Heidrick & Struggles International Inc (HSII) 2003 Q3 法說會逐字稿

Good day, everyone. Welcome to the Heidrick & Struggles 2003 Third Quarter Financial Results Conference Call. This call is being recorded.

For opening remarks and introductions, I will now turn the call over to the Chief of Investor Relations and Communications Officer, Ms. Lynn McHugh. Please go ahead, ma’am.

Good morning, everyone, and welcome to our investor conference call and webcast regarding our 2003 third quarter results.

On today’s call are Tom Friel, Chairman and CEO of Heidrick & Struggles, and Kevin Smith, Chief Financial Officer. Tom will quickly update you on recent activities in the firm, and Kevin will follow with a detailed review of the third quarter.

As a reminder, there are supporting slides available on the web to accompany today’s prepared comments.

As always, I would like to advise you that this call may not be reproduced or retransmitted without our consent.

Second, certain matters in this call are forward-looking statements. We refer you to the Safe Harbor language contained in our press release dated October 30, 2003, which was widely disseminated by the various wire services and other media. The language is also on slide two of our slide presentation.

With that advisory taken care of, I will now turn the call over to Tom.

Thank you, Lynn, and good morning everyone.

It certainly feels like a very quick 90 days since our previous conference call when I first spoke to the investment community as Chairman and CEO.

During this time, from my new vantage point, I’ve learned even more about this organization, and I like a lot of what I’m seeing. We are taking a very focused and workman-like approach to our business.

In this quarter, we continue to see benefits from the enormous amount of work that has been done in the firm over the last several years to bring our costs in line. Our core profitability is improving, although we still have some issues we’re dealing with as part of the economic downturn.

Our North American business appears to be stable, and is quite profitable. And the signs of an improving economy here in the U.S. should be good news for the region in 2004.

Europe, however, is still struggling with a cost structure that is not yet aligned with its revenue, and we are addressing that. Kevin will talk about our actions and the expected charge related to those actions in a few minutes.

The revenue from the work we do at the top levels of our client firms remains very solid. And we are continuing to win our share of CEO search assignments, and our board-level services are in high demand. We’ve made a number of key hires from competitors in the last few months, and our attention has shifted dramatically from inside the organization to outside the firm and to our clients.

As I told you I would in July, I spent much of my first 90 days listening and learning, traveling extensively to our offices around the world. I have talked to our consultants. I have spoken to our investors, including some of you who I know are on this call, and I met with clients to hear what was on their minds and to share my thoughts with them.

The culmination of this phase with the worldwide meeting of our partners and principles held near Chicago in mid-September. While it’s difficult to convey the level of energy and emotion that was on display at that meeting in a phone call, I believe you’d be hard pressed to find anyone in attendance who did not find it time well spent.

The theme of this meeting was “Face to Face,” and we were face to face for at least 16 hours every day for three days. We honored what was good in our past, and there’s a lot to honor. And we recognize the problems of our past. And more importantly, we shared knowledge and built relationships with each other around the world.

I’m confident that over time, that meeting will pay for itself through the business development ideas and opportunities that were generated during the three days we were together.

Coming out of that meeting, it’s my strong sense that my colleagues are united, focused, and enthusiastic about our future.

While we were there, we also celebrated our 50th anniversary as a firm, and our pioneer in the executive search industry. Our founder, John Struggles, 90-years-old, and as bright and vigorous as any of us could hope to be at that age, joined us for that celebration, and challenged us to continue the performance and traditions of our past, while adapting to the changing needs of the global economy. We all agreed, as we left the meeting, that our common goal is to make the second 50 years even better than our first 50.

There are two themes that I introduced to you on our last call that we reinforced to our partners at this meeting. First, that we are here to run and grow a profitable, efficient, and quality business that serves our clients and provides an attractive return to our shareholders.

And second, that good partnership and a strong culture are vital to our success. These two simple themes came up time and time again at the meeting, as they will in all of our communications, and they are at the center of all of our actions.

Having completed that first phase, we have now advanced to what I am calling our strategy and structure phase. Over this 90-day period, we have teams of our internal managers and consultants working on a range of initiatives that are examining every aspect of our firm, from our business processes to how we take our services to market, to our hiring, our training and quality programs, and our compensation plans.

As a firm, we’ve always been innovators, and that is being seen in the work that we are doing now. The results of these efforts will be embedded in our plans for 2004 and the years beyond. By the time we report to you on our 2003 year-end results, we’ll be able to talk more about the outcome of this work. It’s on a very tight timeline, but it is extensive, and it is underway literally as I speak to you today.

It should go without saying, but I will say it anyway that we are not letting these projects get in the way of serving our clients. We’re out there every day helping solve the leadership issues that are part of every board director and executive manager’s responsibility. An important part of our work in this phase is to streamline and improve our client basing processes to serve them better and faster.

Of course, we’d like to begin seeing some help from the economy, but accept that it’s probably more realistic to expect it in 2004. The fourth quarter in our industry tends to slow down around the world during the holidays, as clients complete their years and begin planning for their next year, much as we are doing.

With respect to our 2003 fourth quarter, we anticipate our revenue will be in the $70m to $80m range, with a bottom line ranging from a loss per share of seven cents to diluted earnings per share of ten cents, excluding the effects of the restructuring charges. Kevin will give you more details on that in a moment.

As I close, I am often asked about my vision for the future of Heidrick & Struggles, and we talked a lot about that at the meeting in Chicago. As some of you know, I am not a big believer in great theoretical vision. I am an engineer by training, so I tend to be more focused on what really works. But it seems to me, and I’ve shared this with my colleagues, that we can only have one vision, and that is to be the one firm surmountable to leadership, and to be the best in our business. Everything we are doing has been, and will continue to be focused on achieving on this objective.

We’re moving at a very fast pace at the moment to put the pieces in place to guide our future. There will be changes in the organization as a result of the work in progress, but our fundamental values and our dedication to quality and client service will remain intact going into next year. I look forward to updating you on our plans in several months.

I would like now to turn the call over to Kevin Smith, who will give you more detail on the third quarter. Thanks very much. Kevin.

Thanks, Tom, and good morning everyone.

Generally speaking, the third quarter results came in about as we expected, while revenue remaining depressed due to the lack of economic expansion. Our profitability continues to improve, particularly in North America.

Our biggest challenge continues to be Europe. As indicated in this morning’s earnings release, Europe operated at a loss in the third quarter, and we will be taking some further restructuring actions in the fourth quarter to better align our European cost structure with anticipated revenues. The good news is that our other geographic regions were all profitable in the third quarter, and we are beginning to see the signs of an increase in activity in the U.S.

Okay, let’s review the third quarter results in detail, beginning with slide five. Net revenue in the third quarter was $76.9m, a 12% decrease from the third quarter of 2002. Foreign currency exchange variances were slightly positive again this quarter. On a local currency basis, revenue fell 15% versus the third quarter of last year.

While our consumer and professional services practices reported higher revenues versus the comparable quarter of last year, our other practices, most notably technology, continued to report decline.

Operating income in the third quarter of 2003 fell 7% to $3.3m, primarily due to a $1.4m restructuring charge to increase previously established accruals for unused office space in our Wall Street Office.

Net income in the third quarter was $1.1m versus $924,000 in the comparable quarter of last year. And diluted earnings per share of five cents were flat versus the prior year.

Okay, let’s now turn to slide six and look at some of the line items on the income statement in more detail. Salary and employee benefit expenses $51.1m in the third quarter, a 9% decrease versus the third quarter of 2002. The reduction in compensation expense is primarily due to the reduction in head count over the last 12 months, and a $900,000 favorable adjustment to employee benefit accruals in the quarter.

Salaries and benefits as a percentage of net revenue were 66.5% in the third quarter, versus 64.4% last year. The increase in the salary ratio is largely due to an increase in bonus expense. The total bonus expense was $10.6m in the third quarter of 2003, compared to $7.2m a year ago. As you may recall, last year’s quarterly bonus accrual was unusually low, due to an adjustment to reduce year-to-date accruals in light of the declining revenue trends.

Third quarter G&A expense declined 23.5% to $21.1m from $27.6m last year. G&A as a percentage of revenue fell to 27.4%, from 31.5% last year. The improvement in G&A was primarily due to lower levels of premises costs, discretionary spending, and bad debt expense, partially offset by $1.3m cost of our worldwide meeting held in September.

Quickly looking at the other items on this slide, interest income was down versus last year due to lower interest rates, and we reported a $199,000 net gain on our warrant portfolio this quarter versus an $801,000 loss in the third quarter of last year.

The effective tax rate in the quarter was 73.5%. There were a number of reasons that the rate was so high this quarter, but the primary reason is that we are paying foreign taxes in those locations where we were profitable, but we are not providing benefits on certain foreign losses that we are not sure we will be able to utilize.

We are currently working on a number of initiatives that should bring the rate back in line once we bring the restructuring charges behind us and return to profitability in Europe.

Slide seven contains some additional statistical information on the third quarter. Confirmed executive searches in the third quarter decreased 3% from 2002, while fees per search decreased about 2%. Our consultant head count at September 30 was 317, down from 376 a year ago. The average number of consultants in the quarter was 320.

Okay, let’s now review our performance on a geographic basis. Slide eight shows the third quarter results for North America, and it really was a very good quarter for our U.S. operations. Although net revenue declined 10% versus the third quarter of last year, North America’s operating income was $12m in the quarter, a 17% increase from the $10.3m reported in the third quarter of last year.

The operating margin in the third quarter improved to 28%, from 21.7% a year ago. Reductions in head counts, extremely low discretionary spending, and a favorable adjustment in our employee benefit accruals accounted for most of the increase.

The consultant head count in North America at the end of the third quarter was 153, a 16% decline from last year.

Okay, let’s move on to slide nine and look at the results for Latin America. And the third quarter was a good one for our Latin American operations too. Net revenue in the quarter was $3.3m, an increase of 3% over last year.

Financial services had a particularly good quarter in the region, and the region’s revenue increased year over year, despite the loss of revenue resulting from the conversion of certain Latin American offices to affiliate status late in 2002.

Latin America’s operating income was $598,000 in the quarter, compared to a loss of $1.1m last year. The loss in 2002 resulted primarily from a one-time charge for value-added taxes, and the cost of converting certain wholly owned subsidiaries licensees. Latin America’s operating income in the third quarter of 2003 was 18. - their operating margin in the third quarter was 18.1%.

Year-end consultant count, or the quarter-end consultant in Latin American was 19, down from 21 at the end of the third quarter of 2002.

The next slide, slide number ten, contains the results for our European operations. Net revenues declined 17% to $25.9m in the third quarter of 2003, due to continuing economic weakness throughout the region.

Foreign exchange variances were positive again this quarter due to the strength of the Euro and the Pound. Excluding the impact of currency exchange variances, the year-over-year revenue decrease was 25%. Our two largest practices in Europe, financial services and industrial, were both down significantly versus the prior year.

As I indicated during last quarter’s call, there are two factors that have adversely affected our profitability in Europe. First, we are under scaled in certain markets, so we’re not fully leveraging our fixed costs.

And second, our cost structure is still too high in some locations. The revenue decline this quarter has exacerbated the situation, resulting in an operating loss of $2.2m in the quarter, compared to an operating income of $1m in 2002. Accordingly, we expect to record a fourth quarter restructuring charge in the range of $15m to $20m to cover severance costs and excess office space in the region. Because of the continuing weakness in Europe, we will also be updating our good will evaluation analysis in Q4, which could result in an impairment charge.

Okay, let’s now turn to the results of our Asia Pacific region on slide 11. Net revenue in the quarter was $5m, down 10% from last year. Operating in come in the quarter was $384,000, a decrease of over 11% versus the third quarter of last year. And the operating margin was 7.7% in the quarter, compared to 7.8% in 2002.

The consultant head count in Asia Pacific was 29 at the end of the third quarter, a reduction of three versus the third quarter of 2002.

Corporate expenses, which are not on this slide, declined 14.2% in the third quarter to $6.1m from $7.1m a year ago. Lower salaries and employee benefit expense and lower systems costs were the primary reasons for the decrease.

Our final slide, slide 12, shows some selected balance sheet and cash flow information. Our cash balance at September 30, 2003 was $110m. We anticipate that the year-end balance will be in the $85m to $90m range, after paying the first installment of our consultant bonuses, as well as support staff bonuses in December.

Accounts receivable, net of the allowance for doubtful accounts, were $50.4m at quarter end. Our collections continue to improve, and should be strong in the fourth quarter as well, because as many of you know, our consultant compensation is based on collections. So they are certainly motivated to maximize collections by year-end in order to boost their total compensation.

Looking at some selected cash flow data for the quarter, depreciation was $2.9m in the quarter, down 12% from the third quarter of 2002, and amortization of intangibles declined 29%, to $347,000. Our full-year estimate for depreciation and amortization is $14m to $15m.

With regard to cash outflows, capital spending was $1.3m in the quarter, and we continue to expect that capital expenditures will be in the $5m to $6m range for the full year.

Finally, during the quarter, we paid out approximately $3.6m in cash related to our prior restructuring charges, and we expected a similar amount in the fourth quarter. However, that estimate does not include any cash that might be paid out in connection with the fourth quarter restructuring charges.

So in summary, while we have some remaining charges, I believe we continue to make excellent progress on restructuring our business and improving our global profitability. As Tom said earlier, the firm is reenergized and focused on the future. Planning for 2004 and beyond is underway, and everyone is engaged in building a business that will serve our clients and ultimately all of our stakeholders well.

And now, we’ll open up the call for your questions. Operator.

Thank you, Mr. Smith. Today’s question and answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touchtone telephone.

If you are using a speakerphone, please make sure the function is turned off to allow you signals to reach our equipment. We will proceed in the order in which you signal us, and we will take as many questions as time permits.

Again, press star, one if you have a question.

And we’ll take our first question today from Bob Labick with CJS Securities.

Good morning.

Good morning, Bob.

Hi. Quick question on North American margins. You mentioned there were a few adjustments, an accrual and unusually low spending.

Yes

Can you tell us a more sustainable margin, I mean obviously, they’re still very impressive, but can you give us a level that will be more sustainable going forward.

As we’ve aid in the past, Bob, we think a high teens to 20% margin is sustainable. We do have some investments to make in marketing as we’ve said earlier, and Tom alluded to that in his comments. And so we would say that an 18% to 20% margin would be something that would be sustainable in the long run.

Okay, great. And in terms of the restructuring in the fourth quarter, how much of that will be cash?

Most of it will be cash. You know, we have not included the possible impairment charge in that $15m to $20m number.

Okay, and will that kind of come out across for the next few quarters, the cash?

Yeah, that will stretch out over several years because a lot of it will be related to our leaseholds, and you know, so those cash payments will go out over the life of the lease.

Okay, great. And one final question. Tom, just in terms of, I know you said you’d talk more about it next quarter, but have you made any decisions on compensation structure for the new consultants? You said you were, you know, looking into that in terms of restrictive stock versus options or anything in that regard?

I did mention that last quarter. I think I also mentioned that was a project that we would expect to have completed by the end of our compensation cycle, which is really February and March. So we’re right in the middle of that right now. We will make some changes. It’s a little early to tell how dramatic they’ll be, but we’ll report on that probably next time.

Okay, great. I’ll get back in queue. Thanks very much.

Dave Koenig with Robert W. Baird has our next question.

Yeah, good morning. Hey, I just had a couple of questions. First of all, monthly trends in confirmed searches in North America through the quarter and into October, I’m just wondering what those trends might have been.

Well, we don’t give out monthly numbers, Dave. But what I can tell you is that July was very strong. Activity trailed off in August, not unexpectedly because of summer vacations. It picked up again in September, although September was not quite as strong as July. And what we’re seeing in October is we should be at least as strong as we were in September.

Okay, thanks. And then the second question, my last question, in Europe, what amount of expenses will be taken out based on the restructuring charges, and when might we see that take effect?

It’s really too early to give you those number, Dave. I mean, we are early days in doing this. We’ve had a couple of strategy sessions related to this restructuring activity, and have given you a pretty broad range here of $15m to $20m. We’ll give you all of those details in the fourth quarter call.

All right. Thank you.

Sure.

We’ll now hear from Mark Marcon with Wachovia Securities.

Good morning. I’m sure you saw this morning that third quarter GDP in the U.S. was 7.2% in terms of the rate of growth, which is pretty darn high.

Yes.

You know, you mentioned that the confirms, you know, were up in September and October relative to August, but not as strong as in July. What is your sense of what’s going on in the market?

Well, visibility remains pretty limited, and the activity level continues to be somewhat choppy. But we clearly see a positive trend developing in September and October. You know, unlike we dial back to Q1 and Q2, the trend was down in many quarters. And we’re clearly seeing a much better trend on a weekly basis as we move through September and into October.

So the trends are improving.

Yes.

Okay. That wasn’t clear from the initial statement.

Okay.

And then with regards to the North American margins, what were some of the things that caused it to be well above normal?

Well, as we said, we had an adjustment for employee benefit accruals…

How much was that?

…in North America it was about, I think it was about $700,000. It was $900,000 in total. Some of that ended up in the corporate expense line. But that was the major anomaly in the quarter. But as we said, you know, we’ve really clamped down on discretionary spending, and that’s something that we’re going to have to loosen up as we move forward in order to benefit the business in the long run.

Okay, and you mentioned the expense for the meeting, but I didn’t catch that. What was it?

One point three million.

And then in terms of the charge in Europe, do you have a sense for how much of that is going to be related to office as opposed to severance?

A lot of it will be real estate. I’ll talk a little bit about real estate. In connection with the restructuring actions that we’ve taken over the past couple of years, we identified about 250,000 square feet of excess real estate. Through September of this year, we have been able to sublease about 130,000 square feet of that space. So that left us with 120,000 square feet of space in six properties.

Unfortunately, a lot of those properties are in what I would call low-demand environments right now; Wall Street, Silicon Valley, Sears Tower, and two properties in London, including one in the financial district. The London real estate market is extremely weak right now, and the other complicating factor relating to these leases is that they all have fairly long tails on them. The leases run through, from 2010 through 2016 on these six remaining properties that we’re trying to off load.

So we’re taking another look at the reserves that we have in these properties in Q4. They will undoubtedly go up, and the other factor is that there will not be any real savings that we’ll see in our P&L related to increasing those reserves because they’ve already been pulled out of our operating statement.

So is the $15m to $20m you’re talking about related to offices that have already been closed, or…

A big part of it will be, yes.

So it’s not new. And then how much of it is new?

I don’t know the answer to that split yet because we’re still looking at whether there are additional office closures we might want to take, and we’re still looking at what sort of head count reductions that will take in order to realign the cost structure with the expected revenue run rates.

Okay, all right. And then it looks like productivity is actually going up across all of your regions except for Europe.

Yes.

Is that right?

Yeah, that’s an absolute, that’s been the plan. You know, we, as we’ve said before, our goal is to get to a number of roughly $1.2m for our consultants, which is where we were back in 2001, or 2000 I should say. We were at $1.3m. And we had slipped to I think under $900,000. We’re now back to about $950,000 on a global basis, and moving up.

Okay, great. Thanks. I’ll get back in queue.

Okay.

As a reminder, press star, one if you have a question. We’ll move on to Ty Govatos with CL King.

Good morning.

Hi, Ty.

Very nice quarter. Just a few. Is it reasonable to assume that Europe would be break even in 2004, and could you give us some coloring on how the pricing is in the industry?

Well, we certainly hope Europe will be break even to profitable in 2004, Ty. You know, that was certainly our goal coming into 2003. We took a fairly significant restructuring charge in the fourth quarter of 2002. We reduced the head count in Europe by, in excess of 150 people in the fourth quarter of last year. Unfortunately, the revenue has come down significantly, and we didn’t anticipate that that was going to happen. If you factor out the currency impact, the revenue in Europe is down about 27% year to date. And that certainly has hurt us from a profitability standpoint this year.

Okay, and pricing?

You know, there’s always pricing pressure in the marketplace, particularly in this kind of environment. But we don’t see it as a big factor.

Okay, thanks an awful lot.

Sure.

Dan Fiddler with Lehman Brothers has our next question

Yes, I was just trying to put the segment numbers with your consolidated P&L, and then so with the $900,000 accrual benefit you achieved at the comp and benefits line, is that, does that come down in the North America segment, the $700,000…

Yes.

…bonus accrual benefits? And then you said the remaining $200,000 came out of the corporate overhead line.

Correct.

Okay, great. And then, obviously there was a noticeable down-fix in your corporate overhead expense sequentially. Some of that was expected, but I think the total number was lower than we thought.

Yes, it’s down about $1m year over year, and we’ve been making a big push to reduce corporate overhead in light of the declining revenue in the business.

So can we expect similar numbers in the fourth quarter as well?

A similar corporate expense number?

Yeah.

Yes.

Okay. Thank you very much.

We’ll take a follow-up question with Mark Marcon with Wachovia Securities.

Where would you expect cash to be by the time all these, by the time we hit the end of the March quarter and you’ve paid out the second segment of your bonuses?

It’ll be down, you know, we gave a range of $85m to $90m for the fourth quarter. I would say it will be a little bit lower than that. We’ll generate some cash in Q1, but the bonus payments in Q, in the first quarter will probably be $25m, $20m to $25m. So I would say we’re probably going to be $60m to $70m, Mark, as just an off-the-cuff estimate.

So $60m to $70m, and that would include the additional restructuring charges in Europe.

Yeah. Again, the, with regard to the restructuring charges, there will obviously be some severance costs that will go out early on. But then there will be a tail on the remaining payouts because they’re related to real estate.

Okay. And in terms of, you know, you had the big face-to-face meeting and got the whole organization together.

Right.

What’s your sense, I mean, it looks like, you know, with the exception of your European partners, everybody else is doing relatively well in terms of increasing the productivity. Is there any dissention in the ranks here in terms of, you know, if I were an American consultant, particularly in consumer or professional services, I’m probably doing all right. Is my bonus being held back because of what’s going on in Europe?

Tom, let me take that one. The answer is no. You know, we’ve had for a long time a pretty strong culture of paying for performance from the people that produce it. There’s also a strong sense of partnership and collegiality in the firm that was enhanced by the meeting, and our partners in the other three regions are doing what they can to help the European partners, you know, generate work and get that business back on track. There is frustration, sure, on the part of our European colleagues that their business is not performing better in some cases, although many of the individual partners and individual offices are performing well and improving. So I don’t think that’s an issue that we’ll face. We’ve never really faced it in the past, and I don’t get any sense of it now.

Okay.

Morale is good, and I think people are optimistic about 2004.

Okay, and so you are starting to hear good comments from your clients about potential business.

We are, and we’re putting a lot of focus on that in terms of how better to serve them. Their worlds are changing dramatically too. I mean, it’s been, we all know, it’s been a couple of years for everybody. But I think the sense on the part of our clients, and we reflect that as any client service organization would. As their businesses go to a certain extent, our business goes.

Sure. And in terms of your guidance for the fourth quarter, what would your expectations be for North America?

We don’t really have that broken out, Mark.

I know, but should it trend up, or are the holidays going to keep it down?

Yeah, you’ve got two factors working there. You’ve got an improving trend and then you’ve got seasonality. I would say you’re probably going to be about flat would be my guess.

Okay. So probably October, November up, and then December just because of the holiday.

Yes. We think the first quarter will be up versus the fourth quarter.

Okay, great. And then what’s the assumed tax rate for…I know that’s a guessing game, but your guess is better than ours.

Well, I think the rate for the fourth quarter was 73%. I’m not sure it’s going to move significantly from there because we have, you know, we’re layering additional restructuring charges on top of the foreign situation already. So that’s probably as good a guess as I can give you at this point.

Okay. And then share account.

Nineteen million is about what we’ve been using I think, on a diluted basis.

Okay. Great. Thank you.

Sure.

Ty Govatos with CL King has a follow-up question.

Yeah, a small, knot-picky question. Was there a tax effect from the restructuring charge in the recent quarter?

Yeah, effectively there was. It’s rolled in. It becomes part of our deferred tax asset.

Care to give us an indication of what it might have been - at the 73% rate or close?

No, no, no. It’s at the U.S. rate, which is, you know, about 40%.

Thanks again.

Sure, Ty.

Dan Fiddler with Lehman Brothers has a follow-up question.

Care to give any estimates on, after your restructuring charge, where will your cost infrastructure in Europe be based? What type of revenue levels will it be able to support?

Well, we think there’s clearly excess capacity there today, and that’s part of the reason that we’re going to take the actions that we’re going to take. But we think that even after taking those actions, there will still be capacity to support the existing level of revenue and beyond. We don’t anticipate that there will be a significant number of consultants that will be taken out here. There will be more support staff certainly than consultants that will be part of this restructuring charge.

You know, in terms of specific revenue numbers, I can’t really give you that until we get the specifics of the charge nailed down.

Right, but on the lower end, or in the downside scenario, what would be your break-even cost structure? How would that look after the restructuring?

You know, again, it’s too early to give you those numbers until we work through the charge and look at the individual pieces. And you know, there are lots of offices in Europe that we have to work through. So, I’m not trying to duck you here. I’m just telling you it’s too early to give you those numbers.

Okay, fair enough. Thank you.

All right.

We’ll hear from Mark Marcon from Wachovia Securities.

What were the trends in Europe?

The trends in Europe were July was actually pretty strong in Europe as well. It was one of the stronger months we’ve seen in Europe. August was very weak, not surprisingly, because it was weak everywhere, and you have a lot of the Europeans that disappear for the entire month of August on holiday, so Europe was very weak.

September was okay. And October, October will probably be around where we saw September come in.

Was September down relative to July?

Yes.

Okay. Any sense of improving weekly trends, or kind of flat line?

Again, it’s pretty choppy right now, Mark.

Okay.

You know, you see a good week, and then, you know, you get your hopes up and then the next week is not quite as good.

Any geographic split in terms of the countries that are doing okay and ones that are funky?

You know, there are countries that are doing better than others. France is doing pretty well. The German revenue, despite the economic situation in Germany has held up reasonably well. I think where we’ve been hurting more than any place else has been the UK, and that’s largely because of what’s happened to the financial services business in the UK.

I can certainly appreciate that.

Yeah, there are some other markets that are performing in Europe, that are performing pretty well, but they’re small. You know, the two big pieces in Europe always are Germany and the UK.

Right. The UK is your biggest market, isn’t it?

Yes.

Okay, and then what would the tax rate have been if you hadn’t had this charge in this quarter?

Well, you know, it’s difficult to tell. What we’ve said is that we think a normal rate when you, you know, when everybody is profitable and we’re not dealing with significant restructuring charges that affect a lot of things. But a more normalized rate would be in the low 40s, around 41%.

I’m just trying to figure out if you hadn’t had the charge what your earnings per share would have been.

Yeah, Mark, I mean most of the tax rate wasn’t’ really related, the issues weren’t related to the charges in this quarter, so it’s not going to move that much.

So the taxes would have been the same.

Roughly. I mean, you know, they would have been a little bit higher had we not had the charge because that’s providing a benefit.

Right.

But as I said in my prepared remarks, the real issue is the foreign tax situation. You know, we’re paying foreign taxes in those locations where we’re making money, but where we’re losing money, we’re not providing benefits because we’re not sure we’re going to be able to utilize those losses, and they’re, while there are carry forward positions on some of these losses, the tail is pretty short.

Right. I mean, in terms of this one particular charge if we just wanted to see what it looked like without it, could we tax adjust it at the normal 41%?

I think that would be fair, yeah.

Okay, great, super. Thank you.

Sure.

There are no more questions in the queue at this time, and that concludes today’s conference call. We thank everyone for their participation, and have a nice day.