

I think you can comfortably expect us to get several sense of benefit by the time we’re finished with the year that’s all we’re trying to indicate..

Okay fair enough thank you..

Your next question comes from the line of Dan Dolev. You line is open..

Hi. Thanks for taking my question. Can we dig a little deeper into again, sorry to harp, on FSS North America? But if you think about the 4.7% growth that you printed in the third quarter, can you give us maybe a bridge in terms of basis points of how you get to that 0.3% growth? Thank you..

I'm sorry Dan, could you please repeat that question for us?.

Yes. I said if you think about the 4.7% organic growth from the third quarter, can you maybe give us a very - a much more detailed bridge in terms of energy headwind, Yosemite, the impact of easier compares, Easter on how you actually get to that 0.3% growth? The detail behind that deceleration. .

I think the big difference if you look at it is, I think new and loss quarter-to-quarter were somewhat comparable and what you had in third quarter was much strong for base business growth.

So to me if you want to decouple how much of the growth difference from third quarter two fourth quarter was new, was loss and was base, I would say new and loss very comparable in the base business just performed stronger in third quarter..

And when you think about how we think about that, so the sequential piece of it, what’s it we benefit from in the base, right, we would have benefited from arena play-offs in the third quarter of our third quarter and some of our teams made it to pretty advanced into play-offs and became champions ultimately, which clearly helped us.

I believe the timing of the holiday helped us in the third quarter, which won't repeat for us in the fourth quarter. So, once you start drilling down there’s couple 3Q specific items that don't flow through to the fourth quarter, which contribute to the deceleration..

And I just want to echo, I know we've mentioned this before, again one of the things that you learn very early as you get into this business is the quarter-to-quarter volatility based on the play-off scenario perhaps in sports that Steve highlighted based on the timing of on-boarding new business, and for us we're going to control - we can control we’re going to play our game and again as you think about our multi-year framework that will play out, but it will play out over the course of the year and years not within each and every quarter, and I just want to keep coming back to that point..

Okay. Thank you very much. Appreciate it..

Your next question comes from the line of Carla Casella. Your line is open..

Hi. You mentioned your focus on debt reduction. And I know you've got a - one of your bonds has a piece that's callable currently with a price that steps down later this year.

Any thoughts to whether you'd refinance those or whether you'd expect to pay that down with cash, or whether you'd take care of it ahead of maturity?.

We will certainly look at it obviously when we get closer to the call day. I mean, I’m sure we're not going to do anything in advance of that quite honestly, but a lot of turmoil here in the market in the last couple of days. So, I think you can just safely assume we will remain very opportunistic.

I think we try to be pretty aggressive in improving financial flexibility broadly and in terms of refinancing some of the, both term loan and some of the near term fixed rate stuff that we had.

So, we’ll look at it and if it makes sense for us to do that as part of either a one off or a larger transaction on the balance sheet you should expect us to act toward make sense for us to..

Okay. And currently you're happy with - earlier in the year had talked about moving some more of the term loans into bonds or longer-term financing. And you did a big chunk of that.

Are you happy with the percentage of your debt that's in the short-term floating versus the longer-term fixed rate at this point?.

It is better than it was. I think we are effectively about 80% fixed because we have a series of swaps against the term loan. So the fixed floating prima facie is a little bit misleading. I generally would still like to have a little bit more bond as opposed to bank debt.

And so I think on the margin, if the opportunity presents itself we would still probably look to shift that proportion a little bit, we will not totally get out of the bank term loan market. I don't think we would want to do that for a variety of reasons, but continuing to shade it a little more to bonds is probably a realistic expectation to have..

Okay, great. Thank you..

Your next question comes from the line of [indiscernible]. Your line is open..

Good morning everyone..

Good morning..

Could you please just quantify the impact of the rationalization of the portfolio on the margins? Sorry, if I missed that. And my second question is, regarding the energy headwinds it seems like your peers have already flagged that over the past two years ago. And it's already behind them.

Can you tell us if there's any specific to Aramark, why this hitting the top line growth today? And my last question is on the free cash flow generation on the operating activities. It seems like there was an income tax deferred of $52 million and the other activities of $9 million.

Can you help us to understand the driver behind these, please? Thank you..

Sure, I will take the first and then I will let Steve answer the second and the third. I think relative to your margin question, again the majority of that 40 basis points is really driven by food, labor, and SG&A productivity and there is a positive impact, but it’s really fairly to de minimis relative to the portfolio rationalization..

Yes, I would agree, I will say strategic actions, it is about 1% on the revenue side, in terms of what we talked about from a headwind and generally they are accretive to us, but Eric is right. It is a much smaller proportion than what we do within the productivity side.

You know from an energy perspective, our primary energy exposure has been in our business in Canada where we do remote oil sands, servicing those fields, as well as platforms in the North Sea off of the UK.

And so I would say we felt changes in employment levels in Canada first, where there is the highest cost of extraction, which would make sense obviously that was more of an early to mid-2015 type of an experience and then as energy stayed at lower levels than it had been moving into 2016, we started to see more of an impact in the European business where you have more fixed cost permanent type of platforms where they are much slower to make decisions around employment levels, ultimately on those platforms.

And so most of what we are talking about is energy in 2017 is European related.

And then as Eric mentioned, within our uniform business where we have probably the longest lag time on some of the employment and some of the oil service type of industries as those employment levels continue to come down just based on what some of those companies are announcing where we are seeing some modest headwind there.

And then finally on the free cash flow question, the change in the deferred taxes, some of that is purely going to be accounting driven and the timing of payments that we make against various federal, state, and international obligations.

We also, because of some of the equity activity that happened over the course of the year we took some deductions around the way some of our pavements were made, which influences that particular line item..

Thank you..

Sure..

There are no further audio questions at this time..

Great. Well in closing, let me just thank all of you for joining us. We appreciate your ongoing interest in investment in Aramark. Everybody have a great day..

Thank you once again for joining us today. This does conclude today's webcast and you may now disconnect. Have a great day..