Korn Ferry (KFY) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn/Ferry international conference call.

Later we will conduct a question and answer session.

As a reminder this conference is being recorded.

Before I turn the call over to your host, Mr.

Gary D.

Burnison let me first read a cautionary statement to investors.

Certain statements made in the presentation today will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements.

Actual results in future periods may differ materially from those currently expected or desired because of the number of risks and uncertainties which are beyond the company's control.

Additional information concerning such risks and uncertainties can be found in the company's annual report for fiscal 2008.

With that, I will turn the call over to Mr.

Burnison.

Please go ahead, Mr.

Burnison.

Well, thank you, Karen.

Good morning and thank you all for joining us.

I will start off by saying that our Chief Financial Officer, Steve Giusto, is not on the call.

He is away attending to a family health matter and in his place, I have two Senior Vice Presidents with Korn/Ferry, Mark Neal, and Greg [Kovochuk], who are with me here in New York.

First, let me say particularly in light of the environment, I'm pleased with our company's performance in the second quarter.

Fee revenue of $189 million with EPS of $0.30 a share and an operating margin of 11.4% in our non search business, future step, leadership and talent consulting now represent 25% of our revenue.

The Korn/Ferry leadership's job however is to look forward, to anticipate a line, navigate to build a multi-billion-dollar diversified HR solutions business.

Therefore, my comments this morning are going to be about the future.

Unfortunately, as you are all aware, the world around our global clients and as a result, ourselves, has changed dramatically, particularly over the last few weeks.

A world which had prospered for several years, based on access to cheap credit and massive consumption has been brought to its knees as the credit markets have all but disappeared and the reality of the deleverage has hit the global economy.

At this point it's obvious.

The theory of de-coupling has proven inaccurate and no industry or geography is immune The question at hand is how are companies -- how will Korn/Ferry deal with this newest economy to not only survive but prosper during he these difficult times and position themselves for growth.

As I mentioned on previous calls we began tapping the brakes well over a year ago and at that time, began taking steps to hopefully stay ahead of the upcoming curve in the road.

Very recently however, it's become clear that that curve will be steep and possibly longer.

As a result, we have taken some prudent measures here to swiftly rationalize the cost structure of our businesses in line with that environment.

And I would say that we've done this and we've had to take these actions despite the fact that only a few weeks ago we were producing 50% more revenue with 20% fewer employees than at the last cycle.

Unfortunately however, we're having to eliminate 15% of our global employee base, approximately 400 individuals.

These decisions never come easy, but it was in the best interest of all of our constituencies.

Savings from these efforts are going to be about $50 million from associated salaries and benefits expense and we're targeting additional SG&A savings.

Ultimately, reducing your cost base is only going to get you so far.

We are committed to running a profitable company.

But our strategy can't be based on fear and retreat.

It has to be based on innovation and opportunity.

We're navigating from a position of strength.

$278 million of cash, no bank debt, a differentiated strategy, loyal clients and great colleagues.

Volatility will create opportunity.

And a period of turbulence gives any organization a chance to brake from ingrained approaches to client service.

Korn/Ferry is not going to be a company that's going to simply ride out the storm.

I have reoriented the leadership team in three areas.

Number one, to continue to institutionalize our go-to-market strategy to outperform the market.

Secondly, to create a more consultative solutions base work force to drive integrated revenue growth, and third, to continue to refine our operating model to deliver profitable growth.

We are going to continue to develop differentiated solutions to help our clients create a stickier, more effective workforce.

We are going to continue to improve value, consistency and quality through a program called the KF way that drives standardization.

quality and client excellence across all of our businesses.

Our new information platform, Searcher Express, that we are rolling out now that we started a year and a half ago in development, is one great example of that.

We are going to continue to systematically drive broad global awareness for all of the solutions that the firm can offer.

We have launched initiative calling the client advantage.

This program is going to expose our clients and prospects to talent management solutions for the challenges they are facing right now.

We are going to continue to extend our brand through the Korn/Ferry institute, which has been designed to promote our ability to train and develop executives and distribute our proprietary thought leadership and research.

Next week we are going to formally launch the institute's website, a move that will help us build awareness around all of the firm's solutions.

We are going to scale our nonsearch businesses, future step and leadership and talent consulting.

During the quarter we took another step forward with our diversified offerings as we closed on the acquisition of Lore International.

Lore is a leading provider of professional development solutions.

While the benefits and opportunities that the Lore acquisition and investment, that they hold hold for us are vast, it is also going to have a transformational impact on our recruiting businesses.

Over the past years as you know, we've continued to streamline our recruitment process using as a foundation our 40 years of research and intellectual property on what makes executives successful.

Something that we've called the KF advantage.

Not only does the KF advantage provide a consistent framework and approach to client service and search, but it's also had a positive impact on client satisfaction scores.

Now with the use of Lore's on boarding solution, we can now round out the KF advantage by providing our place candidates with a value-added overview of focus areas for immediate impact and long term development.

This onboarding solution will also lead to helping our clients develop their organizations, their leadership teams, and their executives.

As you can see, we're actively driving innovation and opportunity.

Proactively picking the line in the curve that we're going to take.

Despite the environment that's around us, I'm more optimistic today than I've ever been about this firm we're better positioned to aid organizations, in not just the identification of talent, but in the deployment, development, and maximization of talent.

The good news for us is that we do have a differentiated strategy, with a business model that gives us reasons to call on clients in any kind of economic environment.

Entering the third quarter and the second half of our fiscal year, we're going to continue to remain aggressive.

We're going to stay focused on our long-term destination.

We are going to institutionalize our go to market strategy to outperform the market.

We are going to create a more consultative solutions based workforce to drive integrated revenue growth and capitalize on our broad based solutions that are unmatched in this market.

With that, I'd now like to turn it over to Mark Neal to give an overview of the quarter, then he will pass it to Greg.

Mark.

thank you, Gary.

Good morning.

It's great to be with all of you this morning.

I am going to go through a few of the results overall, then I will hand it over to Greg.

He is going to walk through some of the segment results.

Impacted by slower worldwide economic conditions in summer vacation seasonality, consolidated fiscal '09 second quarter fee revenue fell $6.6 million, or 3.3% versus the second quarter of fiscal '08, and $16.4 million, or 8% sequentially, to $189.3 million.

The slowdown was broad-based with all major Korn/Ferry divisions and regions contracting or decelerating on a year over year and sequential basis.

Fiscal '09 second quarter EPS was $0.30, down 19% or $0.07 versus the second quarter of fiscal '08, and down $0.06 sequentially.

Despite the drop in worldwide fee revenue, consolidated second quarter profitability remains strong with operating earnings and margin at $21.5 million and 11.4% respectively due in part to cost reduction and containment initiatives started at the end of fiscal '08 and continued through the first half of fiscal '09.

In the second quarter of fiscal '08, operating margin was 13% and was 11.5% in the first quarter of this year.

At quarter end, our worldwide cash balance was $278 million, down approximately $17 million sequentially, due in part to the payment of remaining fiscal '08 performance bonuses and some international locations and ongoing repurchases of company stock.

For fiscal '09, through the end of November, the firm is now repurchased approximately 574,000 shares of common stock with total cash proceeds of approximately $7.4 million.

There's now approximately $37 million of the $50 million of share repurchase funds authorized by the Board of Directors in October 2007.

Our goal remains to judiciously return cash to shareholders while maintaining adequate balance sheet strength to protect the company in difficult times and to allow to us address strategic opportunities should they arise.

The number of executive search consultants at the end of the second quarter was 535, down two consultants from the first quarter.

Second quarter annualized revenue per consultant was over 1.15 million, down approximately 8% year-over-year.

Now we'll turn it over to Greg, and he will walk through some of the segment results.

Thanks, Mark.

Fiscal '09's second quarter executive recruiting fee revenue was $160.2 million, down $8.9 million, or 5% year-over-year, and off $14.4 million or 8.2% sequentially.

All executive recruiting regions were down versus the fiscal second quarter of '08 as well as sequentially.

In comparison to the other regions, North America fared best in the second quarter with fee revenue of $91.7 million, down $3.2 million, or 3% year-over-year, and down $2.2 million, or 2.4% sequentially.

Compared to the second quarter of fiscal '08, the North America life sciences and industrial practices were the only practices to achieve growth, improving 15% and 6% respectively.

On a sequential basis, all North American specialty practices contracted in the fiscal second quarter with the exception of life sciences, which grew 2% and consumer goods which grew 5%.

Usual summer vacation seasonality and strong economic head winds combined to drive weaker results in Europe in the second quarter.

Europe fee revenue was $40.5 million and fell $1.6 million or 3.7%, versus the second quarter of fiscal '08.

On a sequential basis, Europe's second quarter fee revenue fell over $11 million or 21.5%.

Year over year 12 of 20 local country markets contracted with all major specialty practices falling, except the industrial practice which grew 21%.

On a sequential basis, 17 of 20 local markets contracted in the second quarter, with all major specialty markets off as well.

In Asia Pacific region, fiscal '09 second quarter fee revenue was relatively flat sequentially at $21.2 million but down 3.5 million or 14% versus the second quarter of fiscal '08.

Sequentially growth in Hong Kong and Japan was offset by lower fee revenue and all other markets and on a specialty practice basis growth in the consumer goods and life sciences was offset by weaker results in all other practices.

Year-over-year lower fee revenue in Australia off 42%, China off 30%, and India off 31% was offset by modest growth in all other local country markets.

All Asia Pacific specialty practices were down year-over-year in the second quarter with the exception of the industrial practice which was up 8%.

In Latin America, fiscal '09 second quarter fee revenue was down $700,000, or 9% year over year and $750,000 or 10% sequentially.

Sequentially, fee revenue was down in every local country market except Argentina.

Consolidated fiscal '09 second quarter executive search operating earnings were $26.6 million, down 6.4 million, or 19% year over year, and down $5.1 million, or 16% sequentially.

Consolidated executive search operating margin was 16.6% in the quarter, and down 290 basis points year-over-year and only 150 basis points sequentially.

Cost reduction initiatives implemented at the end of fiscal '08 and continued through the first half of fiscal '09 were key factors driving relatively stable profitability on lower overall fee revenue.

Now turning to Future Step.

Future Step's fiscal '09 second quarter fee revenue was $29.1 million, an improvement of over $2.3 million, or 9% versus the second quarter of fiscal '08, and down $2.1 million, or 7% sequentially.

Year-over-year growth in North America up 23% and Asia Pacific up 17%, was offset by slower results in Europe which was down 14%.

Sequentially, second quarter fee revenue was up 6% in North America, flat in Asia Pacific, and down 24% in Europe in part due to summer vacation seasonality.

Future Step's fiscal '09 second quarter operating earnings and margin were $1.2 million and 4.2% respectively.

Future step's fiscal '09 second quarter operating profitability was negatively impacted by approximately $300,000 of severance pay.

Let me now comment on our fiscal '09 third quarter outlook.

We have completed the first month of the third quarter and new business confirmations have been weak due to increasingly strong economic head winds and usual year-end holiday seasonality.

We are not assuming that these challenging market conditions will ease through our fiscal third quarter which ends in January of '09.

As Gary stated, in anticipation of a weaker market ahead, we have begun to take further more significant actions to reduce our ongoing cost base by reducing our workforce by approximately 15% by continuing to trim G&A spend.

The effect of these cost saving actions will have a material impact on our firm's cost base for the second half of fiscal '09.

Assuming that December new business confirmations are in line with November and that January new business confirmations are modestly improved, we estimate that third quarter fee revenue will likely range from $140 million to $160 million and diluted earnings per share, net of quarter three severance charges, will likely range from a loss of $0.10 per share, to break even.

Under these same assumptions and excluding the impact of severance charges, third quarter EPS will likely range frdz 0.08 to $0.18.

However, due to the current extraordinary economic conditions, our ability to predict new business is more difficult than normal.

If December and January confirmations continue to deteriorate, then our results may be below the low end of our guidance.

That concludes our prepared remarks.

We'll now take your questions.

(OPERATOR INSTRUCTIONS) Our first question is from Kevin McVeigh with Credit Suisse.

Gary, when you talk about the restructuring charge of $11 to $15 million, what type of run rate does that assume in the business going forward?

So said another way, as you are ratcheting down the cost structure what are you positioning the company for in terms of revenue?

Well, you know, look, Kevin, the first thing is you don't want this to be a self-fulfilling prophecy.

Our focus has to be on the future and taking share and building the company, not cutting your way out of this.

But I'll tell you, it is a rapidly changing environment.

And in terms of these actions that we had on the drawing board for quite some time in the event that the situation would turn the way it has, our thinking was to make those cuts with an anticipation that you've got a business that's running in the high 600's or so.

Okay.

Then in terms of the $50 million, as those cost savings come on-line, is it $50 million in the second half of the year, or is that $50 million annualized?

How should we model that?

It is $50 million annualized, and part of that will happen over the next several months.

And so Greg can give you the details on how that calendarizes.

There will be partial effect of that in the third quarter but full effect of those cost savings annualized, would take effect basically in the fourth quarter of the year.

great.

Gary, just drawing on passed down (inaudible) the runoff in the revenue, how does this compare to kind of the dot-com and the current market conditions, if we were to try to think about drawing parallels to times in the past?

Well, you know, in -- in Korn/Ferry's history, prior to this one, there's been five recessionary periods.

In four of them the business was down 8 or 9%, then rebounded 20 plus%.

Last recession, the business absolutely fell off, plummeted 60% or so over the course of several months.

I tell you, over the last, really, four or five weeks, Kevin, I'm sure you see this, but businesses have just stopped.

They have curtailed spending, and very much had an inward focus.

And the question really, to me, is the credit markets, and when is that going to -- when are those going to thaw.

And I think when those begin to thaw, this fear and retreat that we're in right now will subside.

Great.

Thanks, Gary.

Next question is from Andrew Fones with UBS.

First I wanted to ask what proportion?

You said there would be a partial impact of the cost cutting in Q3.

Do you have any estimate of the cost savings you might see in the third quarter?

Thanks.

Greg, do you guys have that?

Yeah, on a quarterly basis, you would assume that roughly about two-thirds of the expense cuts would hit in the fiscal third quarter, then the full effect in the fiscal fourth quarter.

Okay.

Thanks.

And then in terms of the headcount reduction, could you put in context the headcount that's coming from Lore?

And the 400, is that a growth or a net cut?

Thanks.

The headcount that we will add related to the Lore acquisition will be about 75 heads.

So, prior to the Lore acquisition, our employee base is about 2700 employees that will, of course, go down to roughly 2300, then we'll add the 75 employees from Lore.

Then you mentioned some SG&A measures as well.

I was wondering if you could talk about cost savings initiatives through G&A.

Thanks.

Well, we begun those many, many months ago, and ace said, we started tapping the brakes well over a year ago.

Unfortunately, the severity and speed of what we've seen in the last few weeks, you could say has been unmatched since the 1930's.

But I tell you, the percent of revenue, in terms of G&A, you know, if you look over the last 12 quarters, you'll see that our G&A percentage has ranged anywhere from 16.8% to 19.5%.

And we're trying to target something that looks more like 18% as a percent of revenue.

Okay.

Thanks.

Then just a couple of smaller ones.

Can you give us the bonus accrual in the second quarter and also the number of shares repurchased?

Thanks.

The bonus expense, Andrew, for the second quarter was about $35.5 million or so, and in terms of the shares repurchased, I will ask Greg.

The shares repurchased in the second quarter, about 410,000 shares, total proceeds of $5.3 million.

As we said in the script year to date, we are basically 575,000 shares repurchased for about $7.4 million.

okay.

And will most of those 410,000 fall toward the end of the quarter?

Yes.

Thanks.

Our next question comes from Toby Sommer with SunTrust Robinson.

Thanks, just a follow-up question on the cuts, to the expense item.

How does your -- you look at your expenses from a variable versus fixed perspective, and how might these cuts change the proportion that you look at when you look at your expenses, variable versus fixed?

Thanks.

I'll comment broadly, then if I don't answer your question, ask it again, Tobey.

Maybe Greg can give you more detail.

We have a performance-based company.

Throughout the three businesses that we have, and to give you some idea, it wasn't that long ago, I've been here now seven years, that our bonus accrual was $30 million.

Several years ago.

And now we've tripled the business, and the bonus accrual is -- last year was $160 million.

So that gives you some idea in terms of the lever that we have.

It's a fairly significant part of the operating structure.

It is a performance based company that we have here.

The only thing we would add, again, is you are familiar enough with our cost structure to know that we do have some elements that are variable, bad debt expense to some of our engagement and fee expenses, also variable with revenue.

And so again those would flex down in proportion to the revenue.

Does that answer your question?

It does.

Is there material change in terms of the proportion of fixed to variable subsequent to the job cuts?

Or the competition stay similar?

Obviously as the profitability of the firm looks different, the bonus is going to be reduced.

Of the 400 or so people that you are letting go, what proportion of them may be consultants?

If you look at it, it's in the neighborhood of 40, 50, something like that.

Thank you.

Then another kind of detail question, I was wondering, does the cash balance, we can see what that is on the balance sheet.

What is may be the spendable cash number that you could easily access without significant tax implications and all that kind of stuff?

Yeah, Tobey, kind of investable cash plus working capital is somewhere in the neighborhood of $130 to $140 million at the end of the quarter.

And all of that cash, I mean, we would view as accessible.

We're still continuing our dividend repatriation program that we have talked about, and it's still our goal to move a lot of the cash we have overseas, particularly in Europe and Asia, back to the corporate headquarters.

Perfect.

And then one question kind of about demand and the way it has fallen off.

Is it that multinationals are not kind of creating new positions, and is there some kind of multiplier effect where the new product manager isn't established in Shanghai, then the person who is going to take that job doesn't need to leave their job and create a vacancy and kind of the ripple effect that those growth positions create, or is it simply not replacement and performance base changes that you are seeing?

Well, you know, look, I've been, in the last four weeks,P I've been in Mumbai, Delhi, Tokyo, New York twice.

You can go to your local grocery store.

You can go to your local car dealer.

The reality is that this great consuming society is just doing a lot less consuming.

And what I have seen in talking to clients and looking at businesses, and quite frankly, friends, is that you have got people that are hunkered down, that you are just not spending money, and you've got companies now that have curtailed spending, have curtailed capital -- capex, have indiscriminately started to let go o staff.

You've got that vicious cycle right now.

And it is really -- it is really across the board.

Thank you very much.

our next question comes from Michel Morin with Merrill Lynch.

Thanks, The number you talked about , $11 to $15 million,is that all cash and all severance and are you looking at possible office closures as part of your broader G&A cost

Michel, I think the number that we have given you now, the 11 to 15, is almost all severancel will be cash-based and what we have done right now does fought look at or hasn't contemplated any office closures in this current round of what we have done.

Then the 40 to 50 consultants, is that kind of across all the regions?

Is there one region that's taking a bigger hit than others?

Across the board.

okay.

And then would you mind commenting on the November confirmations in particular?

How much are those down?

I think in your prepared remarks you said that in your outlook you assumed that December would be relatively similar to November and that January would be up from that.

Is that the typical seasonal pattern, or should we normally anticipate the December would be weak relative to the November just because of the holidays?

Yeah, our assumptions kind of at the mid range of guidance, Michel, would be that December is very similar to November, and that there is a modest improvement in January, but not up to the level of October, which October we would consider a weak month of confirmations.

So we're not assuming a dramatic bounce back.

and is that a typical seasonal pattern?

Yes that would be a typical seasonal pattern.

Then November, how far down are you year on year?

Year on year, it's pretty drastic.

Your in the 40 to 45% range in November.

All right.

And then I was wondering, on the corporate expense line, you are down to just over $6 million this quarter, which is a very low number.

Was there anything unusual there this quarter that allowed to you take the number down so much, and is that a level that is sustainable?

I think, Michel, as far as is that sustainable along, we wouldn't expect next quarter that we would be it that level.

Within that corporate line there are some amounts of annual bonuses that we provide to people that have a market or performance-based element to them, and given the conditions in the market and the performance, we saw a decline in this quarter that is a bit unusual, but we wouldn't see that repeating.

okay.

Then just finally, Gary, looking at the regional trends, Asia and Latam are the weakest.

That surprise tog given that the epicenter of the crisis has been in North America and that seems to be the place where you have held up better?

How should we think about that?

I think, over the last five weeks, you have to think of the world differentlily.

And it is certainly reflective of my travels.

We live in an inter-dependent world, and from, you know, Iowa to Iceland, to Spain, to Shanghai, the world is indeed flat.

And, you know, consumer spending in the United States is three times the Chinese economy.

So, you know, I'm not -- I'm not necessarily surprised, but I will tell you, over the last few weeks, the speed and severity of companies really looking inward has been dramatic, Michel.

And I'm sure you see.

That.

Another comment, those are the two regions that have the lowest base, and in these times where there are these types of declines, percentage wise, off the low base, you see a little bigger effect.

And, Michel, as it relates to Asia Pacific region, sequentially there was a pretty dramatic decline in financial services, as you might expect.

It's held up fairly well for us in that region until now, and you are really starting to see the effect of deteriorating financial services market there.

how significant is financial services now as a percentage of total?

It used to be around 20%.

Has that declined more noticeably now?

It's about 18 and a half% of our total.

Remember, it's never been an overwhelming percentage of our business.

Several quarters ago, I don't know if you recall, but it's about 21, 22%.

great.

Thanks very much, guys.

Thank you.

next we go to Mark Marcon with R W Baird.

Just wondering, with regards to the comments on financial services guidance and Asia Pac, what are you seeing outside of financial services in mark like China and India?

You are speaking from a geographic perspective or an industry perspective, Mark?

Within the geographies of China and India, what are you seeing outside of financial services in terms of demand?

Has everybody shut down just because they're frozen from -- I mean, obviously financial services is in significant contraction, from a secular perspective, because of the de-leveraging that we're going through.

I'm wondering, outside of financial services, is it more of a sense of shock, and we're -- we just can't make decisions now?

I'm talking about your clients -- and we just can't make any decisions, so we're going to hold off on anything until things clarify, or are you getting the sense from some of your clients that, you know, things are materially different and will continue to be different for some protracted period of time until the credit situation normalizes?

I would say that it is fairly -- it's fairly broad based, and even in emerging markets like the Middle East, in Dubai, I was with our leader of Dubai yesterday.

Whether it is Shanghai and Beijing, or Mumbai and Delhi, it is fairly broad based.

There is some positive news in terms of education and life sciences and healthcare.

And the double whammy that's a little bit hard to predict is that you've got the holiday period, right, and around the world.

So call from the the middle of November through the end of December, it is hard to get a read on what our clients are really doing.

I will tell you that we have a lot of activity, a lot of proposal activity, and it's very hard to determine, even though our workforce is extremely positive and hopeful about the level of new business in January, it's hard to determine what is going to happen in January, Mark.

Clearly there's a seasonal piece of this, but it's much more profound than just that.

I just want to make sure I understand it correctly.

In terms of the guidance, and specifically with the assumption that December is going to be equal to November, I mean, when you read the headlines, and then take into account the way the holidays fall this year, which would seem to lend itself more towards companies basically shutting down for the last couple of weeks, why would December be equal to November?

I don't know why it wouldn't go down.

Well, look, it's a possibility.

We do have an awful lot of activity, and, you know, we are, again, focused on the future and building the company and the solutions, and there are some things that are out of our control, and the best that we can do is operate this business in the short term and also build the company for the long term, the and we can tell you what our guidance is based on.

And so to the extent that you are correct, that December is less than November, and that January is at the same level of November or December, then we are going to be below guidance, Mark.

Okay.

Hopefully people feel a little bit better by January.

I don't know about December.

With regards to the cost save that is you are assuming, can you talk a little bit about the -- that savings amount, that $50 million, was that assuming that the consultants were producing at what their normal annualized level would be, and therefore that they were drawing a bonus that would be consistent with that?

No, I mean, the people that we have unfortunately canceled out, which is the worst thing you have to do in business, the people were not really contributing to overhead.

And so in terms of bonus eligibility, it certainly wasn't material, Mark.

okay.

So it's a real $50 million of savings relative to what we've seen in the past.

It's not some theoretical number.

we don't run the business on theory, no.

Okay, great.

I'm glad you guys do it that way.

Some people don't.

And then can you talk a little bit about, you know, if -- as things unfold and you mention kind of a high 660s, or high 600 number, at that level, given the savings you have put in place, how are you thinking about margins and profitability for the company is new environment where credit becomes less available than it was over the last seven years?

Yeah, well, let me -- two different -- two pieces to that.

Number one is we have said consistently six years ago, seven years ago, five years ago, that we would -- our goal is to operate this business in any kind of economic climate with mid single-digit operating margins, and that is our goal.

Unfortunately what we've seen over the last few weeks is pretty Draconian.

And net new borrowings in the US, companies or households, have decreased by two-thirds, by $1.4 trillion over the last year.

If that trend continues, if you have $2 to $4 trillion of contraction over the next two years, you are looking at 300 to 700 bips off trend GDP.

If that's the case, then you are obviously going to have an environment that is quite different than one that you could ordinarily imagine in a downturn.

But, Mark, that's what we've said, and hopefully to our investors to our employees that we do what we say, you know, and I'll leave it at that.

I appreciate it.

Gary, you have been ahead of the curve on this, so appreciate that.

Greg, I was just wondering, can you give us what the FX exposure was by region?

Sure.

So -- this relates to the revenue.

On a year-over-year basis, it would be in consolidation negative $1.3 million impact, and that would be roughly 700,000 in North America related to the Canadian dollar, 200,000 in Europe, 700,000 in Asia Pac, then a slight plus-up in Latin America to net to 1.3 million.

Great.

I'll follow up later.

Thank you.

And our last question is a follow-up question from Andrew Fones with UBS.

Yes, thanks.

I just wanted to follow up on the comment you made about the November confirmations.

Could you put that in some context, in terms of what the trend in confirmations has been over recent months?

Obviously down 40 to 45% is pointing to something significantly below where you have guided to, and I understand Q3 will you benefit from kind of some of the sales you had during the second quarter, but I'm just trying to understand what the recent trend has been.

Well, look, it shouldn't be of much -- look at all the indicators from nonform payroll to CEO confidence to the monster index to -- you know, you just look across the board, and clearly there's a trend that says over the last few weeks, something has happened in the business world that's been quite traumatic.

And so I think that the confirmation levels are unfortunately are consistent.

But if you go back, I'll pick a little bit less than 50% of our business.

Take North America.

You look at September, new business, September '08, compared to September '07 was probably down -- I'm going off the top of pie head, so Greg can give you exact numbers.

It was down about 13% or.

So October I bet was 18, 19 off the prior year.

Then November, December, we could be looking at 40% off the prior year.

Okay.

That was really helpful.

Thank you.

And I'll turn it back to you, Mr.

Burnison.

Okay.

Well, thank you very much.

It's been an honor, and it is an honor to lead this company and to come to our shareholders with generally great news over the last several years as we've built this company, and we're going to continue to do so, and whatever we're facing, everybody else is facing, and what our focus right now is not to be -- not to be caught up in fear and retreat, but rather look for innovation and opportunity.

And I have 200% confidence in our colleagues around the world.

And so for us it's not just a question of weathering the storm.

It's a question of picking the line in the curve, and we will come through this stronger, more agile, and closer to our clients.

We are going to build a multi-billion-dollar diversified HR solutions business.

With that, I would like to thank all of our clients, our colleagues who are listening to this call, and to our shareholders, for your continued support of this great firm.

With that, I wish you all a very happy and safe holiday, and most importantly, I wish all of us a prosperous and growth-filled 2009.

Thank you very much.

Ladies and gentlemen, this conference call will be available for replay for one week, starting today at 11:00 a.m.

eastern time, and running through the day December 17th at midnight.

You may access the AT&T executive play back service by dialing 800-475-6701, interact says code 973143.

International participants may dial 320-365-3844.

Additionally, the replay will be available for play back at that time company's website, www.Korn/Ferry.

com, in the Investor Relations section.

That does conclude our conference for today.

Thank you for your participation and for using AT&T Executive TeleConference.

You may now disconnect.