Aug 12, 2008
Executives
Mary Malone - Director of IR John J. Haley - President and CEO Carl D.
Mautz - VP and CFO Roger F. Millay - CFO
Analysts
Andrew Fones - UBS T.C. Robillard - Bank of America Ashwin Shirvaikar - Citigroup Brandt Sakakeeny - Deutsche Banc Securities Mark Marcon - Robert W.
Baird Shlomo Rosenbaum - Stifel, Nicolaus & Company
Operator
Good day ladies and gentlemen and welcome to the Watson Wyatt Worldwide Fourth Quarter 2008 Earnings Conference Call. My name is Silvana.
I will be your coordinator for today. At this time all participants are in a listen-only mode.
We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions].
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation to your host for today's call, Ms.
Mary Malone, Director of Investor Relations. You may proceed.
Mary Malone - Director of Investor Relations
Good morning. This is Mary Malone, Director of Investor Relations at Watson Wyatt Worldwide.
Welcome to our conference call to discuss our results for the fourth quarter and full year of fiscal year 2008, as well as our guidance for fiscal year 2009. I am here today with John Haley, Watson Wyatt's President and Chief Executive Officer, Carl Mautz, our Chief Financial Officer, who is preparing for retirement and Roger Millay who will succeed Carl as our CFO.
After some brief prepared remarks we will open the conference call for your questions. Please refer to our website for this morning's press release.
Today's call is being recorded and will be available for replay via telephone for the next week by dialing 617-801-6888 confirmation number 69831798. The replay will also be available for the next three months via the company's website at www.watsonwyatt.com.
There are a few slides at the company... the financial section of our presentation and you may log on to our website to obtain those slides.
This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding expected financial and operating performance. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.
You are cautioned that these statements may be affected by among others the important factors set forth in our filings with the Securities and Exchange Commission and in today's news release and that consequently actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise except as provided by the Federal Securities Laws.
At this time I'll turn the conference call over to John Haley.
John J. Haley - President and Chief Executive Officer
Thank you Mary. Good morning everyone and thank you for joining us today.
I'm very pleased to share the results of another strong quarter capping an impressive fiscal year. Our revenues for the fiscal year increased to $1.76 billion, an 18% increase over prior year.
On an organic basis excluding the impact of acquisitions and foreign currency movements, our revenues increased 8% over prior year. For the year we achieved $3.50 in diluted earnings per share, a 34% increase over the prior year.
Our revenues for the quarter increased to $454 million, an increase of 17% over the prior year. On an organic basis our revenues increased 10% over prior year fourth quarter.
Our segment revenue growth on a constant currency basis was very strong in four of our segments during the quarter, 15% in benefits, 21% in Technology and Administration Solutions, 13% in Human Capital Group and 25% in Investment Consulting. Insurance and Financial Services declined 5% on a constant currency basis.
For the quarter, diluted earnings per share were $0.95. This is a 34% increase over the prior period and $0.71 per share.
Our EPS growth resulted from strong revenue growth, the increase in our affiliate income and the decreases in our shares outstanding and income tax rate. Our business performed very well, especially in light of economic conditions.
We're cautiously optimistic about revenue growth in fiscal 2009 and Carl will give full guidance for the next fiscal year in his remarks. In terms of demand, companies still need our services and we will continue to benefit from increasing complexity generally whether around regulatory reform or sophisticated investment possibilities.
From a strategic standpoint, we're going to stay focused on what we do best, even more so in light of economic conditions. First, we're focused on clients.
We will continue to be on top of the issues and pressures they are facing and we're orchestrating our services to meet those needs. Internally, we continue to focus on financial and operational discipline.
With our strong balance sheet, we want to use the economic uncertainty to strengthen our hand even more. For example, we're hiring aggressively in the investment practice and making strategic hires in other practices.
We also think there is real opportunity to grow market share in our carefully defined target market especially among the world's largest multinationals. We continue to look for strategic acquisitions to fill geographic holes and strengthen our practices.
Now, let's review each of our segments beginning with Benefits. For the year, Benefits Group revenues were $993 million, an increase of 21% over prior year and 18% on a constant currency basis.
On an organic basis, excluding acquisitions and foreign currency movements, Benefits revenues increased 6%. For the quarter, Benefits Group revenues were $255 million, up 17% from prior year and 15% on a constant currency basis.
We experienced increased demand for our services in all geographic regions. Our growth in Europe was especially strong even after consideration of our German acquisition, earlier this year.
Excluding acquisitions and currency movements, organic growth for the practice was 8%. This growth is even after the spin-off of our multi-employer retirement business in North America.
We continue to assist companies around the world with the complex issues they face around the design and administration of their employee retirement benefits. As companies continue to evaluate the trade-offs between cost, risk and workforce management, we anticipate that there will continue to be global demand for our retirement services.
Our healthcare consulting practice had another strong quarter. While this is still a small part of our overall benefits practiced, it is experiencing solid growth.
With healthcare costs continuing to increase, employers are turning to a number of options to improve employee health into controlled healthcare costs. According to a survey that we conducted with the National Business Group on Health, healthcare cost increases for companies with high participation and consumer directed health plans are roughly half those of companies offering traditional health coverage.
Consumer directed health plans are cost effective health and welfare programs that encourage workers to adopt healthier lifestyles and to become smarter healthcare consumers. With many companies focused on containing the cost of healthcare benefits, we expect the demand for our healthcare consulting services will continue to grow.
Now let's move on to Technology and Administrative Solutions Group. For the year revenues were $183 million, a 16% increase over prior year and 14% on a constant currency basis.
For the quarter, revenues were $48 million, up 21% from prior year and 21% on a constant currency basis. We have stronger than expected demand for services at existing clients in North America and therefore our revenues are better than forecasted.
Our revenues in North America continue to increase as the number of pension administration and health and welfare outsourcing assignments in ongoing service delivery increased. We had 142 projects in service delivery at the end of June 2008, up from 84 at the end of June 2007.
These projects are of varying size and are in addition to more than 100 systems that we had implemented prior to the change in accounting rules in 2004. You will recall that we don't recognize revenues until projects move into ongoing services delivery, which is after project implementation.
At the end of June 2008 we had another 50 projects in implementation. Companies continue to take a selective approach to outsourcing their HR technology and functions.
Selective outsourcing is growing so popular because it can be tailored to meet an organization's exact needs. For most organizations this means outsourcing routine transaction-oriented processes while refocusing the HR department on more strategic issues.
Many companies report that selective outsourcing best meets their needs for access to leading edge technologies while leveraging their own capabilities and improving employee experience in service levels. The key to successful outsourcing is finding the solutions that fit the organization's needs and culture.
The economic strain some companies are facing will only add to the reasons to choose selective outsourcing. As this practice matures in North America and we have more clients in ongoing service delivery, the clients with projects and implementation will become less significant to our total performance.
We continue to see some price competition and we will only pursue profitable growth. Our number of projects and implementation has declined slightly from last quarter but we're experiencing steady growth.
Our associates continue to be very busy in part by expanding the services provided to existing clients. We continue to be pleased with our retention rate.
We're also performing well in Europe and have excellent retention there too. The outsourcing of benefits administration is a mature market in the UK.
We are one of the major players and we continue to win new clients. We are excited about the client wins we had this fiscal year and our European team is very busy with the new client installs.
We tend to have lower margins during the installation period and Carl will discuss this further when he provides the guidance for fiscal 2009. We have compelling technology and outsourcing offerings that suit the markets we serve.
We expect good profitable growth opportunities will continue to be available. Next let me turn to the Human Capital Group.
For the year revenues were $196 million, a 15% increase over prior year and 12% on a constant currency basis. For the quarter revenues were $51 million, up 16% from prior year and 13% on a constant currency basis.
We experienced growth in both Human Capital consulting projects and data services. Demand was especially strong for both executive compensation and broadbased employee compensation programs.
Inflation has been in the news not just in the U.S. but globally.
Unlike currency there are no hedging strategies related to people costs. The impact of inflation on people cost is real and can be difficult to manage.
In times of global inflation, many companies look to us for reputable market data and related consulting. We except demand for our services will continue.
Now I'll discuss the Insurance and Financial Services Group. For the year revenues were $119 million, an increase of 4% over prior year, but flat on a constant currency basis.
For the quarter, revenues were $29 million, a 2% decline from prior-year and a 5% decline on a constant currency basis. The decline in revenues is due to fewer large projects in Europe this fiscal year than in past years.
The practice continues to perform well in Asia and we had modest revenue growth in North America. We will make some investment in our life insurance consulting practice in North America in FY09.
We believe we've rightsized our organization for a profitable growth in Europe and Asia next fiscal year. Lastly, Investment Consulting ends the fiscal year with another great quarter.
For the year revenues were $169 million, an increase of 31% over prior year or 27% on a constant currency basis. For the quarter, revenues were $43 million, up 26% from prior year and 25% on a constant currency basis.
We continue to see strong demand for all of our services, particularly advice on investment strategy. In today's complex investment markets, pension funds continue to be challenged with how best to turn today's plan assets into tomorrow's retirement income.
Funds continue to seek advice on how to ride out crises, how to make the most of long time horizons and how to provide good value for money. The current market continues to be challenging for many investors.
We expect strong demand for our investment consulting services to continue although market conditions have impacted liquidity and pricing for those clients who wished to hedge liability risks and this may impact the pace at which projects can be executed. Wrapping up, we performed well despite the challenging economic times.
We're cautiously optimistic that we will continue to grow in each of our practices next fiscal year. Now, I'll turn the call over to Carl.
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you John and good morning to everyone. As you've just heard, we had a strong finish to our fiscal 2008.
For the year, we achieved revenues of $1.76 billion and diluted earnings per share of $3.50. For the quarter, we reported revenues of $454 million and diluted earnings per share of $0.95.
Our results this quarter were helped by the $2.7 million of affiliate income, our continued share repurchases and a low income tax rate. Our operating margin was down slightly this quarter.
The Benefits Group had a 29% margin for the year, an increase from 27% last year. For the quarter, the Benefits Group had a 30% margin, up from 29% in the fourth quarter of last year.
These margins are consistent with our expectations of full year margins in the high 20% range. Technology and Administration Solutions had a 26% margin for the year, an increase from 23% last year.
The increase over prior year is due primarily to the one-time work in North America. For the quarter, Technology and Administration Solutions had a 26 % margin, up from 24% in the fourth quarter of last year.
These margins again are consistent with our expectations of the mid 20% range. Human Capital Group had an 18% margin for the year, an increase from 14% last year.
For the year we achieved margin improvement in all geographic regions especially in North America. For the quarter, Human Capital Group had a 15% margin, up from 11% in the fourth quarter of last year.
For the quarter we achieved notable margin improvement in North America and Asia Pacific. Insurance and Financial Services had a 2% margin for the year, a decrease from 17% last year.
For the quarter, Insurance and Financial Services had a negative 1% margin, down from 14% in the fourth quarter of last year. Margins in the fourth quarter were depressed as we encouraged some non-recurring charges to rightsize the cost structure of the practice in both North America and Europe.
Investment Consulting had a 35% margin for the year, an increase from 31% last year. For the quarter, Investment Consulting had a 35% margin, up from 32% in the fourth quarter of last year.
This quarter's margin improvement was due to continued strong performance in Europe. The segment margins that we have just reviewed are before consideration of discretionary compensation and other unallocated corporate cost such as amortization of intangibles resulting from our acquisition.
Our full-year operating income margin was 12.9%, an increase from 12.1% last year. We achieved this margin improvement in spite of increased non-cash amortization from the acquisition.
For the quarter, our operating income margin was 11.3%, a decline from 12.4% in the prior year quarter. The quarter-over-quarter decline is due to an increase in reimbursable expenses, the seasonality of [inaudible] and the timing of similar occupancy and other expenses.
Net income for the year was $155 million, an increase from $116 million last year. Net income for the quarter was $42 million, up from $32 million in the prior year.
Fully diluted earnings per share for the quarter were $0.95 compared to prior year fourth quarter earnings per share of $0.71. Moving to the balance sheet.
We ended the quarter with $124 million of cash and no debt. We also used $29 million to repurchase shares during the quarter pursuant to our $100 million share repurchase bringing us to total share repurchases of $45 million at the end of the quarter.
We expect to complete our $100 million share repurchase by November 2008. Our business will continue to generate strong cash flows and this year we reported $284 million in cash flows from operations.
Now, let's review our guidance for fiscal 2009. The slides posted on our website may be helpful for following along in this section.
Please note that our forward-looking guidance assumes the strengthening of the U.S. dollar during fiscal 2009 and this negatively impacts revenue growth and profit growth to some extent.
We are assuming exchange rate of $1.99 to the British pound for the first half of fiscal year and the exchange of $1.95 to the British pound for the back half of the fiscal year. We have assumed an exchange rate of $1.55 to the euro in the first quarter that steadily drops to $1.47 to the euro by the fourth quarter with an average of about $1.51 to the euro for the fiscal year.
For fiscal 2009, we're expecting revenues of $1.85 billion to $1.9 billion, an increase of approximately 5% to 8% over fiscal 2008. Our revenue guidance by segment can be found on slide three.
We are expecting diluted earnings per share of $3.70 to $3.77 for fiscal 2009, an increase of approximately 6% to 8% over fiscal 2008. Fundamentally, we are cautiously optimistic about fiscal '09.
We've not yet seen many signs of a real slowdown in the business but the signs of economic concern are all around us. As a result, we are forecasting revenue growth considerably with a greater opportunity to upside than downside and the commensurate effect on the bottom line.
Even in these cautious times, we are forecasting revenue growth and are investing for further opportunity particularly in the Investment Consulting practice. Now, I'll walk you through the revenue and margin guidance for each of the segments.
Let's start with Benefit. Our Benefit's revenue guidance is 3% to 6% growth in fiscal 2009.
Normalizing benefits for the multi-employer business that we exited in fiscal 2008, revenue growth would be 4% to 7%. Benefit ended fiscal 2008 strong.
There was uncertain economic conditions, we assumed growth at the low end of our longer-term range. At this time, we think there is probably a greater possibility of exceeding our forecast than falling short.
However, we recognize these are uncertain times. We expect margins will continue to be in the high 20% range in fiscal 2009.
Moving on to the Technology and Administration Solutions Group, we expect revenue growth of 3% to 6% in fiscal 2009. This growth is slightly lower than our longer term expected growth of 5% to 8%.
In Europe, we anticipate constant currency growth in fiscal 2009 that is slightly higher than what we achieved in fiscal 2008. In North America, we are expecting our growth rate to decline in fiscal 2009.
You will recall that in fiscal 2008, we had approximately $4 million of non-recurring revenues due to system modification made in response to the Pension Protection Act. We are not anticipating yet those will recur.
We are also not projecting many new projects in North America in fiscal 2009, as the Pension Administration business and the Benefits enrolment business mature, we expect that more of our growth in North America will come from expansion of services to existing clients. We've got...
saw this begin in fiscal 2008. We are encouraged that this price will continue to grow in the down economy.
Again we think there is greater chance of hitting this forecast than missing it. We expect margins will be in the low to mid 20% range and probably slightly lower than fiscal 2008.
We are investing in our talent management software in North America and in a new few clients in Europe, both of which are contributing to the margin decline. Additionally, the non-recurring revenues in fiscal 2008 had no incremental costs.
Now let's turn to the Human Capital Group. We expect revenue growth of 9% to 12% in fiscal 2009.
This growth is consistent with the longer-term growth expectations for this practice. We also expect margins will continue to be in the high teens in fiscal 2009.
Now we'll discuss Insurance and Financial Services. We expect fiscal 2009 to be a year of recovery for this practice.
We are expecting revenue growth of 4% to 7%. We are continuing to build our practice in Asia and expect Asia will account for about a third of the revenue growth.
We are expecting modest revenue growth in Europe, but more significant income growth driven by our rightsizing activities in fiscal 2008. We are focused on growing our life insurance consulting practice in North America, we expect margins will be in the high single digits.
Lastly, we expect Investment Consulting revenues will increase 18% to 21% in fiscal 2009. We are planning to expand our team, especially in Europe in fiscal 2009.
We expect margins will be in the low 30% range. After taking into account the year-over-year margin declines in the Technology and Investment Consulting Groups, we are not expecting to achieve year-over-year margin improvement.
The investments we are making position us well for future growth. Our fiscal 2009 cost structure can support more revenues that we are anticipating in fiscal 2009.
Our diluted earnings per share for fiscal 2009 are expected to be in the range of $3.70 to $3.77, a 6% to 8% increase over fiscal 2008. This guidance assumes a 32.9% tax rate for the year and weighted average shares outstanding of 42.8 million for the year.
We are also expecting $4 million of other income in fiscal 2009, due to payments we will receive from the acquires of our multi-employer business. We expect first quarter revenues to range from $433 million to $442 million, and diluted earnings per share to a range from $0.82 to $0.85.
First quarter revenue guidance by segment is presented on slide four. In summary, we recognized that these are uncertain economic times and we are predicting solid growth for fiscal 2009.
John J. Haley - President and Chief Executive Officer
Thanks Carl. Before we take your questions, I would like to take this moment to wish my good friend Carl well in retirement and thank him for his service to the firm.
I think Carl, we've concluded, this is our 32nd earnings call and every one of them have been a pleasure. So I'm grateful for your counsel and your friendship over the years.
It's also my pleasure to welcome Carl's successor, Roger Millay. Roger will not officially join the firm until August 18, but we thought sitting in today's call would be helpful to his transition and Roger, I appreciate your making the time to come down and sit with us through this call.
Of course you can hold Roger responsible for anything we're saying today and you can ask him any questions. Roger brings impressive experience to the role and I look forward to working closely with him.
Now Carl and I will take any questions you may have. Question and Answer
Operator
[Operator Instructions]. And the first question comes from the line of Andrew Fones from UBS.
You may proceed, sir.
Andrew Fones - UBS
Thanks. Yes, I'd like to add my best wishes to Carl.
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you, Andrew.
Andrew Fones - UBS
On the technology business, could you help us understand how long it will take you to work through your current backlog of projects that you are currently implementing? Thanks.
Carl D. Mautz - Vice President and Chief Financial Officer
Okay. Let me talk to that and I'd like to talk to both the North American and the European businesses because they're both in some growth situations from [inaudible].
As you note in North America the number of projects in the implementation is down a little bit year-over-year. We are finding the marketplace increasingly price competitive and feel that taking on unprofitable projects is not something in the company's best interest so we've not pursued that.
I mentioned that simply to note that the level of activity still seems to be holding pretty well. Those 50 projects will probably drive us...
deliver revenue growth through the bulk of 2009 and perhaps a little bit into early the following year. We will continue of course to watch the marketplace closely and be bidding on projects where we believe we have an opportunity for profitable revenue growth.
In the UK and this is the interesting one, we see some significant growth, there were a number of very significant wins in Europe this year. Ten major clients and some smaller ones, the preparation for that...
for those taking those new clients on and bringing them in house has already started and you'll see a little bit of margin pressure in the early quarters of '09, but we will start to see revenue growth coming from them also in the back half of the year. So you should see a slight reduction in the growth rate in the early part of the year.
A little bit of compression in the margins and then that opening back up again in the back half of the year.
John J. Haley - President and Chief Executive Officer
Well just to be clear, I mean these 10 major clients that new clients that we have in the UK as Carl says, the way the model works there when we are doing the implementation we can't charge for all of that works. So we'll be doing… we'll be having some people working hard on getting all these things ready and then they'll be...
then they'll be running profitably. These ten are all really big name clients, one of them is the largest such project we've ever sold.
So we're really excited about the prospects forward. It just means our margins will be down a little bit in 2009.
Andrew Fones - UBS
Okay. Thanks.
And then, if I could touch on the insurance business, could you just help us understand the impact of the restructuring and the cost savings from that and how that's likely to start the kind of rolling, will we see most of it in Q1 or will it start more in Q2 and so forth? Thanks.
Carl D. Mautz - Vice President and Chief Financial Officer
The margin impacts from that will occur of course as the revenue [inaudible] we had completed the rightsizing that was largely in Europe. If you look at the press release and see the headcounts, you will notice that the headcounts have dramatically changed because while we have rightsized in Europe, we've taken advantage of opportunity to grow the business and hire some key folks in Asia but the cost for that rightsizing were all taken care of in fiscal 2008.
We would expect those margins to start recovering reasonably rapidly as the revenue starts to come.
John J. Haley - President and Chief Executive Officer
Yes, I mean, I really think Andrew, I just echo what Carl said. I think we should start to see improvement immediately, it would be our expectation.
We did have $900,000 of non-recurring charges in the fourth quarter which were related to the rightsizing and as Carl says there was... a lot of this was some shift of building up some capabilities in some areas of the world and then yet having fewer people in some other areas.
So it was a matter of not just the rightsizing in terms of just bringing people having fewer people but also balancing it out and growing in some areas.
Andrew Fones – UBS
Okay. Thanks.
And then one final, kind of high-level question. In terms of the use of cash, $124 million of cash, no debt, obviously, you got some bonus payments to make here but how's the acquisition pipeline looking, do you have any thoughts to perhaps buying back some stock here?
Thanks.
John J. Haley - President and Chief Executive Officer
Yes. Well, I mean I think as we've always said about cash, we look at the best possible use of that is to do an acquisition and next best is if we can't do an acquisition, we'd probably be to return to the shareholders in some form.
Back in February, where we talked about doing the $100 million acquisition, I think we got a question from somebody as to why were we doing a $150 million, and why weren't we doing more like a $150 million or so on that. One of the answers we gave then was even if we were doing the $100 million as fast as we could, we didn't expect to finish till November.
So I think, until we get through this, it really doesn't make too much sense to think about whether we would be buying back shares, so we're still trying to complete this one right now. In terms of acquisitions, we are constantly looking for acquisitions.
We are constantly talking about them. We have a relatively conservative approach to acquisitions.
It's my personal belief that you probably need to do about at least seven or eight good acquisitions for every bad one. So we continue to be careful at looking at them but if we could find the rate of acquisition we'd be anxious to complete that.
Carl D. Mautz - Vice President and Chief Financial Officer
Andrew, let me just give a little color around cash flow so you just know what to expect. As you know, that we've got $124 million on the balance sheet as we come to the end of this fiscal year, we'll pay out significant bonuses, the bonus pool, spend at about $184 million so that gives you an idea from the cash demand that we'll see in the first quarter.
As usual the first quarter has a negative cash impact when we pay bonuses and taxes. We expect to borrow some money in the first quarter, pay that down so that we are completely out of debt and well ahead by the end of next fiscal year.
But you should expect to see some modest debt at the end of the first quarter and then try reducing to the remainder of the year.
Andrew Fones - UBS
Got it. Thank you, that was helpful.
John J. Haley - President and Chief Executive Officer
Okay. Thanks.
Operator
And the next question comes from the line of T.C. Robillard from Bank of America Securities.
You may proceed.
T.C. Robillard - Bank of America
Thank you, good morning guys.
John J. Haley - President and Chief Executive Officer
Good morning.
Carl D. Mautz - Vice President and Chief Financial Officer
Good morning.
T.C. Robillard - Bank of America
[inaudible] Carl. Again, congratulations on the retirement.
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you.
T.C. Robillard - Bank of America
Just wanted to just drill down a little bit more on the operating margin I mean, I think you guys definitely gave some good clarity on it. I just want to make sure, I am understanding something because when I looked at the...
the fourth quarter results you saw a pretty good year-on-year increase in both the occupancy and on the salary side. I mean, the salary side obviously sounds like some hiring particularly in Asia, but what drove the occupancy line?
I mean is that... is some of that tied in with the Benefits practice or I'm sorry, with the Technology practice or is there something else there that, that I may be missing?
Carl D. Mautz - Vice President and Chief Financial Officer
Couple of things, you see the couple of... the insight that will be helpful.
First of all, we negotiated our way out some extra space in New York. We got a $1 million lease provision there to take care of that lease loss.
You also have the German acquisitions pulling into all the numbers and that makes it different quarter over quarter.
John J. Haley - President and Chief Executive Officer
Including the salary.
Carl D. Mautz - Vice President and Chief Financial Officer
Yes, yes. You should recognize that the seasonality of the company is fundamentally changing a bit and you start in the fourth quarter, I think we talked about it in May, but the German business has a very strong December quarter and a March quarter, all of their profit comes in those two quarters and by the end of the...
end of the fourth quarter there is actually some negative impact on the margin. So you should expect to see a seasonality that's much more like what we've just been through, we'll return to more...
our more normal margins in the first quarter of next year.
T.C. Robillard - Bank of America
Okay and then on...
Carl D. Mautz - Vice President and Chief Financial Officer
Did that help?
T.C. Robillard - Bank of America
Yes, absolutely, thank you. What drove the lower tax rate in the quarter, I apologize if you had said that, I missed it on the prepared remarks.
Carl D. Mautz - Vice President and Chief Financial Officer
I didn't say it. Fundamentally the issue with the tax rate is where in the geography around the world the income is generated.
And we do our best to forecast that, spend a fair amount of time at it, but if the European business does better and I'm going to say the horrible thing, the actual truth of Europe.. we have lower tax rates in the UK than we do in the U.S., for all of you to note.
So when we get strong performance in the UK it does wonderful things to our tax rate.
T.C. Robillard - Bank of America
So how should... what's your earnings guidance based on from a tax rate standpoint, is it off of kind of a lower kind of 30% to 32% or is it...
or should we still be thinking about kind of a 33%, 35% rate?
Carl D. Mautz - Vice President and Chief Financial Officer
You should be thinking about a high 32, maybe a... if you guess 33% you'll certainly be safe, my guess is a little bit of opportunity against that.
But again, it's a matter of how the European business performed in relation to the North American business to see who has the larger slug in the income.
John J. Haley - President and Chief Executive Officer
But our guidance did assume that the tax rate is a little worse in FY '09 than in FY '08.
Carl D. Mautz - Vice President and Chief Financial Officer
That's correct. We did 32.1% for the year in '08, we're forecasting at 32.9%.
T.C. Robillard - Bank of America
Okay. And then on the discretionary comp.
Can you remind me how we should be thinking about that as we're going forward, I mean should that grow roughly in line with pretax income or do you guys think about that a different way. I mean I know you guys accrue for that each quarter.
I'm just trying to figure out how we should be thinking about that from a modeling perspective.
Carl D. Mautz - Vice President and Chief Financial Officer
We're actually growing the bonus pool and net income at the same rate. So that...
so you have a little bit of an iteration there but that's where you should model it.
T.C. Robillard - Bank of America
Okay.
Carl D. Mautz - Vice President and Chief Financial Officer
That roughly gets you to the point of growing them both at pre-bonus level except at this year, we're expecting, you heard me reference that $4 million of royalties that we'll be getting from our spin-off business from last... that we spun off last year.
So that will move that equation just a little bit.
T.C. Robillard - Bank of America
Okay. And then just a quick housekeeping, and I'll jump in the queue.
What were shares out at June 30?
Carl D. Mautz - Vice President and Chief Financial Officer
42... that's right here.
42.8.
T.C. Robillard - Bank of America
42.8. Great, thanks guys.
Operator
And your next question comes from the line of Ashwin Shirvaikar from Citigroup. You may proceed.
Ashwin Shirvaikar - Citigroup
Thanks. Nice results, John and Carl.
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you.
John J. Haley - President and Chief Executive Officer
Hi Ashwin. It's nice to give a message here.
Ashwin Shirvaikar - Citigroup
Last time I'm saying nice results, John and Carl, hopefully next time I'll say nice results, John and Roger.
John J. Haley - President and Chief Executive Officer
I am sure that you will.
Carl D. Mautz - Vice President and Chief Financial Officer
Roger likes that idea a lot, Ashwin.
Ashwin Shirvaikar - Citigroup
Roger, welcome.
Roger F. Millay - Chief Financial Officer
Thank you.
Ashwin Shirvaikar - Citigroup
One of the factors that is given in matter of caution has been sort of line of thinking that says the impact of regulatory reform is one-time in nature with a possible falloff at the back end of such change. My question is what has been your experience with the early adopters of this form?
Will it just form a bigger base or does the revenues from those clients drop off?
John J. Haley - President and Chief Executive Officer
Yes, I mean Ashwin, as you recall during the last few years as we've had these various regulatory or legislative changes come in. I've been consistently of the opinion that the short-term impact would be a lot less than people thought and the longer-term impact would be longer lasting.
And I continue to think that's right, I think so far the results have indicated that belief.
Ashwin Shirvaikar - Citigroup
So you're saying that the base has gotten bigger?
John J. Haley - President and Chief Executive Officer
Yes, I think what happens is you tend to have a more complex environment, it doesn't tend to be a big bank where there is just a whole lot of work and it disappears.
Ashwin Shirvaikar - Citigroup
Okay. Now, in terms of...
and I missed this when you're talking about the admin margins, did the margin pressure due to the UK ramps? Until when do you expect that to last, so how long are these ramps?
Carl D. Mautz - Vice President and Chief Financial Officer
I would expect that the pressure will be in the first couple of quarters this year, and you will start to see some improvement, the revenue growth starts to kick in as these clients come on board and the upfront costs, which are largely training and as well as it can't be capitalized or completed.
Ashwin Shirvaikar - Citigroup
Okay. And investment consulting is something going on in the first quarter.
It seems to be a little drop-off in the growth rate or is it just a comp issue?
Carl D. Mautz - Vice President and Chief Financial Officer
The investment consulting, I would first of all, they're coming off of a very strong year. So I'm not surprised that the growth rates are coming down a little bit.
We expect to do some significant hiring in the early part of this year and then through much of the year. Those people will need a chance to get up to speed, but we think that there is lots of opportunity [inaudible] the investment.
Ashwin Shirvaikar - Citigroup
Okay. The income from affiliates?
What was that?
Carl D. Mautz - Vice President and Chief Financial Officer
We basically have one affiliate, it's our captive insurance company that we own about a third of I guess and we have little visibility, this flows from their creation or release of loss reserves and in this case none of it was related to any of our own cases, it was all coming from other members, other owners that when they release reserves or have to create loss reserves we pick up our share of that and that's what has happened here.
Ashwin Shirvaikar - Citigroup
Okay, now I remember going back to October of last year following the divestiture that you had. There was an expectation I believe that your insurance rates would go down at some point, is that happening in fiscal 09?
Carl D. Mautz - Vice President and Chief Financial Officer
In actuality, yes we do have a slight reduction in our insurance costs from '09 to '08.
John J. Haley - President and Chief Executive Officer
We do think that the divestiture as a multi-employer practice is probably longer term where we'll really get the benefit from that, Ashwin.
Ashwin Shirvaikar - Citigroup
Okay and my last question and then I'll just hop back in the queue is with regards to... exchange rates have moved obviously unfavorably within the last week or so, is there a view amongst you guys to take sort of a...
more of a hedging kind of an approach, I mean you guys don't hedge currently, right?
John J. Haley - President and Chief Executive Officer
We do not try to hedge, certainly not the P&L, we do have some situations where we are having to move currencies back and forth between legal entities and we do watch that pretty carefully, but fundamentally we're not trying to hedge the P&L at all.
Carl D. Mautz - Vice President and Chief Financial Officer
No and we think that would be expensive to try to do something like that. We, fundamentally though we tend to have...
our people tend to be in the areas where we're operating there and so we have a large portion of our cost there too.
John J. Haley - President and Chief Executive Officer
You have a natural hedge at the income line getting both revenue and expense.
Carl D. Mautz - Vice President and Chief Financial Officer
It's not like we are building a product all in one country and then selling it and distributing it in different countries around the world and we have all of our costs in one country and all the revenue in different ones. So we tend to have that natural hedge anyway.
Ashwin Shirvaikar - Citigroup
Right now it's weighed more about the cancellation impact on revenues given what's... given the potential for a stronger unit.
John J. Haley - President and Chief Executive Officer
Yes, I mean we've taken that into account to be as to the best we can in our guidance and one of the reasons even the years when the currency was helping us, we kept on focusing on the constant currency even though the other results were higher just because we think that that's probably the best long run indicator of what's going on with the business and we still think that's the thing we're focused on for next year.
Ashwin Shirvaikar - Citigroup
Okay, great. Thank you guys
Operator
And the next question comes from the line of Brandt Sakakeeny from Deutsche Banc. You may proceed.
Brandt Sakakeeny - Deutsche Banc Securities
Thanks, Carl congratulations on...
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you.
Brandt Sakakeeny - Deutsche Banc Securities
Great help, thanks. On the CapEx, could you give us numbers for both your plans for capitalized software costs as well as PP&E for '09.
Carl D. Mautz - Vice President and Chief Financial Officer
For '09 PP&E, we were looking about $44 million. We got major office buildouts going on and Mary is writing me a note so that I can give you a CapEx number...
5 million?
Mary Malone - Director of Investor Relations
No, about the same as this year.
Carl D. Mautz - Vice President and Chief Financial Officer
About the same as this year. Thank you.
I didn't have that number at the tip of my tongue.
Brandt Sakakeeny - Deutsche Banc Securities
Okay, so for the capitalized offer [ph], did you say 20 million?
Carl D. Mautz - Vice President and Chief Financial Officer
Yes.
John J. Haley - President and Chief Executive Officer
We can just flip to my model, yes.
Brandt Sakakeeny - Deutsche Banc Securities
So, 66 total in CapEx?
Carl D. Mautz - Vice President and Chief Financial Officer
Yes, yes.
Brandt Sakakeeny - Deutsche Banc Securities
Great and just on the insurance forecast for FY09, that seems obviously better than what you did in FY08? What are the principal reasons behind, behind the recovery there?
Carl D. Mautz - Vice President and Chief Financial Officer
I'm sorry, I didn't get the first part of your question. Which [inaudible].
Brandt Sakakeeny - Deutsche Banc Securities
Yes, in the end of FY '09 forecast, it looks to be an improvement from FY '08.
Carl D. Mautz - Vice President and Chief Financial Officer
Yes.
Brandt Sakakeeny - Deutsche Banc Securities
Just wanted to push that a little bit and find out what are the factors sort of behind the expectations?
Carl D. Mautz - Vice President and Chief Financial Officer
Yes. We had...
we continue to have great expectations and strong performance in Asia last year that we'll continue with the practice, you'll see a greater increase in profitability than you do in revenue because we've rightsized in Europe. I'm cautious [inaudible] tell me I shouldn't be quite so cautious but we think we're...
that's where the revenue growth is going to come from.
Brandt Sakakeeny - Deutsche Banc Securities
Okay, are you gaining any traction in the U.S.?
Carl D. Mautz - Vice President and Chief Financial Officer
We've rightsized the U.S. business also so that it can become profitable.
We're not getting the kind of traction we'd like to have. The life...
we're going to continue to build the life business and to we can make of that, but fundamentally, we're not getting the kind of traction we would like to have.
Brandt Sakakeeny - Deutsche Banc Securities
All right, great and John, do you mind just talking to the acquisition pipeline, really just specifically are there geographies or practices that you're really focused on right now for FY '09 and FY '10?
John J. Haley - President and Chief Executive Officer
Yes, I mean, I think Brandt there is a... there is a number of potential acquisitions we are looking at out there.
I would say most of them are not necessarily all that big. There is nothing that we see is a big hole the way we saw not having significant operations in Germany or the Netherlands.
We thought those were big holes that needed to be filled. I don't think we see the same, I think we see some interesting opportunities out there, but nothing that is sort of a burning need the way those were.
Brandt Sakakeeny - Deutsche Banc Securities
Okay, great, thanks very much and welcome to Roger as well.
Roger F. Millay - Chief Financial Officer
Thank you.
Operator
And the next question comes from the line of Mark Marcon from R.W. Baird.
You may proceed.
Mark Marcon - Robert W. Baird
Hi, good morning and congratulations to the entire team.
John J. Haley - President and Chief Executive Officer
Thank you.
Mark Marcon - Robert W. Baird
Obviously, great congratulations to Carl and welcome, Roger, I have heard some great things about you.
Roger F. Millay - Chief Financial Officer
Thanks very much.
Mark Marcon - Robert W. Baird
Wondering, with regards to the Investment Consulting division. John, you mentioned a little bit about the uncertainty out there.
I was wondering if you could amplify your comments a little bit or expand on with regards to what are some of the positives and some of the minuses that we could face this year in the investment consulting arena and particularly you mentioned there is volatility and so maybe there's... it seemed like that would be a positive but it also sounded like you were cautioning that there could be some negative ramifications from that as well?
John J. Haley - President and Chief Executive Officer
Yes, I think you first of all in general if we look back over the longer run for our Investment Consulting model, when you tend to have... when you tend to have tough times, people tend to look for more investment consulting and so we've...
we tend to see downtimes as something where maybe that's not so bad for the whole Investment Consulting model. In the remarks I was talking about our market conditions impacting liquidity and pricing for clients wanting to hedge liability risks and so what we were really saying is the possibilities for them to be doing some sophisticated hedging may not be there as much next year as they had been that year and it could hurt that particular part of the business.
Overall though we've had several years of very high growth for investment consulting. We're still thinking we're going to grow at a very high rate for next year and in fact, indeed we think we're going to grow at a very high rate for several more years at least.
Maybe not quite as high as the last few years but we still think that this is a very attractive business and one which is going to continue to do well. One of the things that is impacting it a little bit is we are investing in this business.
We're looking to hire a fair number of people and to expand our capability. So we think now is exactly the right time to be doing that.
So that's bringing down the margins a little bit. I think we're hiring about 85 people is what we're bringing in but overall, I think we're reasonably bullish and I think if you were to ask me in general tough times probably add more to investment consulting rather than subtract from it.
Mark Marcon - Robert W. Baird
Okay, so you were just talking about that one particular facet, but on the balance things should [inaudible]?
John J. Haley - President and Chief Executive Officer
Right, I was just... exactly, I was just talking about that one particular facet.
Now to the extent we get success fees for doing better than benchmarks. We've gotten some success fees over the last few years, that's been in an up market.
Will we also perform better if there is a down market or something, I think that remains to be seen too.
Mark Marcon - Robert W. Baird
Okay, and then can you talk, you've made some comments about obviously the economy is on everybody's mind, when you're making your comments with regards to just being consciously optimistic and obviously the economy being the negative constrain. Were you referring specifically to the U.S.
or were you making comments on a worldwide basis and I'm wondering what are you hearing from your international offices as it relates to demand for services on a global basis given the economic uncertainties, do you see the fear spreading or are people still fairly sanguine?
John J. Haley - President and Chief Executive Officer
I think, I would say that there is two components to this. First of all, we were talking on a global basis about...
when we were mentioning uncertainty. If we look at the...
just what's happening with our business and what's happening with our clients. I think, we don't see...
things still look pretty strong, things have looked strong all of fiscal '08, they look strong at the moment right now and so we're feeling pretty good about what's going on. We can't help but look at the world around us though and note that there is a lot of people with a lot of concerns about what's going on.
About six months ago, we were hearing that more from the U.S. than we were from say Europe and I think today we would probably hear more concerns expressed from Europe than we would from the U.S.
Mark Marcon - Robert W. Baird
Okay, but your guidance is taking that all into account and you're still going to be conservative?
John J. Haley - President and Chief Executive Officer
Our guidance is taking that all into account, we're trying to be somewhat conservative, I think if you look at it, we grew about 8% on a constant currency basis organic in FY'08 and we have a...we're saying we're going to grow in the 5% to 8% range for FY'09. However for a couple of significant things we're not projecting any margin improvement and I think that's probably where we have some conservatism involved in everything.
But we think it's a... we've talked about is how conservative is this.
We don't think it's terribly conservative, we think it's a little bit conservative.
Mark Marcon - Robert W. Baird
Okay. Now, this is the first time you've admitted to being conservative on a call.
So...
John J. Haley - President and Chief Executive Officer
You know what Mark, you just beat over the head with us so many quarters.
Mark Marcon - Robert W. Baird
So one thing on the compensation and professional services, particularly the compensation. How should we think about the increase that we saw this last quarter from a couple of perspectives.
I guess one perspective would be things are going extremely well right now. If you wanted to invest during this period, this would...
you certainly have covered to do that and particularly in light of future anticipated demand. So that would be one reason for comp going up.
The other factor would be things are going well and your consultants are probably in high demand and may have higher expectations for their own compensations. So I'm wondering, is that when we looked at this compensation this quarter, should we think about it more as the former or the latter?
How does it... I'm sure it's a blend of the two but how...
which way this would skew more?
John J. Haley - President and Chief Executive Officer
Well, as Carl mentioned, some of the salary costs are up, if you have to factor in acquisitions like Heissmann. Are you looking sequential, or are you looking year-over-year?
Mark Marcon - Robert W. Baird
I'm thinking about it both ways.
Carl D. Mautz - Vice President and Chief Financial Officer
Okay. Year-over-year, I think John is exactly right.
It's Heissmann which was a pretty good group of folks and you shouldn't be surprised at that. You should think about compensation going up in '09, we're going to add as we've noted to you, we have added a fair number of folks and we're going to add a fair number of folks in the investment consulting practice, probably half of that 85 folks is going to come in the first quarter.
And so you'll start to see a little bit of increase there. A little bit of it is the cost of doing some of the rightsizing but I don't think you should beyond what we specifically talked about, you should not...
as you're looking at it sequentially, I think that there is going to be dramatic increase sequentially.
John J. Haley - President and Chief Executive Officer
Yes. I would say a couple of things though just to add to that, Mark.
We... as we do better, as an organization, as you know our philosophy is that we should reward our stakeholders equally.
And so we grow our after-tax net income and we grow our bonus pool at exactly the same rates. And so, our earnings went up about 34% this year.
The amount of money we allocated, the bonuses went up 34%. So, we are able to continue to reward our associates and to make sure that they're paid at for all the great results that they have been achieving.
We look to continue that going forward, we want to make sure that we're rewarding our associates and paying them fairly. I think we do think that there are some attractive opportunities for us to invest now but we're going to do that on a cautious basis also.
Mark Marcon - Robert W. Baird
Okay. Great.
And then the last question and I'll hop back in the queue. The affiliate income obviously that swings around quite a bit.
What are your expectations for that number, that's baked into your forecasts?
Carl D. Mautz - Vice President and Chief Financial Officer
We tend to be... I am not going to use that C word, I certainly won't admit to that, but anyway, we don't expect this to repeat next year and so we get zero built-in.
Mark Marcon - Robert W. Baird
Zero built-in?
Carl D. Mautz - Vice President and Chief Financial Officer
Yes.
Mark Marcon - Robert W. Baird
What's the probability of zero coming through?
Carl D. Mautz - Vice President and Chief Financial Officer
My view is that we're seeing better and better performance in the loss areas. So I think that's a reasonable estimate.
I would guess that we might... the probability that we might do a little bit better than that is higher than the probability that we would do worse.
Mark Marcon - Robert W. Baird
Right, thank you.
Operator
And the next question comes from Shlomo Rosenbaum from Stifel Nicolaus. You may proceed.
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Hi, thank you for squeezing me in over here. Just a few follow-up questions.
You talked about increased competition in investment consulting group, actually I want to ask you if you are seeing an increased competition in investment consulting group, you guys are doing very well in that area and I know some of your competitors are trying to either re-build or continue to build their practices in that area?
Carl D. Mautz - Vice President and Chief Financial Officer
Generally no, we are not seeing much in the way of increased competition there. I mean I guess that we...
the kind of services we're offering, we're not seeing much competition for that.
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Okay, and you talked in the TAS Group that you're seeing some increased competition and so you don't want to go after unprofitable business, which is good. I'm just wondering where is the competition coming from, in other words, can you talk about some of the players, or is there increased competition from existing players, are there additional players that are pushing into that business?
Carl D. Mautz - Vice President and Chief Financial Officer
Well, this is one of these markets that is subject to swings from time to time. A particular organization may decide they need to get some business and they will come in with some very low ball prices for something and then they will get the business and go away, and we'll go back to normal pricing.
We've just been seeing a little bit more of these kinds of fluctuations over the last six months. We've concluded that we'd rather just sit that out a little bit and make sure that we don't get sucked in any of these unprofitable ones.
John J. Haley - President and Chief Executive Officer
Shlomo, I would only add to that, if I may, that it's the North American business where we're seeing that pricing competition. In Europe, the pricing competition has always been there and that's one of the reasons why we are so very excited about the significant wins of these major new clients in Europe.
We have been able to price to be profitable in Europe. Our reputation and the brand are very strong and so we've had...
it just makes it a little more exciting.
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Okay. And can you just talk a little bit more about the cash flow, I didn't get it totally straight.
What we should expect in terms of the bonus payouts and maybe reversal of some of the positive working capital items going into next quarter?
Carl D. Mautz - Vice President and Chief Financial Officer
We will pay bonuses in the September time frame of about $184 million, we'll use the bonus, that's why we accrued and we will pay taxes. So we anticipate probably borrowing about $80 million by the end of the quarter, obviously getting a little bit of cash.
That we will then pay down gradually over the ensuing couple of quarters also while we finish the share repurchase so that by this time next year we'll have probably enough cash on the balance sheet to cover the bonuses and not have to borrow at all.
John J. Haley - President and Chief Executive Officer
That's been our traditional pattern.
Carl D. Mautz - Vice President and Chief Financial Officer
Yes.
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Okay. And if you could just talk a little bit more in terms of the strength in retirement services, can you just talk about where we're strongest, is there a particular area of work where you're seeing strength, if you'd just talk giving some specifics in that area?
Carl D. Mautz - Vice President and Chief Financial Officer
You're talking about our retirement consulting business, we think...
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Yes.
Carl D. Mautz - Vice President and Chief Financial Officer
We're very strong, a dominant player in the UK, very strong competitive player amongst the four who are the major competitors in the U.S. I'm not sure I'm answering your question, I'm not quite sure I understand the question.
John J. Haley - President and Chief Executive Officer
I don't think there's... I don't think, maybe I could just answer it in another way, I think what Carl is trying to say is we...
there is not one specific area, either geographically or practice-wise [ph] that we would say this is where the strength of our business is. We are a...
we're strong across all areas of retirement and really across all geographies.
Shlomo Rosenbaum - Stifel, Nicolaus & Company
Okay. That is what I was asking.
Thank you very much.
Operator
[Operator Instructions]. And the next question comes from the line of T.C.
Robillard from Bank of America Securities. You may proceed.
T.C. Robillard - Bank of America
Great. Thanks.
Just a quick follow-up on the insurance practice to an earlier question. In your guidance for fiscal '09, are you expecting to see traction pick up again in the US or are you expecting the US to be rightsized from a cost perspective but still kind of treading water from a revenue perspective.
Carl D. Mautz - Vice President and Chief Financial Officer
The major sources of growth that we're expecting in the insurance practice will come in Asia and Europe. Europe will also contribute more to the profitability because of the rightsizing there.
We're not anticipating a huge growth in the United States. We do expect them to grow a little bit and to do some profit but the big players will be as we noted Europe with some contribution from Asia.
T.C. Robillard - Bank of America
Okay. And then just on the headcount for that practice, it was up 8% year-on-year and you guys obviously touched on that and what was driving that but, considering where we're rightsize, should we be expecting much growth in headcount as we're looking forward, the fiscal basis, fiscal '09?
Carl D. Mautz - Vice President and Chief Financial Officer
In the insurance practice?
T.C. Robillard - Bank of America
In the insurance practice specifically.
Carl D. Mautz - Vice President and Chief Financial Officer
No, I wouldn't anticipate that I think that's largely done.
T.C. Robillard - Bank of America
Okay. Great.
Thanks guys.
Carl D. Mautz - Vice President and Chief Financial Officer
Yes.
Operator
And the next question comes from the line of Mark Marcon from R.W. Baird.
You may proceed.
Mark Marcon - Robert W. Baird
As we look out towards next year or I guess this year, what should our expectations be in terms of overall headcount growth and which practices would you expect to increase the most?
Carl D. Mautz - Vice President and Chief Financial Officer
You should expect headcount increase in the investment consulting practice as we talked about.
Mark Marcon - Robert W. Baird
Yes.
Carl D. Mautz - Vice President and Chief Financial Officer
We will do our normal hiring in the retirement practice around as well as we keep the pipeline full and but I don't know that's necessarily going to lead to increases in headcount, we have been gradually reducing headcount over time there and getting more efficiencies out of the practice. So I wouldn't expect significant headcount increases there.
I would guess that other than in investment consulting, you're going to be...
John J. Haley - President and Chief Executive Officer
Yes, could I maybe, just to sum this up Mark, we've already made some hires for FY '09 in two practices. One of them is in insurance as Carl has mentioned and the other is in TAS, Technology Administration Solutions, particularly TAS in Europe for those 10 major clients that we're working on those.
Those people have already been hired and are on board. So we have those, the only one that we're really saying then leaving those two aside, the only one where we think we're going to be adding people in FY '09 to a significant grade is in investment consulting.
Mark Marcon - Robert W. Baird
Okay. And what...
in general, I would assume that you're still going to see some increases in most of the other practices, what would that generally be or should it be flat?
John J. Haley - President and Chief Executive Officer
I think we will... we are going to be continuing to hire people, but we think it will be...
it will probably be closer to a constant or a very, a percent or two increase.
Mark Marcon - Robert W. Baird
Okay and that's what I was trying to get at a little bit earlier, it seems like maybe you've invested a little bit in front of '09 in '08.
John J. Haley - President and Chief Executive Officer
That's correct.
Mark Marcon - Robert W. Baird
Okay. And then...
John J. Haley - President and Chief Executive Officer
Particularly in those two practices we mentioned, yes.
Mark Marcon - Robert W. Baird
Yes. And you're obviously right in the nation's capital, are you still led there maybe heightened sensitivity to that where regardless no matter what we're going to have some form of an administration change.
What do you think the impact would be if we do have an administrative change in terms of the potential for increased consulting work just around potential new legislation, is that baked into your forecast at all or how do you think about it?
John J. Haley - President and Chief Executive Officer
We haven't baked that into our forecast, we've tried to think about that a little bit, I guess the.... there is lots of different scenarios that you can concoct for this.
Overall though change tends to favor consulting firms and the more change the more it tends to favor them. So I think, if you were to get a democratic administration in, you probably have more change than if you were to continue with a Republican administration you might think that that would be a little bit better for us.
Mark Marcon - Robert W. Baird
Okay.
John J. Haley - President and Chief Executive Officer
But I don't think... I think in any event we don't see any big negatives coming in from either candidate in terms of this would be bad for business and I don't think we necessarily see anything to say this would be great for business either.
Mark Marcon - Robert W. Baird
That's fair. Thank you.
Operator
And at this time, there is no further questions in the queue. I will pass the call over to Mr.
John Haley for closing remarks.
John J. Haley - President and Chief Executive Officer
Okay. Thanks again everybody for joining us.
We look forward to seeing you at our upcoming Analyst Day, which will be September 17th in our New York City office. Good bye.
Operator
Thank you, ladies and gentlemen. This concludes the presentation for today.
You may now disconnect.