Interpublic Group of Companies Inc (IPG) 2001 Q1 法說會逐字稿

Welcome to the IPG earnings conference call. I would like to remind everyone from this point on the conference is recorded. Now, I will turn the conference over to your first speaker Ms. Susan Watson. Go ahead madam.

Thank you operator. Good afternoon everyone and welcome to Interpublic first quarter earnings conference. We released our earnings at 4:00 PM today and partly guided by regulation FC we expect to make a practice of releasing after the market close in the future followed by a late afternoon conference call. The release is available on first call, Bloomberg, and at our website. For purposes of this call we will assume you have all read the release. On todays program our John J. Dooner, Chairman and Chief Executive Officer, Sean F. Orr, our Chief Financial Officer. In net camera our general counsel is also here to help with questions. Before I introduce John, I would like to mention that this call will be archived at our website at www.interpublic.com for 45 days and for the next 24 hours you may also access the replay by telephone at 800-252-6030, the access code for the telephone call is 865-8567. Finally, I would like to incorporate my reference to safe harbor statement at the end of our press release and now it is my pleasure to introduce John J. Dooner.

Thank you Susan. Good afternoon everyone as usual we would like to do is to have Sean take us through the details of the quarter and then one of us will be available for questions. So, let me pass it on to Sean and then hold back towards back up.

Thank you John and good afternoon everybody, and thank you for joining our call. What I will be attempting to do here is to take a rather complicated story and tell it as simply as I possibly can. As you can see from the release, revenues and operating profits grew at double-digit rates when measured in constant currencies in the first quarter. Organic revenue growths were 6%, 9% excluding Lowe Lintas. Marketing services grew 14%. Advertising and media grew 2%, with 6% without Lowe Lintas. Lowe Lintas and initiative did hold the revenue and operating profit to both in the quarter as expected, but I will come back and talk about Lowe Lintas & Partners some more in a little bit as we believe there are on a path to become a possible contributor in the second half of the year. As you can see, EPS was flat before our FAS 115 non-cash writedown, as increases in interest could rule amortization and our shares outstanding all set to improved operating performance. We alerted you of the drag effect of these and other non-operating items would have on 2001 EPS, when we reported our Q4 2000 results. This factor is an important part of the discussion today. Let me walk you through with simple cause of change analysis of our Q1 EPS versus Q1 2000 again, before the FAS 115 accounting change. In 2000 our Q1 EPS was $0.21. The increase in operating profit in the first quarter of 2001 would have grown EPS by $0.4 cents. However, the increase in interest expense took EPS down to $0.3 cents, the increase in goodwill amortization another $0.2, the remaining items of the P & L netted out toward a penny bringing us back to $0.21 on a year-to-year basis. As we discussed Q2 and the balance of the year, I will provide some guidance and indication of how these non-operating factors will continue to impact our EPS because it is an important part of understanding being the L model this year, and particularly in the first half of the year. Before we do that, let us first review some of the trends and issues that became evident during the quarter and particularly in the March-April conference. First of all, the economic environment has softened, as we all know, particularly in the United States. And the velocity of accounts being put up for review appears to be slowing, although I do want to point out we had an exceptional new business performance in the first quarter and the rise in consolidation with Lowe Lintas was announced in the first week of April. And speaking for ourselves the pace of acquisition activity has become more deliberate. All the above we have appear to be temporary phenomenon, however, they do have implications relative to a short-term financial performance. So, what are we doing, we will first of all, I would say in a word, that we are battening down the hatches. First we continue to aggressively manage our costs, and I think you would note that from a margin performance in the first quarter. And this was continuing into the second quarter and beyond, though the cost to achieve from the cost reductions in our business flowing through operations that has been in curve. Secondly, we have a more aggressive focus on cash management - cash collections management payable, manifestly eliminating capital expenditures. I am sure in times like this one goes back to the basics and I think that if you walk the halls of course of our businesses that is what we are doing. Now before I go on to the balance of the year guidance, I do want in touch on a few other points. First, let me address Lowe Lintas very briefly. As expected in the quarter, Lowe Lintas was a drag on our revenue performance. And in our release, we provide some disclosures to quantify the effect of the Lowe Lintas on our growth rates. I wont repeat those disclosures here. During the second quarter, Lowe Lintas is expected to be a less negative effect on our revenue growth. And looking through the second half of the year Lowe's projections show solid single digit revenue growth on a worldwide basis and double digit operating profit growth. For the full year, the Lowe Lintas group projects to be agency group with revenues in the mid $900 million range and margins in the very respectable high teen. We look forward to the second half when Lowe Lintas will be a positive contributor to our overall performance and therefore far less of the discussion point on conference calls like this and in our individual discussions going forward. One last point before moving to Q2 on balance via guidance let me spend a moment explaining the non-cash accounting charge of $160 million pretax that was taken in the first quarter. As most of you are aware, Interpublic for many years has played a role in funding startup businesses in the interactive and new media technology space. The most notable examples would be: 1. The investment in CKS, would eventually be a series of mergers became March 1st. 2. Icon Media Lab and its interactive marketing concern based in Europe. The company has been able to generate a significant flow of financial gains over several years from this portfolio. We have recently been giving more visibility to this activity. First, by taking these gains out of revenues and reporting them as part of other income below the operating profit line. And secondly, by disclosing more specifics on these gains when we reported Q4 of last year. The writedowns taken in Q1 are non-cash adjustments to mark the recorded values that these investments to their estimated recoverable values, thus eliminating any future financial exposure in this area. And with these writedowns Interpublic can get out of the venture capital business. Accordingly, this activity will not be an important part at their financial algorithm going forward. So, let us look forward and review our ongoing outlook. We reported Q4 of our last year. We disclosed that equity gains of the sort I just described were at $40 million pretax in 2000. We also reported that our tax rate included _____ 00:09:21 as an ex corp in 2000, which artificially reduced tax rate by about a point and a half. Therefore, $1.51 reported EPS in 2000 included two items, which contributed approximately $0.11, but does not repeat in 2001. Given the weakening environmental trends I alluded to earlier, we believe that it is prudent to moderate our revenue and our BREAK IN TAPE. Deliver reasonable growth off of the balance $40 EPS stage. So, with this in mind let us walk through the future second half and full year algorithms. First Q2; we expect single digit revenue growth performance to persist in our second quarter due primarily to the Lowe Lintas over hang, which is for one last time thank you, and the pacing of our new business activities. More importantly the adverse impact of the fore mentioned non-operating items is most onus in the second quarter between the equity gain impact of $0.4, goodwill of $0.3, interest of $0.3, tax rate of a penny, and shares outstanding effect of a penny. A full $0.11 of EPS effect flows through in the second quarter comparisons from these items. We therefore think it is prudent to warn you that second quarter EPS could be in the low-to-mid $0.40 range in the single digit gross scenario. Let us turn to the full year. Remember that we are managing of the $1.40 base. The goodwill and interest factor has approximately $0.20 drag effect on the year-to-year comparison. Double digit growth in operating performance, however will cover that difference. And what we are doing here is returning to a time order concept that the stronger our operating performance is for the year above the operating profit line, the higher our EPS performance will be and the higher EPS growth performance will be for the year. Now as such a lot depends on the second half. So let us turn to the second half, where we expect second half revenue on operating profit growth to be solid on a double-digit growth numbers and when the 2000 base is adjusted for the non-recurring equity gains and tax rate, EPS growth will be more in line with operating performance which is a relationship that we would not expect to see going forward, and the relationship between net income and EPS growth will normally track increases in operating profit performance. Now, why do we feel that second half performance is realistic and let me talk to some other things we have working in our favor in the second half of the year. First, Lowe Lintas comparisons normalize; remember I set a forecast of positive single digit revenue growth and double-digit profit growth. The dot com and technology revenue overlaps normalize at initiative and elsewhere. The full effect of the cost savings activities will be flowing through in showing up in our second half numbers. The goodwill and interest comparisons become less extreme in the second half of the year. And our recent success in new business is back loaded to the second half that is true about Coke, Horizon, Best Foods, Mass Mutual, Bergen, Mobile, Mariethloid, Infusion, and others. So again I repeat and emphasize the strong first quarter new business performance that we reported and I also repeat the big one of the raise that I reported in the first week of April. Much of that revenue impact will be seen in the second half of the year. And lastly, just comparisons in general or more normal in each year in the second half of this year. I am sure you have questions on all of the above before, I open for questions I do want to turn to TrueNorth and the TrueNorth integration for a moment. Things are progressing quite well. The relationship between the two companies is quite cordial and we are all very pleased with the chemistry that is developing. Of course I am not in a position to talk about TrueNorth or multimedia performance. However we are pleased indicated that the SEC has indicated they will not review the S4 registration and it frees us to move ahead with an anticipated late June TrueNorth shareholders meeting. As we indicated when we announced the transaction, we believe corporate and done MCs will save us about $25 million annually. We still feel very good about that number. We have also indicated that the one time cost of achieving these and other savings and the other costs associated with optimizing and combining our two business portfolios and the cost of the transaction itself will be accounted for as a group of merger-related cost on or around the time of the transactions. We have also indicated that we will be in a better position to provide further quantification of these costs at that time, so I will not be commenting on the quantification of any of these costs on this conference call. So, let me just summarize some of the key points in our release and then my comments and then I will open it up for questions. Although the second quarter will not be pretty if the public represents a strong set of business now and we will be going forward. You see in the first quarter double-digit growth with solid organic growth performance in the tough market with very strong Q1 and early April new business performance, especially when compared to the competitive set. We see Lowe Lintas on a path to be a positive contributor to our overall performance in the second half of the year. You see our interactive exposures and our venture capital activity behind us. You see continued emphasis on cost management and continued demonstration of our ability to manage cost aggressively in tough environments. You have the second half outlook that looks positive particularly as our comparisons normalize and our new business rolls in. And I think in the long run, a very, very important point is that you see a return for more normal financial algorithm where operating profit growth is flogging EPS growth. So I think those cover the highlights of the conference call, hopefully represent an attempt of making a complicated story as simple as possible, but I am sure there are questions. At this point in time, we will open it up for meeting the questions. I think it is appropriate that we will write the questions.

Okay, lest anyone has a question at this time please press * followed by 1 on your touchtone phone and your name will be placed in the queue until you are announced. If someone has already asked your question you may remove yourself from the queue by pressing the pound key. First question is from Michael Russell. Please go ahead. You have the floor.

Thank I was wondering John, if you could try and mention the organic revenue growth expectations you had for 2001.

Just a moment please. BREAK IN TAPE 00:18:03 - 00:18:24

Okay go ahead, Mr. Russell.

John, I was wondering if you could give us an idea of how you see the second half of Lowe Lintas having easier comparisons and give us maybe a little more flavor on the organic revenue growth for the rest of the year, given the assumptions that you are able to make at this time.

Again, little bit and let us show and give a little of the organic growth. You know that we are cycling Lowe Lintas per cycling losses that came primarily out of the merger of last year 2000, BREAK IN TAPE 00:18:57 - 00:19:00 even more than I think we expected which we talked about it in the Q4. Obviously, those comparisons go way in the second half of this year. They truly finish cycling as we did mention in the fourth quarter, at the end of the second quarter. Of that and some of the gains we have had in new business clearly point out a plan that has very significant positive numbers on we are going, as far as to say, high single digit of growth as well as a double digit profit growth and I think that is fairly sounded. It is also one of near with Sean has said, it will be a great pleasure that there will only be talking about them with some positive right going forward.

In terms of organic growth what do you want to do cheer up?

As we mentioned organic growth in the first quarter was 6% without Lowe Lintas for full year light it was 9%. In the back half of the year, with Lowe Lintas enjoying the absence of all the negative comparisons because of the cleaning out of the overlaps of sold businesses, closed businesses, and lost business from the merger. They will be showing positive organic revenue growth in the second half of the year. Without Lowe Lintas in the first quarter, we are 9%. In the back half of the year, our overall organic growth performance should improve well to the 6% if the economy stays reasonably stable with this status quo. I would expect move up to six, somewhere in the 6-8% range economy wide. But, I hope by now people understand the arithmetic as to why the bad overlaps go away in the second half of the year for Lowe Lintas. The merger was announced in November 1999. And the consolidation activities took place between them primarily and the middle of last year when the client conflicts were identified, the businesses that are going to stay and go were identified, and so all of the revenue down side that was the natural consequence of the merger of this side was to happen. As a result, by the end of the second quarter, we complete the anniversary in much of that activity and as a result, you will then start having normal comparisons in the year-to-year results in the second half of the year.

And just on the cost side. Could you tell us P & A and give us an idea on the cost savings you are able to generate with the more on the salary side on the office side or have you gotten on the salary side?

Relating to the portfolio as a whole, Mike.

Yes.

Well since the beginning of the fourth quarter all of the businesses have been on red alert in terms of cost management and the largest part of that cost structure Mike, is people. People cost represents about 56-57% of revenue. So it is the largest part of our cost structure and we have been having hiring freezes. We have been laying people off, we have been freezing salaries, and we have been curtailing a lot of the discretionary spending that people are free to do for the last two quarters, and we continue to do so on those so on those do so I suspect throughout the remainder of the year and that has been an important driver of why we have been able to deliver the margins or so in the first quarter.

Mike. It is an ongoing process. You know, it is not unique to this moment and we have some clever, if you will, words that we use like red light, yellow light, and green light in terms of holding cost affected situations depending on an individual account situation as to how you control most cost in an environment. So, not only this talk about cost, but also recognize that the flow of revenue to ensure that we are not spending prior to the visibility, that quick disability in that revenue, so these practices which have been a part of in public over a period of time. Obviously, the hike during any kind of indicated negative economic environment and so therefore going forward, we are very confident that if does continue, and/or accelerate, that we will use the same principles. They are not new, they are just fundamental as Sean said earlier, and one that we are very steep in the practice of using.

Thanks very much. Next question or comment is from Eve Glassline. Go ahead please. You have the floor.

Thank you. I just want to get a sense of what exactly changed since mid February when you released results. The things that you had mentioned in the press release and also shown in your comments, economic clients, and non-operating, the higher interest; those things were all, you all discussed on the last conference call. So, I am trying to get a sense of what is going on then I will have a couple of followup questions.

I think, simply stated the environment is clearly softer than, and there are clear evidences of softness in certain markets in the US in particular, I think you, Lauren, and others have been fairly articulate about that self. And so, therefore, the revenue, we are being much more realistic, I would say, about the revenue outlook and particularly in the first half.

I also think that we have had more information, as you know of outcomes from, February, March, now to April. There is no question about that giving us more insight, but I think also a very stronger commitment towards getting model going forward, and I am just reviewing the issues that were at hand and thinking very defined actions to ensure that it does get balanced in the short order.

All right, thanks, and then can you give a sense of what effect foreign exchange had in the quarter and then also total debt at the end of the quarter?

I do not have balance sheet information yet, Eve, so we will have to get back to you on that, but the currency, you saw the affects of currency on the revenue and the currency in the quarter was largely at a level it should be, the earnings impact from currency was less than a half a cent. If currencies stay this way for the rest of the year, we would have a little bit of more earnings impact probably a couple of pennies.

It is definitely had an impact on revenue coming out of Europe, as I am sure you have seen with ourselves and other releases and I guess our hope that the Euro would change its direction is not coming through, so that would have to be monitored very carefully, as is right now you are showing your red lines to some of the other world economies as part of currencies also need to be closely watched.

Okay and then can you quantify by chance what kind of EPS impact, NFO, and also Deutsche had in the quarter?

To start to ... first of all I do not think we are inclined to disclose that, but let me just talk about NFO ...I think level is the answer as the question that you asked ... and that is NFO on an organic basis system ... the first quarter had mid-single digit revenue growth worldwide even though that performance was skewed towards the overseas market, US was particularly strong. Their business is behaving strangely and often may be it is just a coincidence lot like our advertising business, and so their performance is little bit more skewed towards overseas. Profit improvement as we expected for the year ... they are looking at growth rate at this point in the high single digits and they are looking for a very substantial improvement in margins. So, we are happy with the outlook for NFO and those numbers would make it accretive. I am not going to give you a quantification of that, but I would not make it accretive ... as the storage is accretive from the get call Deutsch had a very solid first quarter, very solid double-digit revenue growth, and it is just a great business that continues to perform well.

Thanks and then finally the guidance that you gave for the year does that include True North?

No.

Okay, thank you. Our next question is from David McMaurice. Go ahead please, you are on the floor.

Hi thanks. Actually both of my questions are sort of followups on Eve's questions. First, with respect to the guidance it is essentially knocking and going from 10-11% growth to a low single-digit decline, roughly a 15% swing there ...just without having looked at the model ...it looks like revenue estimates were probably come down in the mid-single digit so, there is more to it there, and I am just wondering if any of these non-operating items have changed over the past two months, if any of these represents the prices relative to your thinking in February.

They have some kind of supplies below the line. I think we need to spend sometime off David, because I think we need to work it through the revenue picture, because we are seeing a better revenue picture than you just suggested.

For the full year?

For the full year David, we anticipate having double-digit revenue and profit growth, and that double-digit is moderated relative to our original cost, if you back in February. So, we are still very, very positive and is not quite as positive as before. And I think the thing that John mentioned to you earlier, I am looking at the below the line and looking at the economic model ... we are really going to aggressively attack that to keep it to get a better balance between the below the line, if you lower costs and the relationship they would have to EPS, and to operating profit, and that is what is causing if you will the imbalance that you are talking about.

Right, actually my point was I think you in census revenue growth estimates prior to this call were in perhaps the 15%, 16%, and 17% range ... those may be coming down 5 or 6 percentage points. Earnings are coming down 15%. So, is all of that just margin pressure, the difference between the revenue?

Yeah, what it is, is how badly the leverage we did because of the bottom half of the P and L there. And that is something may be I can work you through a lot of this ...your estimate is right may be I just misunderstood what you are saying before, we are talking about lower consolidated revenue resting out for the full year, and because of these below-the-line fixed cost, the interest, the Goodwill amortization, the tax effect, the shares are all given. And the one time income that what we are seeing here is that you had a view of our P & L model ... that if you don't offset the loss of revenue, we can make ... we can manage the operating profit effect of that. Okay, but we would badly be leveraged on the lines between the operating profit and EPS because of all these fixed items, and they are large, and that is what we are dealing with here.

Okay and just my second question following up on NFO. Can you tell us what is the difference between your recorded cost and currency growth rate of 1% in the quarter for the marketing intelligence segment?

Here what we will say we closed down our business early last year and so that is out of their numbers, so you have some revenue on the first quarter last year, but that does not exist this year's event, you have to remove from the comparison when you look at organic performance there.

Okay, thanks very much.

The next question comes from Levenson Redinsoin. Go ahead please, you have the floor.

How are doing guys? In terms of as I start to look out and look at what is going on once you closed the True North deal, obviously some of the issues that you had with Lowe Lintas had to deal with all these client conflicts. When should I start to see those types of issues raised with True North, and how will that cycle ... are we going to be looking at another cycle of the year. What is the problem?

You have got very good from scenario Leven ... that True North has been having with Low Lintas, and we are not in a position where we have to take the biggest agency pop out of these, and put them together operationally ... we have our agency brands, which is where you trigger the kinds of conflicts you have to remove. So, you do have some conflict issue, but it is that ... it is sensitivity that is holding company conflicts sensitivity rather than an operating agency kind of sensitivity perhaps John would ...

I think that Sean said that whoever ... at this point of time the integration and the planning of integration is way ahead of schedule, that is really terrific. It is going extremely well, which we had hoped and believed, but may be even better when we thought. The people had need to be committed are committed which is fantastic, the clients again ... and I understand what Sean was saying holding company if you will not necessarily emerging to advertising is kind of which we do not intend to do. The clients are comfortable, the brand indication to the brands of your web brands that there will be either integrating consolidated of that review is well in process, and we would obviously do that minimizing any kind of fall out. So, the net of it is, it is positive, ahead of schedule, clients are comfortable, people are committed, those are the key things to look for, and obviously we will intelligently try to create that integration with minimal fall out, and at this point in time there is no indication of fall out from the merger. We are not naïve, but the reality is at this point of time there is not a matter of fact some indication that performance and ability has gotten that indicates some positive relationships will prevail.

Sean, you had also run through some numbers ...I think you said one cent in the second quarter for tax rate 1 cent per shares out there. Couple of numbers there ... could you just lend me a help there?

While we do that off line we are happy to do that full year.

Just want to clarify as well you are saying that after this charge that you are taking in terms of the VC business and other investment we should not looking for anything going forward?

In terms of investment activity and marketable securities for the public companies and the like ... that is right.

Okay. Thanks.

The next question or comment is from Alexia Carbranise. Go ahead please, you have the floor.

Hi John, I just have a followup question on your comments on Lowe Lintas. How confident are you that the problems at Lowe Lintas really have gone a way and things are improving ... I know we saw some nice winds from Lowe early in the quarter, but more recently we did see a couple of big losses with Del going on the common and UPS now moving over to Martin. Are those just normal courses of business, I mean, is business really much stronger there?

Right, the thing that you are seeing with Del I think was properly stated that is part of that whole industry sector what is going on with the huge amount of movement that has grown on in the last two months. The UPS thing ...they stay with the involvement and use the asset as they can. So, UPS is a kind of reckoning ... a public partnership where there is going to be some fluctuations, so I do not look at that as the big thing if you were against the Lowe Lintas. The fact that Horizon was comfortable to consolidate the five agency businesses into one was quite an extraordinary positive statement, and they won that, they had to show their capabilities, and gain the confidence of the company to achieve that. Now, that said ... you heard today that there was some changes in Lowe Lintas to further build their management group, and I think it is appropriate what they are doing, and I think it will help them going forward, but the way I have evaluate then now is very strict. They are an agency that the notion of looking back at ... with excuses that one guy was good, one guy was bad, and how they all stuck to be bred, and sometimes talked about is an ancient history to me. They will be evaluated based on their performance, consistent with the other strong performing agencies, and at this point in time it looks like they are on track to do that. Frankly, I am a believer. I believe that they will perform at that level, and so I am very comfortable. But that said, I think like any of our companies it has come upon myself, the management, to keep a close eye, to make sure that are all our operating companies are performing at a very high level, and they are indeed.

Okay, just a couple of followup questions. I know that you sided Burger King as a win on your new business winless. Is that just the incremental business you put in on the comment ... not the business from Lowe Lintas. Is it a McCann?

It is partly a couple of things. I am not sure exactly ... you can something to clarify, but you have Burger King of course was won by McCann, and so therefore it may reflect to that and also Burger King was won by Campbell Mc Cowen 00:38:41 in the cakes business and of course that is a huge win for them, and Burger King was also won from Alkiem 00:38:47 which is the Yanni Pram 00:38:48 company and it is drafted. So, you really had Interpublic having three big wins as it relates to the Burger King business in the first quarter.

But, the impact it had on the net new business number reported Alexia only has incremental spend ... okay as opposed to double counting the revenue we are coming out of ...

Okay that is what I was looking.

Yeah sure.

And then on the other income I think ...on the fourth quarter earnings call you had mentioned, if I remember correctly that the other income line will fall in half ...Sean from about a $100 million close to about $40 or $50 million in 2001. Sean from your comments earlier, are you suggesting that will be zero this year or still more like 40 or 50?

I think we will continue to look at opportunities so I think one of the things we will do as we consolidate, which from the left is to look at business portfolio and make sure that all the pieces make sense and if not I think we probably will take some non-strategic assets and consider selling them. I just do not want to predict that and put a number on to it at this point of time. So, we just think ... a safe and more prudent course to take would be that as we do that ... we will tell you that to be committed to a number at this point in time is just not something we think it as smart.

Alexia, also remember that the gains on security is about half of that $98 million or what ever was the other part was interest income. Then we will continue to have interest income on the cash balance strategically because of the billing ... the immediate billings.

Okay, so it should be something on that line. Just one another quick question. The guidance for 2002 on the EPS line so, will we see some double-digit growth in 2002 as preliminary guidance?

I think it is too early to give guidance on 2002, but I have to tell you ... I am extraordinarily bullish about what we are going to have as an Interpublic company in terms of finally having all the engines working at full stem and again with the things like Deutsche and TrueNorth being part of our portfolio, either it is going to be with the hope of a decent economy extraordinarily bullish going forward, but I think it is a little too early to actually give guidance in 2002, but I will tell you one thing for sure Alexia, that is we are going to work very diligently to get this ...if you will in about a year, if you will the economic model to really reflect the performance of that to EPS.

Okay Thank You.

Next question or comment is from Vivian Clarence line. Go ahead please, you have the floor.

Hi. Sean can you just tell us what you are assuming as far as operating margin improvement in your diluted guidance ... are you still using 50 basis points, and then have a couple of other questions.

It depends upon what line ... if it before is goodwill amortization that is what we would be looking at roughly at the revenue.

Okay, then after goodwill amortization?

Well, the problem I have is goodwill amortization for the year does cede into that margin. Okay, but you would have roughly a half point margin improvement before the impact of goodwill amortization.

That is fine.

And the goodwill amortization as you know was made up ...we cannot manage that, so the numbers that you can have some management impact on ...will continue to show roughly that kind of improvement.

Okay fine. Secondly, your international organic revenue growth was pretty good in the first quarter, but we have been hearing from some companies about softness in Europe ... can you just comment on recent trends in the European markets?

Yeah I think it is appropriate Vivian we know the per say of the cold being in the United States, and the sniff that is going around the world over time, and I think that there is some evidence of that and that evidence is weeks old, it is not reported in detailed numbers, but rather in a total and so on, but I think it is fair to say that you are going to be seeing some softness in Europe the degree of which is clear yet.

Okay. And then just finally if you are working up a 140 base for 2000 in giving guidance, do you have numbers like quarter to help us with our quarterly models?

Well, the only thing we have not done is giving a split between the third and the fourth quarter at this point. We are really focussed on the second quarter and the second half as time booked at this point Vivian we have not been splitting between third and fourth quarter at this point.

I will begin that key factors to be aware of is that you normalize our tax rate at 41% across the year ... you are going to get half way there, and the other two elements ... there was about a penny of stock security gains or security sales in the third quarter and about two pennies in the fourth quarter, and that is going to get you most of way there.

The next question or comment is from Bill Burk's line. Go ahead please, you have the floor.

Yeah. Thanks lot. Just a couple of quick question. Thank you. It looks like about 19 cents of your full year downward guidance is coming out of the second quarter, you know, is there anything there beyond other income accounts that is driving the number down ... second just wondering if you could talk a little bit about sort of net new business at Lowe Lintas if you measured it on the folder, and could share that with us, and third just revenue decline at low length is in the quarter based on some of the numbers you gave ... it looks like they may have been down about 9%, I am just wondering if that is soft base.

In fact higher than that in comparison to what it was in the fourth quarter. Where are you now ... I guess to what it was in the fourth quarter Bill. Do me a favor Bill, go back to your first question again, and repeat it.

Sure, I am just curious ... it looks like most of your downward earnings guidance is coming right out of the second quarter, and I am just wondering if there is anything you see more recently beyond Lowe Lintas that is resulting in numbers coming down in so dramatically on a near term basis?

The one thing for sure is that the second quarter is the most exaggerating effect of the below-the-line cause, which Sean will talk about, but again I think as Sean mentioned we are seeing a similar kind of softness as we have had in the first quarter. If you will because of the cycling Lowe Lintas and initiative generally we are seeing about 6% so I do not think in terms of the performance we are seeing a significant decline, but we are going to see the continuation of what we had in the first quarter, and then the exaggerated impact or some of the below the line costs.

What you are seeing in the second quarter Bill is ... the comment or the answer to David's question earlier about how the de leverage below the operating profit line is impacted when you have a revenue short fall. The adjustments we are making for revenues expectations throughout the year probably ahead in the second quarter more than any other. And with the disproportionate impact of these non-operating charges in the second quarter, we have a double lining.

And to add to earlier point the new business trends do not really flow in until the second half, and the cost cut benefits also flow in the second half Bill.

Do you have a net new business number for Lowe Lintas?

We have not broken our sales by agency, but I will remind you that we had about $200 wins at Lowe Lintas in the first quarter, and then the $400 from Horizon so that is $600 million so far this year compared to just 400 in all of last year.

How about in the loss column?

I do not know those in front of me.

We will get it for you Bill.

Okay, and just one final question. Do you expect organic growth to slow further in the second quarter for ITG and Lowe Lintas as a whole, and I mean organic revenue growth?

The indication that we have is they are similar to first quarter.

Okay thank you.

The next question or comment is from Ron Thomas line. Go ahead please, you have the floor.

Yes, I am curious we are still from the buyer side, we are looking at sort of plethora of decline in advertising expectations for this year and for next, and I am curious to the extent that you can tell us what kind of the advertising growth in the US and/or overseas are you looking at ... in making your expectations for the rest of the year. You are making me talk much of profits and new business expectations?

In terms of the environment law?

Right, I have seen advertising growth in the United States estimates as low as zero for 2001 and I think they probably go from about zero to +3 to 3.5 % right now. So, this is pretty wide range there and the European as well ...it is in the international I am seeing the expectations seem to be coming down quite quickly as well, although from a higher base.

The thing is we lead the same stuff you do Ron. There is a ...it is a hard market to read right now, and a lot of the information we get is dated, and what I have said is becoming more important than anything else is what the individual clients are doing.

What goes on now obviously ... not 2002 but certainly 2001, we are dealing with hard numbers, and in terms of budgeting, and so forth, so we are dealing more with adapting you with media trends as an indicator of what the revenue stream would be, but we are seeing the same numbers that you are ... I will say that the first quarter some of the public trend numbers were lot lower than what we saw and as I understand from our preceding competitors the numbers are tracking little a bit more like Bob Collins numbers than some of the more negative numbers, so I am not suggesting that it is not an issue out there, but that is what has happened so far.

Yes, we did try to get a peak under the trend with count about a week and a half ago, but it is pretty bad about not previewing any of this conclusion, so this is kind of being reporting in another six weeks or so, and we are going to have to wait for that.

Do you have any ...I am probably fishing too deeply here, but are you getting any impression that the rate of decline is slowing in?

It is really a mixed bag, I am mean if you are really are honest, it is most sector driven than it is possibly across the board. There is no question that ... at least I am anxious that is going on in some sectors like in consumer products in a sense of aggressiveness, and some sectors like telephone and telecommunication and technology, there is no question that there is a direct decline, so it is not absolute or hard to support right now. The other thing we know that we have is that we have the consumer confidence while down is still relatively high. So, you know there are many people talking about hay that this thing is of the moment we improved the consumer confidence and they come out in the sunshine that things are going to get better, and of course you have the people doing doom and gloom, so you really have extraordinary mixed bag and kind of estimating the economy right now. So, what we have in our hands obviously though are plans that are coming from our clients who are monitored by our companies. Like more supportive thing you could do right now is incredible diligence of repeatedly looking at those things to validate whether you are staying on track or if indeed there is some issue with them, and of course if there is, what course of action you can take related to costs.

Okay.

The next question or comment is from Oscar Wisline. Go ahead please, you have the floor.

Hi, now that the proxy for TrueNorth has been cleared, when do you expect to be able to give combined guidance for the rest of the year for your companies?

Right now we continue to hold to the expectation of the transaction being accredited from the _____00:52:19, but we really cannot give combined guidance until we are one company, and so that will happen as soon as we close. Right now we are told by the TrueNorth folks that they are working towards getting a shareholder meeting scheduled for the latter part of June, and we will close as soon as practical there after if they need that time.

Okay, and then in an answer to another call you mentioned something about positive developments in some relationships that could count, I did not cash exactly what the point that you were making there ... could you?

What I was talking about is that ... in talking about complex and the relationships I think we saw reasonably that _____ 00:53:07 got a piece of business from a client that many of you speculated with would be ... provide some difficulty in going forward. So, we were responding some of you were asking whether or not we would see similar kind of fall out with the TrueNorth coming in, and I was trying to demonstrate that we would not.

Okay, so I remember when you first announced the _____00:53:32 there was some speculation that some client conflicts might cause either companies to loose in both accounts, but at this point you are not seeing any moves by any major clients?

That is exactly correct.

Okay. Great thank you.

Next question or comment is from Troy Mason's line. Go ahead please, you have the floor.

Hi. Thank you a few questions. First one, I am curious if you can quantify or at least give some directional idea of how much of the new business lines came from the coke relationship ... the expansion in that relationship.

I think that is quantified ... if I remember correctly I think we put in it as a 100 million?

In that range roughly.

And as I look it that could be conserved.

Okay.

That was in the first quarter.

Okay, and the next question I am curious ... in this environment everyone talks about marketing services being more, I guess, recession resistant, does that skew the new business trend numbers at all, I mean are those more marketing services related today that might suggest higher revenue numbers in a two or three quarters down as a result of the same reported new business trends?

Well not exactly. The new business trends that we are talking about are pretty much advertising driven to be honest with you, but the notion that you are talking about the border application ... again I have to tell you that growth is almost more like sectors than it is ... and it is by general area. There is no question that the life cycle of marketing services business is still on a better swing if you will, then is the advertising but that said within the marketing of shares, this business as well as advertising, you will see a disparity in terms of growth or a moderation of growth by sector almost regardless of the sector if you will ... I know what it does or what its marketing services are in advertising.

Okay and then one final question. There are these smaller agencies now ... some independents are did I see more interested in this environment to seek out agents with a larger partner if they are seeing more softness in their business, and that is resulting in that kind of movement. Thanks.

I suspect ... actually when you have a softer market, no one wants to buy anything, so that is _____00:56:06 and I think that you are going to see that in our world for small, agile, and creative companies, there is always going to be a big place for them. The ones that I think become a little bit more marginalized are those in the middle if you ask for the ... but there is no real correlation to economic softness and some of the large holding companies acquiring, I think that process is really one of strategic needs, quality, and other things that come into play more than the economy ... and obviously if you are having an economically depressed small agency its value is less or it may not be the time that they would want to sell as well.

Operator, we will take one more question.

Last question or comment is from Michael Russell. Go ahead please, you have the floor.

Hi. Just one of those things, I was wondering if you can give us an idea of how the other convertibles ... diluted go for the year and how share count will go for the year?

The share count for the year Mike is about $335 million. Typically, you will have one convertible diluted when the earnings per share get to 30 cents, and they will both be diluted in any quarter when there are 40 cents. So, at this point we would look for one to be diluted probably in the second, and one or both in the fourth quarter, and one for the full year.

Great, thank you.

Thanks everybody for joining us. We will talk to you again in about six weeks.