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Executives

Roy Krause - President and Chief Executive Officer

Mark Smith - Chief Financial Officer

Analysts

Jeff Silver - BMO Capital

Mark Marcon - Robert Baird

David Feinberg - Goldman Sachs

Ty Govatos - CL King

Andrew Steinerman - JP Morgan

Spherion Corp. (SFN) Q3 2008 Earnings Call October 31, 2008 9:00 AM ET

Operator

Good morning everyone and welcome to the Spherion third quarter earnings conference call. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions)

Now I will turn the meeting over to Mr. Roy Krause, President and Chief Executive Officer. Sir, you may begin.

Roy Krause

Thank you. Good morning everyone and welcome to our third quarter conference call.

Before we begin on our prepared remarks, our CFO, Mark Smith will read our Safe Harbor Statement.

Mark Smith

Thanks, Roy. This call may contain statements that are forward-looking in nature and accordingly are subject to risks and uncertainties. Factors that could cause future results to differ from current expectation include risks associated with our ability to implement business strategy, acquisitions, competition, changing market and economic conditions, currency fluctuations and additional factors discussed in this call and in our filings with the SEC.

The company’s actual results may differ materially from projections discussed on this call. Additionally, we may make statements referencing certain non-GAAP financial measures. Management believes that non-GAAP measures are useful in evaluating operations, but should not be considered an isolation or as an alternative to financial measures of performance as determined by GAAP.

A reconciliation of non-GAAP measures to our GAAP financial results has been provided in the press release which can be found in the Investor section of our website. We will make references throughout our presentation today to organic revenue changes and have included calculations of organic revenue changes in our non-GAAP reconciliation.

These organic revenue calculations compare actual current year revenues to prior year revenues adjusted to include the results of the acquired companies prior to acquisition on a pro forma basis. Roy.

Roy Krause

Thanks Mark. Over the last several months we faced an increasingly difficult US economy and I’m pleased with the way our team has executed during the third quarter.

In a quarter where we historically see a seasonal ramping of revenues, our revenues declined 3.7% sequentially, but to the credit of our organization, costs were and continue to be adjusted which allowed us to successfully maintain our EBITDA margin at 2.8%, the same level we reported in the second quarter. In the same manner, we’re also able to successfully maintain our total segment margins from the second to third quarter.

We continue to emphasize what we believe are the right areas to weather this difficult economic cycle, specifically our strategy of developing our higher margin, professional services and recruitment outsourcing businesses, while carefully adjusting our cost structure to reflect current and anticipated future revenue levels. We will continue to optimize cash flow, pay down debt and preserve adequate and flexible liquidity to maximize our options in the coming quarters.

For the third quarter, our earnings from continuing operations were $0.08 per share, compared with $0.16 last year. Our revenues were up $47 million over the last year, but were generally down on an organic basis across all service lines and skills, reflecting the broadening decline in the overall economy. Our revenue mix between large and smaller accounts has remained about the same for several quarters, although we continue to see large accounts holding up better than our smaller customers in these tight economic conditions.

Our pipeline of opportunities has not declined significantly, but we see no indication that the US economy will materially change direction in the fourth quarter. Consequently, we expect a lengthening of our sales cycle, but we expect to operate successfully through this downturn with a consistent emphasis on delivering quality service, careful cost management and attention to cash flow. As we’ve done throughout 2008, we will balance the cost actions we take in Q4 and into 2009 with an eye towards quickly participating in future economic recovery.

Overall, we will continue to focus on increasing professional services and recruitment outsourcing while stressing account diversification and mid size deals in commercial staffing. Professional Services now represent 34% of total company revenues and generate 45% of gross margin dollars compared with 38% last year.

Economic slowdown has also impacted our RPO business. This quarter we posted year-over-year declines in revenue for the second time since we began this business. Fortune 500 customers make up the base in this business and hiring freezes and cutbacks among that client base have had an effect of temporarily halting our PO growth.

Certainly economic conditions have made work force planning much more difficult for these employers and this has impacted our revenues; however, the business is scalable in response to economic downturns and upturns and we’ll take advantage of this feature. During Q3, we saw one large account freeze all hiring activity, but they now indicate hiring will resume in the first quarter of 2009.

Overall our RPO new deal pipeline continues to be very active, especially with clients considering international or global solutions and on several recent deals we partnered with others to provide that global capacity. We believe that our long term growth prospects for recruitment outsourcing remain very positive and trends towards outsourcing recruiting functions will accelerate when we begin to see more economic stability.

Our balance sheet and liquidity are strong, net debt at the end of the quarter was approximately $71 million compared with $93 million at the end of last year. During 2008, we made this debt reduction while also buying back $25,000,000 of the company’s common stock. Cash flow has been good and we’ll continue to emphasize the acceleration of collections and we will minimize CapEx, especially until we get better visibility towards positive hiring trends. Even if current trends continue throughout 2009, we believe that we can have most, if not all our debt repaid when our current revolving credit facility is up for renewal in 2010.

Before I turn the call over to Mark to review in more detail our financial results for the quarter, I want to thank our entire team for their solid performance last quarter, especially in cost containment and cash management. I know they understand what we must do and stand ready to adjust our costs to gross profit trends. Mark.

Mark Smith

Thanks, Roy. What I’d like to do now is talk about our segment results and give you more information on the balance sheet and cash flow. So I’m going to start with our Professional Services segment where we reported third quarter revenues of $182 million which represented 33.5% of total company revenue in the quarter. On an organic basis, revenues were down 14.9% and down slightly more year-over-year in September than in July and August.

On a revenue per billable day basis, revenues were down 5% in September compared with July. Within temporary staffing, finance accounting and other skills held up better with organic revenues down year-over-year 4.5%, while IT was down mostly due to declines in several large legacy Spherion accounts. The diversified customer base within the acquired Technisource business is holding up nicely. Perm is being impacted due to the economic environment and revenues were down organically, nearly 22.6%.

Moving into gross profit margins in professional services, we reported margins of 29.3% in the quarter, down from 34% last year, but 30.8% last quarter. Changes year-over-year sequentially are primarily due to changes in perm mix where perm represented 6.4% of revenue this quarter, 10.4% of revenue last year and 7.8% of revenue last quarter. Temporary staffing margins declined 185 basis points from the prior year, but pay bill spreads were largely flat.

SG&A in the professional segment decreased to 24.8% of revenue in the quarter, compared with 29.3% of revenue last year, reflecting the acquisition synergies as well as productivity improvements. Segment operating profit margin was 4.5% this year, down from 4.7% last year and 6% in the second quarter.

Let me move on now to staffing services where we reported revenue of $360 million which was 66.5% of total revenue. On an organic basis, staffing service revenues were down 9.5% for the quarter and within the quarter, down 7.3% year-over-year in July, 9.1% year-over-year in August and 10.5% year-over-year in September. However, on a revenue per billable day basis, revenues were up about 2% in September compared with July, which means that we started seeing some seasonal ramping in the third quarter, but just not at the same pace as we saw last year.

Gross profit margins in staffing services were 18.1% compared with 20.4% last year and 19% last quarter. The 230 basis point year-over-year decrease in the quarter is primarily due to a higher mix of temp staffing revenues which has lower average margins than the other services; lower margins in managed services and lower pay bill spreads and then higher insurance and employee costs.

When we look at just temp staffing, margins were 16.1% this quarter compared with 17.3% in the prior year and 16.9% last quarter. Particularly in managed services, gross profit margins were 28.4 this year compared to 30.4 last year and the decline is primarily the result of lower RPO margins. RPO has been impacted by slower client hiring, as Roy mentioned.

We continue to make cost adjustments in this business to adjust the productivity levels. I just want to remind everybody that recruiter costs in this business are included in the cost of sales, so it’s part of the gross profit calculation. SG&A in staffing services was 16.4% of revenue in the quarter compared with 17.1% last year. Segment margin was 1.7%, up from 1% in the second quarter and down from 3.3% last year.

I’ll move on to a couple of other income statement items; unallocated corporate was at 4.2, relatively unchanged from the 3.9 last year. Intangible amortization was $2 million and we expect to see the amortization at about this level as we go into 2009. Interest expense was 1.6 and should decline as we pay down debt. Tax rate was 37.7% compared to 40% for the same quarter last year and we expect the rate to be about 38% in the fourth quarter.

Let me make a couple of comments about balance sheet and cash flow now. We ended the quarter, as Roy said with net debt of $71.3 million compared with $92.9 million at the start of the year. Cash flow from operations in the third quarter was $6.8 million. Availability on our credit line was $94 million at the end of the quarter and we believe the combination of positive cash flow, available credit will provide sufficient flexibility for us to operate the business. We’ll be focusing on paying down debt in the coming months.

I would like to make a couple of comments on our primary revolving credit facility. The total capacity on this facility sits at $250 million and is secured by our US accounts receivable. Availability is generally computed as eligible receivables up to $250 million less facility borrowings, letters of credit for workers compensation collateral which is at about $43 million right now and then a one week payroll reserve of about $32 million.

The one-week payroll reserve is doubled or could be doubled if the company does not maintain an LTM fixed charge coverage ratio of at least 1.25 times, which will probably occur in the fourth quarter, principally as we sell some stock repurchases we made earlier in 2008. Then again, our primary revolver is up for renewal in July 2010.

DSO was 53 days and was up one day from the end of the second quarter and we are definitely seeing impacts of aggressive cash management by our customers and are increasing our efforts in this area. We continue to keep a close eye on credit quality and payment trends in light of the current market.

CapEx in the quarter was $2.4 million. Based on current conditions full year CapEx should be around $10 million and we project 2009 CapEx will be 20% to 40% below 2008 levels.

Finally, as a result of a deteriorating economy and very limited ability to predict revenue trends in this environment, we will not be giving top line revenue or earnings guidance for the fourth quarter. We can report that average revenue per billable day for the first three weeks in October was about the same as the average per billable day in the third quarter. When developing a revenue estimate for the fourth quarter, keep in mind that there are probably 61 billable days in the fourth quarter versus 63 in the third quarter.

Regarding gross margins, you will probably see some sequential pull back due to a change in segment mix, lower perm and PTL costs in December. Cost reductions should offset a part of any margin decline. Roy, back to you.

Roy Krause

Thank you, Mark. I know our wholesales and delivery teams are focused on delivering sales activity to mitigate economic contraction and we have separate cross functional teams working on improving our operating efficiency while carefully managing costs. These efforts will continue in Q4 and into 2009 and we’ll have to make some additional hard decisions.

Our strategies have not changed, but we’re cognizant that the first order of business in this environment is to protect and preserve our future operating flexibility. It’s an accepted fact that long-term top line visibility, doesn’t really exist in the staffing industry. Revenues are certainly trend able in the short term, but they only provide reliable measure of future revenues in reasonably stable economic conditions.

Over the last several months, employers have seen extreme variability in financial and equity markets making it very difficult for them to forecast hiring requirements. With this lack of visibility, we’ll focus on maintaining cash flow, paying down debt and proactively reducing our cost structure.

During the last downturn our low point in our adjusted EBITDA margins was just below 1%, but we should be very much better positioned during this downturn due to our business mix. As such, we will generally make cost structure decisions with an eye towards maintaining an annual EBITDA margin in the 2% range. This approach will serve us well if the economic cycle is prolonged and will position us to quickly benefit as the economy improves.

At this point I’d like to open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Jeff Silver - BMO Capital.

Jeff Silver - BMO Capital

I was wondering if we could get a little bit more color on the pricing environment out there. If I remember correctly that the bill pay spreads will be either flat to down. Forgive me if I got that incorrectly, but if you can just quantify that a bit by your two major segments and then I’ve got some follow ups on that.

Roy Krause

I’ll start and let Mark chime in here. On the commercial staffing side, actually we’ve been reasonably pleased with the new account activity in the mid sized area meeting our price points. Where we’ve seen the contraction actually is in the renewal of our existing business and I think that’s probably pretty consistent with what others have reported. Maintaining your base business is becoming increasingly difficult, so that’s commercial staffing.

We did see a pull back in margins on the professional side, probably a little more extensive in technology in other places, based on some run off of some legacy Spherion accounts, project business. Mark, you want to comment a little more on that?

Mark Smith

Yes Jeff, just from a pay bill spread, you talked about the two segments. Year-over-year there was a pull back in paid bill spread on the staffing side, which you can see in both the temporary staffing numbers and the managed services numbers. In total between those two, there’s probably a 60 basis point impact on overall margin in that segment, from that activity. On the professional side, SUP bill spreads year-over-year are hanging in there pretty decently and we haven’t seen much contraction on that side.

Jeff Silver - BMO Capital

As a follow up, I’m wondering what the competitive environment is like? Are you seeing any of your competitors are being a little bit more aggressive in terms of cutting prices?

Roy Krause

Well, it’s certainly a very competitive environment. Obviously the overall temp market is, I don’t know, 20 months into shrinkage of the overall temp number of jobs and half the jobs that have been lost in the economy were temporary jobs, so clearly it’s much more competitive.

I think it’s a very competitive market out there and what I feel good about is the fact that our balance sheet is strong and cash flow is there and I think we can weather this cycle very well and our mix with the Technisource and today’s acquisitions has changed and I think we’re better positioned.

The idea that we started an account diversification program several years ago in commercial staffing has really led to not having all of our eggs in one basket and being able to make those tough decisions to walk away from some customers and we have done that. We’ve elected not to participate on a very big technology project because we just thought the margins were driven down to an area where we could take those candidates and better place them someplace else.

Mark Smith

Yes, Jeff speaking on the staffing side of the business and you’ll see more when you read our 10-Q, we are trying to protect our existing business and we are being impacted from re-pricing, but we’re also trying to be rational. One of the reasons for the revenue decline in staffing services is there was a large manufacturing type customer that’s been a customer for a long time that went out to market, priced way down and it just got to a point where it just didn’t make any sense for us to even participate anymore and somebody was being irrational, we think, in that particular situation and we just couldn’t go there.

Jeff Silver - BMO Capital

Okay, that’s helpful. Mark, I also appreciate the color you gave us regarding your debt. I just had a couple of follow-up questions. What is the interest rate you’re paying on that right now?

Mark Smith

It’s a little bit over 5%.

Jeff Silver - BMO Capital

And that’s a variable rate or is that fixed?

Mark Smith

It’s a variable rate. It’s either LIBOR plus the spread or just a little bit less than prime.

Jeff Silver - BMO Capital

I know some of the other companies we had talked to had mentioned about their banks coming back to them and trying to renegotiate, whether it’s because the banks themselves are having problems or they’re concerned about their customers. Have you had any of those type of conversations?

Roy Krause

On our facility, the two leads are B of A and JPMC. We have great relationships with the banks; I mean long-term talking like 15 year kind of relationships and they’re supportive and with us and we have no issues in that area.

Jeff Silver - BMO Capital

One more question and I’ll let somebody else jump on. What was stock based compensation in the quarter and what should we expect in the fourth quarter?

Roy Krause

So, Jeff stock-based comp in the quarter was a million dollars and it’s been running right around a million dollars and should be about the same in the fourth.

Operator

Your next question comes from Mark Marcon - Robert Baird.

Mark Marcon - Robert Baird

Just one quick follow-up with regard to the line; did you indicate that the reserve for the payroll reserve could be doubled if your fixed charge coverage declined and were you hinting that that was going to occur?

Roy Krause

I did more than hint. I said we’ll probably be below the 1.25 fixed charge coverage requirement sometime in the fourth quarter, so our availability will go down by 30 million because of that and that’s the only thing that happens as a result of it.

In the fixed charge coverage calculation, stock buy backs and scheduled debt repayments, not payments on the revolver, but scheduled debt repayments like the repayment of the Charles bank deferred purchase price in the first quarter all go into the fixed charges. So, while we’re lapping the share repurchase program and going through this down period in earnings, we do have an issue or we will be below the 1.25.

Mark Smith

And that still gives us adequate liquidity.

Roy Krause

More than enough availability.

Mark Marcon - Robert Baird

So what would your availability be relative to the amount that you would anticipate having outstanding at that point?

Mark Smith

This is additional availability after the outstanding. So, to be clear, I think Mark said it was $90 million or so availability above our drawn amounts today.

Mark Marcon - Robert Baird

Okay and so that would go down to 60’ish?

Mark Smith

Exactly.

Mark Marcon - Robert Baird

And then the trends that you’re experiencing are not surprising. Everybody is having a difficult time and obviously temporary staffing is the first area to see it, but everybody else has been kind of holding in there on the IT side and that’s one area that was a little surprising. Could you describe the specifics that you’re seeing there?

Roy Krause

Yes. We had a few clients or job positioned anomalies last quarter, but we had several legacy large Spherion projects that came to an end and also our solutions business had some margins in it for this quarter that were a little lower than we had anticipated because of some projects that were coming to an end. So we didn’t do as well in technology as we would expect to do in the future. Our head count is pretty stable right now and so I’d expect to see some improvement and to be more indicative of market trends in the future.

Mark Marcon - Robert Baird

Those projects that came to an end, was that a natural end of life or were the clients having issues and --?

Roy Krause

No. I think it’s a natural end, it was a natural end of life, but it’s also the issue that we’re seeing in the market; clients being hesitant to restart another project or to move into other areas. So there was some major voice over IP projects and others that were completed and some deployment projects that were completed and we’re not seeing those clients continue into further roll outs.

Mark Marcon - Robert Baird

And then can you talk a little bit about -- typically you do give guidance. Obviously, the environment is extremely uncertain, but can you give some sort of a framework for what an upper end would be or is it possible that things could get materially worse above and beyond what would be contemplated?

Roy Krause

Well, I think what we tried to do is show you what our current trends are and I think our current trends are pretty stable. We also had a very strong Q4 last year and I don’t know that we’re going to see that kind of seasonal ramping in the fourth quarter that we saw last year and we’ve indicated that.

So it’s very difficult for us and when we go back to our customers and talk about hiring trends and look for commitments so that we could give guidance, we don’t see a lot of comfort there on predictability. It will depend on what happens to the seasonality in Q4.

I guess our feeling was we’ll tell you the way we want to manage the company and that is to show you the trends and also make a statement about our EBITDA margins and how we’re going to make our cost adjustments to move forward. So, that’s what we know and that’s what we can tell you about and to try to kind of put a point estimate out there with the volatility that we’ve seen in the equity markets and the financial markets, I think is just a guess.

Mark Marcon - Robert Baird

Okay and then in terms of maintaining the EBITDA margin target that you would like to, how much of a revenue contraction could you take and I know it obviously depends on mix and so maybe there needs to be a little bit of granularity in this question, but can you describe your ability to adjust? I mean how quickly can you adjust and what the magnitude of a decline would have to be in order for you to not be able to achieve that?

Roy Krause

Well, I think you’ve got to also factor in what your expectation for that decline is and how long is it going to last and that really right now with the election and the new government coming in power and all the other stuff is very difficult for anybody, not just for us to quantify.

So our position is we will continue to adjust our costs. I think you’ve seen throughout 2008 us bringing down costs, maintaining our EBITDA margins and we expect to be able to do that. I don’t know that we can hold them at 2.8 and I know they won’t be at 2.8 in the first quarter given the normal reset of the taxing issues. That typically is a pull back quarter for us. I mean over the last 13 years, we’ve had a historical pull back from Q4 to Q1 on a seasonality basis, but I don’t think the seasonality we’re seeing this quarter is normal. So predicting the pull back in Q1 is pretty open today.

As we get closer to the end of the year, I think we’ll have better visibility on what Q1 will look like. So, I guess to answer the question is we expect to have positive cash flow, maintain the business and we expect to make cost decisions relative to trying to keep in that 2% EBITDA margin; that’s where we feel comfortable with right now and as we progress during 2009, we’ll update that guidance relative to our philosophy.

If we think the market is starting to improve, we probably won’t make quite as strong of cost reductions in the short run. If we think on the other hand it may be trending down deeper, we’ll probably make more. So, I know that’s kind of a circular argument, but what I want to tell people is how we are going to manage the business and in the face of a pretty unprecedented market.

Mark Marcon - Robert Baird

Yes, I was just trying to get a sense for in order to maintain that 2%. It sounds like you’ll just make adjustments as things unfold and so even if it ends up being – I’m just pulling numbers out; but if we have a 25% revenue decline, you’ll make the adjustments in order to maintain that 2% margin?

Roy Krause

Well, I can’t guarantee that today, because I think it’s a real question of how long is that 25% pulling going to last or what trends we’re seeing and where we see the 25% pull back, okay. Clearly we know some of our businesses are more cyclically sensitive than others and commercial staffing is the one that is more sensitive to that. We have an ability to pull back costs. Clearly the decisions get harder and harder as you end up cutting into the bone and maybe closing some branches and things like that, but we have the ability to do that and we will act on it.

Operator

(Operator Instructions) Your next question comes from David Feinberg - Goldman Sachs.

David Feinberg - Goldman Sachs

Just a numbers question and not to belabor the point, but I want to make sure I had my numbers straight. On your line of credit, you start with the accounts receivable, about 310, but up to a max of 250. I then back out two pieces, including the week’s payroll and that leaves me with current availability of $94 million. Is that true?

Mark Smith

That’s correct, yes.

Roy Krause

There’s three pieces, I believe. The amount drawn, the letters of credit and the one week payroll reserve, okay.

David Feinberg - Goldman Sachs

Can you fill in the blanks in terms of what those numbers are, those three components?

Roy Krause

They give you $94,000,000 at the end of the quarter.

Mark Smith

So it’s 250, which is the total line, minus the amount borrowed on the balance sheet, might $43 million for letters of credit for the workers comp program, minus $32 million for the one week’s payroll reserve which gives you $94 million availability.

David Feinberg - Goldman Sachs

Okay. I guess what I’m asking and I apologize if you disclosed it and I missed it; how much you’ve drawn down against that line?

Mark Smith

I think we have about $60 million drawn down right now.

David Feinberg - Goldman Sachs

Great, now I can fill in the rest.

Mark Smith

When you do the math, it will fall out. It’s in the $60 million range.

Operator

Your next question comes from Ty Govatos - CL King.

Ty Govatos - CL King

A technical question. If I’ve not mistaken, most of the acquisitions were grandfathered in the third Q, is there any spillover into the fourth?

Roy Krause

Well, Ty I don’t know if I fully follow. We closed on the today’s deal last year at the end of the third quarter and so the fourth quarter will be the first time on today’s, we’ll have year-over-year comps and Technisource closed on 12/02 of last year, so it will really be the first quarter before we get a true comp.

Ty Govatos - CL King

So we will have flow through, okay.

Roy Krause

Yes, but with that organic calculation, tried to show you as best as possible what the organic numbers look like.

Ty Govatos - CL King

Second question; I was startled that you got the SG&A down to the level at the end of the quarter, $108 million. Can I expect that to come down further in the fourth?

Mark Smith

Well, let's see what revenue does, okay? Our goal is again to try to maintain our EBITDA margin. We did that between Q2 and Q3 and we anticipate continuing with that business philosophy. So, yes, are we making cost adjustments into Q4? Yes, we are.

How much they’re going to be? Right at the moment we’re not predicting that, but we also had some final consolidation numbers that came out at Technisource synergies that were coming out of the business in Q3. Mark, do you have any additional comments?

Roy Krause

I guess Ty, the one comment I would make is the third quarter reflects the full value of the synergy. So there is no more acquisition related synergies to come out. Yes, we’re fully integrated at that time, but, a long answer to your question, yes we expect to manage our SG&A.

Ty Govatos - CL King

Okay, so a lot of the cost cutting that you did above and beyond, any other benefits you got from consolidation, some of it’s apt to flow through into the fourth quarter, it sounds like. Not to the same degree as the second or the third, but some of it will spill in?

Roy Krause

We pretty much have them in the run rate at this point.

Operator

Your next question comes from Andrew Steinerman – JP Morgan.

Andrew Steinerman – JP Morgan

I want to talk to you about your goal to maintain the EBITDA margins at a reasonable level this time versus last time and obviously, I’ve been following the company for a long time and I sort of remember the last time and I’m sure the company is in much better shape today than then, but could you just go over a point of, do you think EBITDA margins will be positive now.

It’s hard to back everything out, but I believe they were slightly negative in last recession, because revenues will be down less this time or even if revenues were down just as much you still think that the company’s in better shape to maintain positive EBITDA margins?

Mark Smith

Well, I think we absolutely are in better shape to have EBITDA margins and I think our numbers on a GAAP basis and we can do this offline with you if you want to, but I think if you look back at this on a GAAP basis, we see annualized adjusted EBITDA margins; I think was 0.8 or so or just a little bit below 1. Now that’s for annual, not a quarterly basis, because we have seasonality there and we think we did that in 2001 or whatever the year was I don’t recall.

I think our business mix is much better now and we’re better positioned on our systems and we have a much better control, we’re totally integrated on one system, so we have a lot better efficiency. So I absolutely believe we’re going to do a better job than we did last time. We'll see how deep the economy is and how long it stays down, but our goal is to do a better job.

Operator

Your final question comes from Jeff Silber – BMO Capital.

Jeff Silver - BMO Capital

Just a quick follow-up, I just want to make sure I understand. How are you defining adjusted EBITDA margins?

Mark Smith

What we have is, we went back through the last cycle and looked at EBITDA excluding restructuring charges okay and so that’s what the comment was related to.

Jeff Silver - BMO Capital

And would you be adding back or ignoring stock based comp in that calculation? I know you didn’t have it last cycle, but for this cycle going forward.

Mark Smith

I don’t think, our EBITDA calculation includes stock based comp. So that’s a little bit of an up side from a cash flow point of view, but we considered stock comp, since it seems like it’s the comparable thing to do as a charge.

Operator

(Operator Instructions) And I’m showing no more questions at this time. I’ll hand it back to you sir.

Roy Krause

Thank you, operator and thank you everyone for participating and we’ll talk to you later. Thank you. Bye.

Operator

Thank you for participating in today’s conference call and have a great day.

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Source: Spherion Corporation Q3 2008 Earnings Call Transcript
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