The Interpublic Group of Companies, Inc.
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||
(Exact Name of Registrant as Specified in Charter)
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||
Delaware
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1-6686
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13-1024020
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(State or Other Jurisdiction
of Incorporation) |
(Commission File
Number) |
(IRS Employer
Identification No.) |
1114 Avenue of the Americas, New York, New York
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10036
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|
(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number, including area code: 212-704-1200
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||
(Former Name or Former Address, if Changed Since Last Report)
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Exhibit 99.1:
|
Press release dated February 24, 2012 (furnished pursuant to Item 2.02)
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Exhibit 99.2:
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Conference call transcript dated February 24, 2012 (furnished pursuant to Item 2.02)
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Exhibit 99.3:
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Investor presentation dated February 24, 2012 (furnished pursuant to Item 2.02)
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THE INTERPUBLIC GROUP OF COMPANIES, INC. | ||
Date: February 29, 2012
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By:
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/s/ NICHOLAS J. CAMERA |
Name: Nicholas J. Camera Title: Senior Vice President, General Counsel and Secretary |
FOR IMMEDIATE RELEASE
|
New York, NY (February 24, 2012)
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·
|
Organic revenue increase of 6.1% for the full year 2011, and 2.8% in the fourth quarter
|
·
|
Operating income increased 25% for the full year 2011 and 17% for the fourth quarter, to $687.2 million and $385.3 million, respectively
|
·
|
Full year 2011 diluted earnings per share of $0.99, or $0.76 excluding benefit of the third quarter Facebook transaction, a 62% increase compared to $0.47 diluted earnings per share for the full year 2010
|
·
|
Fourth quarter 2011 diluted earnings per share of $0.50, a 39% increase compared to $0.36 for the fourth quarter 2010
|
·
|
New $300 million share repurchase program authorized – dividend to continue at current levels
|
·
|
Company calls convertible notes to eliminate 33 million diluted shares
|
·
|
Revenue
|
o
|
Full year 2011 revenue was $7.01 billion, compared to $6.51 billion in 2010, with an organic revenue increase of 6.1% compared to the prior-year period and organic revenue growth at all major agency networks.
|
o
|
Fourth quarter 2011 revenue was $2.07 billion, compared to $2.01 billion in the fourth quarter of 2010, with an organic revenue increase of 2.8%, on top of very strong 11.2% organic revenue growth in the prior-year period.
|
·
|
Operating Results
|
o
|
For the full year 2011, operating income was $687.2 million, compared to operating income of $548.7 million in 2010. Operating margin was 9.8% for the full year 2011, compared to 8.4% in 2010.
|
o
|
Operating income in the fourth quarter of 2011 was $385.3 million, compared to operating income of $330.7 million in 2010. Operating margin was 18.6% for the fourth quarter of 2011, compared to 16.5% in 2010.
|
·
|
Net Results
|
o
|
Full year 2011 net income available to IPG common stockholders was $520.7 million, resulting in earnings of $1.12 per basic and $0.99 per diluted share. Excluding the impact of the Facebook transaction during the third quarter, diluted earnings per share was $0.76. This compares to net income available to IPG common stockholders of $271.2 million, or $0.57 per basic and $0.47 per diluted share a year ago. Basic earnings per share for the full year 2010 was benefitted by $25.7 million from the repurchase of Series B Preferred Stock that occurred in the second quarter of 2010.
|
o
|
Fourth quarter 2011 net income available to IPG common stockholders was $259.0 million, resulting in earnings of $0.58 per basic and $0.50 per diluted share, compared to $195.0 million, or $0.41 per basic and $0.36 per diluted share a year ago.
|
Tom Cunningham
(Press)
(212) 704-1326
|
Jerry Leshne
(Analysts, Investors)
(212) 704-1439
|
·
|
potential effects of a challenging economy, for example, on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;
|
·
|
our ability to attract new clients and retain existing clients;
|
·
|
our ability to retain and attract key employees;
|
·
|
risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;
|
·
|
potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;
|
·
|
risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and
|
·
|
developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.
|
Three Months Ended December 31,
|
||||||||||||
2011
|
2010
|
Fav. (Unfav.)
% Variance
|
||||||||||
Revenue:
|
||||||||||||
United States
|
$
|
1,039.1
|
$
|
1,028.9
|
1.0%
|
|||||||
International
|
1,033.5
|
976.3
|
5.9%
|
|||||||||
Total Revenue
|
2,072.6
|
2,005.2
|
3.4%
|
|||||||||
Operating Expenses:
|
||||||||||||
Salaries and Related Expenses
|
1,138.3
|
1,139.6
|
0.1%
|
|||||||||
Office and General Expenses
|
548.8
|
533.3
|
(2.9)%
|
|||||||||
Restructuring and Other Reorganization-Related Charges, Net
|
0.2
|
1.6
|
N/M
|
|||||||||
Total Operating Expenses
|
1,687.3
|
1,674.5
|
(0.8)%
|
|||||||||
Operating Income
|
385.3
|
330.7
|
16.5%
|
|||||||||
Operating Margin %
|
18.6%
|
16.5%
|
||||||||||
Expenses and Other Income:
|
||||||||||||
Interest Expense
|
(38.9)
|
(37.4)
|
||||||||||
Interest Income
|
10.1
|
9.3
|
||||||||||
Other Income, Net
|
13.9
|
17.6
|
||||||||||
Total (Expenses) and Other Income
|
(14.9)
|
(10.5)
|
||||||||||
Income before Income Taxes
|
370.4
|
320.2
|
||||||||||
Provision for Income Taxes
|
93.7
|
98.9
|
||||||||||
Income of Consolidated Companies
|
276.7
|
221.3
|
||||||||||
Equity in Net Income of Unconsolidated Affiliates
|
1.6
|
1.5
|
||||||||||
Net Income
|
278.3
|
222.8
|
||||||||||
Net Income Attributable to Noncontrolling Interests
|
(16.4)
|
(24.9)
|
||||||||||
Net Income Attributable to IPG
|
261.9
|
197.9
|
||||||||||
Dividends on Preferred Stock
|
(2.9)
|
(2.9)
|
||||||||||
Net Income Available to IPG Common Stockholders
|
$
|
259.0
|
$
|
195.0
|
||||||||
Earnings Per Share Available to IPG Common Stockholders:
Basic
|
$
|
0.58
|
$
|
0.41
|
||||||||
Diluted
|
$
|
0.50
|
$
|
0.36
|
||||||||
Weighted-Average Number of Common Shares Outstanding:
Basic
|
448.3
|
475.4
|
||||||||||
Diluted
|
523.2
|
553.1
|
||||||||||
Twelve Months Ended December 31,
|
||||||||||||
2011
|
2010
|
Fav. (Unfav.)
% Variance
|
||||||||||
Revenue:
|
||||||||||||
United States
|
$
|
3,887.7
|
$
|
3,709.9
|
4.8%
|
|||||||
International
|
3,126.9
|
2,797.4
|
11.8%
|
|||||||||
Total Revenue
|
7,014.6
|
6,507.3
|
7.8%
|
|||||||||
Operating Expenses:
|
||||||||||||
Salaries and Related Expenses
|
4,402.1
|
4,117.0
|
(6.9)%
|
|||||||||
Office and General Expenses
|
1,924.3
|
1,837.7
|
(4.7)%
|
|||||||||
Restructuring and Other Reorganization-Related Charges, Net
|
1.0
|
3.9
|
N/M
|
|||||||||
Total Operating Expenses
|
6,327.4
|
5,958.6
|
(6.2)%
|
|||||||||
Operating Income
|
687.2
|
548.7
|
25.2%
|
|||||||||
Operating Margin %
|
9.8%
|
8.4%
|
||||||||||
Expenses and Other Income:
|
||||||||||||
Interest Expense
|
(136.8)
|
(139.7)
|
||||||||||
Interest Income
|
37.8
|
28.7
|
||||||||||
Other Income, Net
|
150.2
|
12.9
|
||||||||||
Total (Expenses) and Other Income
|
51.2
|
(98.1)
|
||||||||||
Income before Income Taxes
|
738.4
|
450.6
|
||||||||||
Provision for Income Taxes
|
190.2
|
171.3
|
||||||||||
Income of Consolidated Companies
|
548.2
|
279.3
|
||||||||||
Equity in Net Income of Unconsolidated Affiliates
|
3.3
|
1.9
|
||||||||||
Net Income
|
551.5
|
281.2
|
||||||||||
Net Income Attributable to Noncontrolling Interests
|
(19.2)
|
(20.1)
|
||||||||||
Net Income Attributable to IPG
|
532.3
|
261.1
|
||||||||||
Dividends on Preferred Stock
|
(11.6)
|
(15.6)
|
||||||||||
Benefit from Preferred Stock Repurchased
|
0.0
|
25.7
|
||||||||||
Net Income Available to IPG Common Stockholders
|
$
|
520.7
|
$
|
271.2
|
||||||||
Earnings Per Share Available to IPG Common Stockholders:
Basic
|
$
|
1.12
|
$
|
0.57
|
||||||||
Diluted
|
$
|
0.99
|
$
|
0.47
|
||||||||
Weighted-Average Number of Common Shares Outstanding:
Basic
|
465.5
|
473.6
|
||||||||||
Diluted
|
540.6
|
542.1
|
Twelve Months Ended December 31, 2011
|
||||||
As reported
|
Facebook
|
Ex - Facebook
|
||||
Income Before Income Taxes
|
$ 738.4
|
$ 132.2
|
$ 606.2
|
|||
Provision for Income Taxes
|
(190.2)
|
(6.0)
|
(184.2)
|
|||
Effective Tax Rate
|
25.8%
|
30.4%
|
||||
Equity in Net Income of Unconsolidated Affiliates
|
3.3
|
3.3
|
||||
Net Income Attributable to Noncontrolling Interests
|
(19.2)
|
(19.2)
|
||||
Dividends on Preferred Stock
|
(11.6)
|
(11.6)
|
||||
Net Income Available to IPG Common Stockholders - Basic
|
$ 520.7
|
$ 126.2
|
$ 394.5
|
|||
Adjustments: Effect of Dilutive Securities
|
||||||
Interest on 4.25% Notes
|
1.4
|
1.4
|
||||
Interest on 4.75% Notes
|
4.1
|
4.1
|
||||
Preferred stock dividends
|
11.6
|
11.6
|
||||
Net Income Available to IPG Common Stockholders - Diluted
|
$ 537.8
|
$ 411.6
|
||||
|
||||||
Weighted-Average Number of Common Shares Outstanding - Basic
|
465.5
|
465.5
|
||||
Add: Effect of Dilutive Securities
|
||||||
Restricted Stock, Stock Options and Other Equity Awards
|
9.1
|
9.1
|
||||
4.25% Notes
|
33.0
|
33.0
|
||||
4.75% Notes
|
16.5
|
16.5
|
||||
Preferred Stock Outstanding
|
16.5
|
16.5
|
||||
Weighted-Average Number of Common Shares Outstanding - Diluted
|
540.6
|
540.6
|
||||
Earnings Per Share Available to IPG Common Stockholders - Basic
|
$ 1.12
|
$ 0.85
|
||||
Earnings Per Share Available to IPG Common Stockholders - Diluted
|
$ 0.99
|
$ 0.76
|
Alexia S. Quadrani
J.P. Morgan
John Janedis
UBS Securities
Benjamin Swinburne
Morgan Stanley
David Bank
RBC Capital Markets
|
Peter Stabler
Wells Fargo Securities
William Bird
Lazard Capital Markets
Matt Chesler
Deutsche Bank Securities
James Dix
Wedbush Securities
|
·
|
Organic revenue growth was 2.8% in Q4, on top of 11.2% a year ago. This brought organic growth for the full year to 6.1%.
|
·
|
Operating income in the fourth quarter increased 17% from a year ago to $385 million. Q4 operating margin was 18.6%, compared to 16.5% in Q4 2010. All our agency teams did a terrific job at driving incremental profitability. We had strong operating leverage on our salaries and related expenses, with improvement in all categories.
|
·
|
Full-year operating margin grew 140 basis points to 9.8%. Operating profit conversion based on our constant-currency revenue growth was just north of 30%.
|
·
|
Michael spoke to our outstanding year-on-year improvements in EPS. Diluted earnings per share in Q4 was $0.50, compared to our $0.36 per share in Q4 2010. For the full year, diluted EPS was $0.99, or $0.76 excluding our gain on Facebook, which compares favorably with $0.47 in 2010.
|
·
|
We ended the year in a strong liquidity position, with $2.32 billion of cash and marketable securities on our balance sheet, compared with $2.69 billion a year ago. The comparison includes having used $401 million in 2011 to repurchase shares and $111 million on common stock dividends. It also includes net cash proceeds of $134 million from our Facebook transaction in August.
|
·
|
As you’ve heard this morning, our Board has authorized a new $300 million share repurchase program.
|
·
|
We also announced that we are exercising our option to call our $400 million 4.25% convertible notes. The notes, which include 33 million dilutive shares, will be redeemed for cash effective March 26th.
|
·
|
Revenue in the quarter was $2.07 billion, an increase of 3.4%. Compared to Q4 2010, the change due to net acquisitions and dispositions was positive 40 basis points, while exchange rates added 20 basis points. The resulting organic revenue increase was 2.8%.
|
·
|
The U.S. was up 2.2% organically, on top of 13.1% last year. International markets overall increased 3.6%, including a great result in Latin America, which grew over 30%.
|
·
|
On a sector basis, for the quarter we were led by growth in tech & telecom, auto & transportation and retail.
|
·
|
On the bottom half of this slide, you can see that our Integrated Agency Networks segment grew 1.4% organically in the fourth quarter, on top of 10.0% a year ago. Organic revenue growth was 5.3% for the full year.
|
·
|
At CMG, organic growth in Q4 was 11%. We had outstanding performance across public relations, events and branding. For the full year, CMG’s 9.8% growth compounded double-digit growth in 2010.
|
·
|
In the U.S., we had 2.2% organic growth, against a 13.1% growth rate a year ago.
|
o
|
Public relations, branding and experiential marketing disciplines, as well as our specialty digital agencies, all had strong quarters.
|
o
|
Leading client sectors were auto & transportation, food & beverage and retail. U.S. growth was 6.1% for the full year.
|
·
|
Turning to international markets — again, these are organic numbers:
|
o
|
U.K. revenue increased 2.5%. We were very pleased to see this result on top of 17% growth in Q410.
|
o
|
Continental Europe decreased 3.2% in Q4, as macro conditions continued to weigh on client spending. This was true for both local and multinational clients, and in most national markets on the Continent. For the full year, our organic growth on the Continent was flat.
|
o
|
AsiaPac grew 1.0% in Q4. We had strong growth in China and Australia, partially offset by decreases in Japan, where we have a significant presence, and in some of the smaller markets in the region.
|
o
|
In LatAm, Q4 growth was 30%, on top of 20% a year ago. All of our global networks contributed to this result. We saw notable increases across our multinational client base, and had strong growth in Brazil, Chile and Mexico. For the full year, we grew 17.8% in the region, compounding 16% in 2010. We continue to build on our highly competitive position in this part of the world.
|
o
|
Our “Other Markets” group increased 0.8% for the quarter and 3.4% for the full year.
|
·
|
Our operators did a terrific job in Q4 and throughout the year managing costs. Our investment in tools, analytics and information systems continued to show returns, in the form of improved efficiencies.
|
·
|
In the fourth quarter, total operating expenses increased only 0.6% organically compared to last year. For the full year, operating expenses increased 4.5%, compared with our 6.1% organic revenue growth.
|
·
|
Sequentially, as we moved from Q3 to our much larger fourth quarter, our expenses for base payroll, benefits and tax decreased $4 million. Expenses for temporary labor also decreased. While we continued to invest in the many growing areas of our portfolio, net headcount growth was less than one-half of one percent in the quarter.
|
·
|
Total salaries and related expenses in the quarter were 54.9% of revenue. This compares to 56.8% in Q4 2010, a 190-basis-point improvement. Our leverage improved on all expense categories within salaries:
|
o
|
Base pay, benefits and tax was 42.7% of revenue, compared with 43.0% a year ago.
|
o
|
Headcount at quarter-end was 42,400, a year- on-year increase of 2.8%. This is attributable to our investment behind growth in media and public relations, in digital services throughout our agencies, at our digital specialist agencies, as well as in high-growth markets, including China, India, and Brazil.
|
o
|
Severance expense was 2.1% of Q4 revenue, compared with 2.7% a year ago. We took actions in Q4 to align our headcount with 2012 budgets by market and to upgrade our competitive positioning in selected markets. For the full year, severance expense was 1.5% of revenue, which was the same level as 2010.
|
o
|
Incentive expense in the quarter was 3.2% of revenue, compared with 3.5% a year ago. For the full year, incentive expense was 3.7% of revenue, within the range we had previously indicated.
|
o
|
Temporary labor expense was 2.9% of revenue, compared with 3.1% a year ago.
|
o
|
“All other” salaries & related expenses were 4.0% of revenues, compared with 4.5% last year.
|
o
|
For the full year 2011, total salaries and related expenses was 62.8% of revenue, compared to 63.3% of revenue in 2010, a 50-basis-point improvement.
|
·
|
Turning to office & general expenses, on the lower half of this slide:
|
o
|
This continued to be an area of improvement for us in 2011. For the twelve months, O&G expense was 27.4% of revenue, compared to 28.2%. That’s a decrease of 80 basis points for the year, with improvement across all major expense categories.
|
o
|
Looking at the quarter, O&G expense was $549 million, 26.5% of revenue, compared with 26.6% a year ago.
|
o
|
Underneath that, occupancy expense as a percent of revenue decreased 40 basis points. This was a result of both our revenue growth and decreased rent expense. For the full year, occupancy expense decreased 50 basis points as a percent of revenue.
|
o
|
We continued to see reductions in our real estate footprint, as you can see in the appendix to our presentation. Our metric on square feet per employee improved to 234 from 245 square feet twelve months ago. You may recall, from our Investor Day, that we are targeting 220 square feet per employee by 2014.
|
o
|
Looking at the professional fees and T&E categories, both decreased 20 basis points as a percent of revenue from a year ago.
|
o
|
“All other O&G” expenses as a percent of revenue increased 70 basis points from a year ago. We had higher depreciation expense due to the write-off of some leasehold improvements. We also had higher pass-through expenses, which are offset by higher revenue. For the full year, this category decreased 10 basis points as a percent of revenue.
|
·
|
Cash from operations was $717 million compared with $979 million a year ago.
|
o
|
As a reminder, cash flow in our business is seasonal. We tend to generate cash from working capital in the fourth quarter and use cash in the first quarter.
|
o
|
Cash generated by working capital in Q4 was $344 million, compared with $639 million in last year’s fourth quarter. This year’s result is a more typical level for our business. Cash generated from working capital in Q4 2010 was unusually high due to very strong growth by a number of our businesses, led by Mediabrands.
|
o
|
For the full year, cash from operations was $273 million. That consisted of $632 million before working capital, and cash used by working capital of $359 million, which mainly took place in our first quarter of this year.
|
·
|
Moving on to investing activities in the quarter, we used $68 million in Q4, primarily for cap-ex and acquisitions. During the quarter, we closed on several acquisitions. These included: a marketing service agency in Brazil; digital agencies in the U.K. in the social media and eCRM space; a leading PR firm in Germany; and a highly creative agency that joined the Lowe network in Australia.
|
·
|
Financing activities used $118 million in Q4, primarily the repurchase of 15 million shares of our common stock for $132 million, and our quarterly common stock dividend of $27 million.
|
·
|
The net increase in cash and marketable securities in the quarter was $517 million.
|
·
|
Cap-ex for the year was $140 million.
|
·
|
Cash used for acquisitions was $63 million for the year. We budgeted around $150 million for 2011, so we did not invest to the budgeted level. Our acquisition pipeline is robust, so we will see some of that investment carry over into this year. We continue to focus on acquisitions in digital, as well as high-growth marketing disciplines and key world markets.
|
·
|
Our cash taxes were $102 million. Excluding the Facebook transaction, this represents a rate of 16% of pre-tax income. So we continue to utilize our operating loss carry-forwards, which allows us to continue to benefit from a cash tax rate significantly lower than our effective book rate. Looking forward to 2012, we expect our cash tax rate to approximate 25%, as we have nearly exhausted our NOLs in the U.S.
|
·
|
During 2011, we once again had strong revenue growth, converted that growth to profit at a high rate and achieved our margin target for the year.
|
·
|
We will continue to invest in areas of the business that are driving growth. At the same time, we remain confident of our ability to manage expenses and drive continued profit improvement.
|
·
|
Our balance sheet continues to be a source of value creation. Our announcements this morning of additional share repurchases and debt reduction speak to our confidence in our financial position and our continued ability to generate significant operating cash flow on a sustained basis.
|
·
|
potential effects of a challenging economy, for example on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;
|
·
|
our ability to attract new clients and retain existing clients;
|
·
|
our ability to retain and attract key employees;
|
·
|
risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;
|
·
|
potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;
|
·
|
risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and
|
·
|
developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.
|
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