Interpublic Group of Companies Inc (IPG) 2003 Q2 法說會逐字稿

Good day ladies and gentlemen. We would like to thank you all for holding, and we welcome you at this time to the conference call with your hostess today, Susan Watson. Your lines will be in listen only until we take questions later in the conference. We will explain at that time how you may ask your question. Today's conference is also being recorded for a replay and transcription, so we ask that you try not to speak at the same time with someone else and that you identify yourselves before you speak. Thank you.

Mrs. Watson, I will turn the conference at this time over to you ma'am and we thank you for choosing Spring Conferencing.

Thank you operator. Good afternoon everyone and welcome to Interpublic Second Quarter Earnings Conference Call. With me today are David Bell, our Chairman and CEO; Chris Coughlin, our Chief Operating Officer; Sean Orr, Chief Financial Officer; and Steven Berns, Interpublic's Treasurer. We released our earnings today after the market closed. At the same time we posted on our website www.interpublic.com a slide deck illustrating many of the numbers we will discuss this afternoon. A replay of today's call will be available at the website for 30 days. In the alternative you may also access it via telephone replay for 24 hours only by dialing 800-252-6030; the confirmation number for this call is 18242396.

Please be advised that this call contains time-sensitive information that is accurate as if today, Tuesday, August 12, 2003. It may contain forward-looking statements, which are subject to the risks and uncertainties described in our press release and in our SEC filings. Interpublic undertakes no obligation to update or to revise any forward-looking statements to reflect subsequent events or circumstances. David, Sean, and Chris each have prepared comments this afternoon after which we will entertain your questions. We expect the call to last one hour.

Now it's my privilege to introduce David Bell.

Thank you Susan and thank you all for joining us on this call as we update you on our progress today. Results we're sharing with you today are additional evidence that the message we have consistently communicated to those of you in the financial community is on target. That message acknowledges Interpublic's reality as a company in the early stages of the turnaround, early stages of the turnaround in terms of culture, structure, and ultimately financial performance. We've also stressed in our conversation the need for Interpublic to build credibility; that's a goal we can only achieve through actions that make good on our promises.

In that respect, I am pleased to report that this quarter should be no surprise. We've continued to deliver on our pledge to strengthen the balance sheet and further improve liquidity. The restructuring actions we promised are underway and will yield significant savings in the quarters to come. Setting aside the cost of the restructuring and other specified items, the underlying performance of our ongoing operations appears to be stabilizing. In particular, we saw an encouraging development in the United States where the 1.4% increase in organic revenue was the first such up tick in quite a while.

We are making headway. We're moving aggressively to put the problems of the past behind us, to strengthen our operations, and to put in place structure that could support sustainable growth, but there is still much to be done. Interpublic's status today is largely the result of actions that took place over several years. There are no silver bullets. What there must be, however, and what we pledged to you is that we'll continue to move forward with a great sense of urgency.

The new management team is in fact accelerating the rate of change throughout the organization. One reason that we're able to quicken the pace is because of another promise made and kept to recruit a world-class Chief Operating Officer with financial experience. Joining me on the call today is Chris Coughlin from whom you'll be hearing shortly. He's an exceptionally talented and driven executive, he is already making a difference, and I believe he will also prove to be a powerful change agent here at Interpublic.

Yes, we are undeniably a company that's fighting our way out of difficulties. Yet we have at our disposal some very powerful operating brands, a strong and committed new management team, a clear and focused set of priorities in the five pillars, I've mentioned to you previously, and these pillars guide us and serve as a scorecard against which to measure our progress.

As you'll all remember, the first priority identified for Interpublic was strengthening the balance sheet, the area we have a necessity then most active in during my short tenure as CEO. Our successful refinancing activities and the successful sale of NFO have resulted in lower debts and improved debt maturity schedule, and a strong liquidity position for the Company; and as you'll see in our release last week, we've repaid $142.5m of loans to the Prudential. While this will resolve result in a prepayment penalty, it is more good news that these were the most costly instruments among all our debt and they had the most restrictive covenants.

And that as you will see from Sean's deck, retiring this debt further improves our debt maturity picture. The progress we've made against this pillar also makes it likely that while we'll continue to improve our position through aggressive management of cash flow, we will need to discuss the balance sheet less and less frequently in the quarters to come.

Second and third coming company areas that Chris will be spear heading -- namely margin improvement as well as financial reliability and accountability. His strong track record of leadership as both a financial and operating executive at Complex Multinational and most importantly, very successful public companies gives us confidence that Chris will lead the drive to improve margins, raise the level of our financial and information infrastructure, and work with operating unit management to get each of our Company's performance where it needs to be. That then leaves two pillars in which I have taken the lead role -- organic growth and attracting the very best talent to our organization at both the corporate and operating unit level.

First, organic growth, -- this is the vital driver we need to reverse the revenue declines that have plagued us during the past 2 years. As promised to you on our last earnings call, we've deployed a series of tools and a terrific leader in Kevin Alinch (ph.) and to drive this process. We carefully considered the definition of organic growth insight so as to build a program that encourages not only collaboration across Interpublic companies, but any and all behavior by our professionals that creates incremental revenue including new assignments generated from existing client-agency relationships.

The organic growth initiative, as we call it, is one important part of the systemic response to Interpublic's revenue challenges. The upper organic growth initiative has been vetted and has received great support from our business unit managements. We've also initially feeded the program with $1m and a million stock options to be awarded on a sliding scale based on the magnitude of performance and business generated by specific contributions.

The response to these efforts from the organization as a whole has been extremely enthusiastic. Never before has Interpublic made organic growth this kind of corporate priority, never before has this company dedicated this kind of resource to that effort; and while there's still work to be done when it comes to internally communicating all of Interpublic's resources and capabilities, I think it's fair to say that our people today have a better knowledge through a new database and better [on tray] and connectivity into other Interpublic resources than ever before.

Most significant, however, is one fact. Never before had Interpublic systematically put its money where its mouth is when it comes to encouraging that kind of collaboration. By which we mean collaboration across our companies, among disparate offices within the same network, and even among different practice areas within a single office location. The early returns from this effort are encouraging. A few weeks back for example for the first time Foote, Cone, & Belding teamed with the Marketing Corporation of America to snag a major Samsung global brand identity assignment from a number of leading corporate design competitors. Foote, Cone, & Belding also worked with Initiative Media in a new way and NSA to extend its relationship with an important client John Deere. And some help from Octagon got Initiative up to [date] for its recent win of Pennzoil-Quaker State. And those are just a few of the many conversations and collaborations they've made possible by this effort.

Finally in terms of the talent pillar, we told you we were committed to upgrading top management wherever necessary, including working with John and his efforts at McCann. And I am pleased with the week in and week out under Brian Brook's leadership, I continue to meet with the very best talent in our industry, regardless to where they are currently working, and frankly all of them are eager to be part of the new Interpublic.

Just last week, I'm sure you saw news reports that the WorldGroup had made two major new hires at McCann advertising, one in New York and one in Europe -- Rupert Howell in London and Brett Gosper in New York. These are big-time names, exceptional leaders who can really make a difference in McCann's work, in stoking the new business engine and is helping John drive performance at McCann. And over the past 3 months, we've also upgraded management and creative leadership at a number of FCB offices, both in the United States and in Europe, and we've also been active with Harris Diamond who has installed new global leadership at the two project-based companies we placed under his able stewardship last quarter, Future Brands and Golin/Harris. We've also added a very strong executive Joe McGee (ph.) to lead the New York office of MRM, the WorldGroup's relationship marketing agency.

And now a few final housekeeping items that require updating before we move on to the review of the quarter. When I took on my responsibilities a few months back, we pledged to work with our Board of Directors to ensure that going forward Interpublic's corporate governance practices would be second to none. Last week, the Company issued new corporate governance guidelines and a new charter for our corporate governance committee; both are available on our website and both have contributed to new ratings from institutional shareholders services, which indicate that Interpublic performed 97.7% of the companies in the S&P 500 and a 100% of our peers in the media sector when it comes to our governance practices. And that is excellent news the result of another promise made and kept, thanks to a lot of hard work on the part of many people especially our Board of Directors.

A few other quick headlines that should not go unmentioned -- the performance of our terrific United States based independent agencies [Ambiliville], Deutsche, and Hill Holiday to remain a few remains exemplary. We're pleased with positive progress both in stabilizing the business and improving margins as well. FCB's growth numbers are improving, and we're also very pleased at the infrastructure consolidation that's taking place and the level of collaboration at this constituent management group.

Finally, since I know there will be questions on these two matters after our presentation, I also wanted to post you on the SEC investigation and the shareholder suits. There are no new developments in either case. We continue to co-operate fully with the SEC, but the time table is clearly up to them. So it's difficult to say when their investigation will be completed. Similarly, relative to the shareholder suits there's nothing to report beyond our disclosure to date. Relative to disclosure, I've always said that we'll be committed to providing the most complete and transparent financial information.

Here to take us through the financials for this quarter, Interpublic's Chief Financial Officer, Sean Orr.

Thank you David. As David said the second quarter was a mix bag of financial progress and operating challenges. In the conference call notes, we've tried to illustrate in a simple manner results of operations, the impact of restructuring and impairment charges, and our current financial picture. Let me address some highlights, on slide 3, first we continued to make major progress in the second quarter regarding the balance sheet.

As you know, we redeemed our zero-coupon converts, which would have been 14:48[inaudible] this December. The tender offer used about $580m of the $800m in proceeds from our oversubscribed 4.5% convertible note offering of March 10. We renewed our 364-day bank facility at substantially the same terms. And after the end of the quarter, we completed the sale of NFO to Taylor Nelson Sofres for about $430m including a $30m position in TNS stock.

On the operating side there was some good news. After an unfortunately prolonged period of decline, organic revenue grew in the United States in this recent quarter. Although one quarter does not represent a trend, we review this as a very encouraging development. That said, business continues to be challenging; despite this improvement in organic growth in the second quarter, revenues are still too low and costs are still too high.

To address the cost issue, we began a previously announced restructuring program incurring $94m of restructuring costs in the quarter. As I will detail later, we will incur additional restructuring costs in subsequent quarters to complete this program that could bring the total costs to about $200m. In addition, we incurred $11m of impairment charges related to previously disclosed capital obligations at the Silverstone Circuit that we expensed as we honored those.

Let's now move to slide 5 -- reported revenue was up slightly reflecting the impact of currency translation. In constant currency, which removes the effects of exchange rate movements, revenue declined 3.6%. Organic revenue, which is most indicative of true performance, declined 3%. In the United States, organic revenue grew 1.4%, as I said, the first increase in quite sometime. Overseas, the number was a little better than in the first quarter at down 8.1%. You should know that these numbers have been appropriately adjusted to exclude NFO from both years given the recently completed sale. The impact of currency translation plus restructuring and impairment charges drove operating costs up 13.3% in the quarter.

Excluding the charges, operating costs were still 5% higher. I will come back to this shortly as there are several important factors involved in the operating cost story. In the mean time, the aforementioned restructuring charge incurred in the quarter penalized pre-tax earnings by $94.4m, which is equivalent to $61.6m on an after-tax basis, while the asset impairment charge cost us an additional $11m pre-tax. In the end, the net loss was 4 cents a share comprised of the 6 cents loss from continuing operations and 2 cents of earnings from NFO, which has now been classified as appropriate as a discontinued operation.

Completed P&Ls for the second quarter and first half follow on slides 6 and 7. On slide 8, we have reconciled our organic revenue calculation to reported revenue for Q2 as we had in past quarters and are now required by the new SEC Reg G. Later on slide 12, we do the same on a year-to-date basis. On slide 9, we crosswalk you from the corresponding 2002 quarter's earnings to those of the 2003 quarter. As you can see, currency translation was a big back factor in both the reported revenue and cost increases. In addition, the impairment and restructuring charge had a big influence on results as did taxes.

On slide 10, we separately analyzed all of the important factors influencing our reported performance for the quarter. The organic column represents how our operating businesses have performed without these other significant external factors. Slide 11 looks more closely at this organic performance and demonstrates that as with Q1, financing costs, professional fees, and normal severance were drivers of operating cost increases masking a reduction in salaries and other operating costs. That said, the reduction of salaries and other operating cost of $14.3m continues to badly lag the organic reduction in revenue of $46.2m with the problem being most acute outside the United States. Slides 12, 13, 14, and 15 repeat the analysis I just provided on operations, this time from a year-to-date perspective.

Moving to slide 16 and Motorsports -- much is happening here. We've shed some money-losing businesses, which have also reduced our revenue base; and we have continued to reduce operating expenses in those businesses that we continue to own and manage. Our losses here largely center around past contractual commitments involving capital expenditures we treat as impaired as soon as we make them, hence the $11m and $22.1m in asset impairments in Q2 and year-to-date respectively related to our unprofitable Formula One involvement, the details of which by contract we are not permitted to discuss. As we have previously indicated, you may see other potential dispositions in this area as we go forward.

In the mean time, we continue to work to minimize the bleeding and we're gratified to see improved attendance at this July's Grand Prix event at Silverstone in the U.K., which of course did not help Q2, but could buffer slightly this division's impact on our Q3 results.

Moving to slide 17, I'd like to give a little bit more color on the restructuring. 1450 positions have already been eliminated and 30 facilities have been closed or consolidated. Of the $94.4m recognized in the second quarter, about 90m will be cash paid out in 2003. The total program is expected to be about 200m, the remaining cost of which will be accounted for over the third, fourth, and first quarters. Expected annualized cost savings will be between $140m and $150m.

Slides 18 and 19 illustrate the progress we've made reducing our debt. In particular, let me call your attention to slide 19, which offers a look at our debt level adjusted to reflect last week's redemption of the notes payable to Prudential Insurance. With this transaction, our debt-to-capital relationship is well below the 55% at Q2's end.

As we said in the release, we incurred a prepayment penalty which will result in the third quarter charge in accordance with the rules governing the early extinguishment of such debt, but in doing so, we one, eliminate the most expensive debt instrument on our balance sheet; two, further improve debt maturity schedule; and three, left ourselves with better, more flexible debt covenants going forward. I should also note that while the June 30 levels may not look like a lot of progress relative to year-end, the seasonality of our business would normally indicate that we are usually net borrowers in the first half of the year. The more obvious point on the chart is that we have improved our debt-to-capital ratio more than 1,000 basis points in less than two years and most of this has been accomplished with operating cash flow.

Slide 20 shows our debt maturity schedule, which is very benign. A portion of the debt due in 2003 is some zero-coupon converts that have not been tendered. Obviously, this represents a much-improved position compared to earlier this year. And slide 21 shows the Prudential pay down further improves the picture. On slide 22, we show our liquidity position. At the end of the quarter, cash and cash equivalents at our committed facilities totaled 1.4b, a level we are very comfortable with.

And lastly on slide 23, is a schedule of that future earn-out obligations. By sharply reducing the number of acquisitions we had made since the end of 2000, we will soon be realizing the benefit of lower earn-out payments, which will greatly benefit free cash flow. As you can see, expected payouts in 2004 will be down sharply from the full year 2003 expected outlays. And outlays after that will continue to drop precipitously. As always, we have provided additional analytical detail as exhibits to this presentation.

This concludes my part of this quarter's financial report and now it's my pleasure to introduce Chris Coughlin, Interpublic's new Chief Operating Officer.

Thank you Sean. As most of you know, I've been at Interpublic for a very short time, in fact only about 6 weeks. During that time, I have attempted to immerse myself in the Company, its issues, and its people. I have met with most of our key people as well as with clients and others externally to gain their perspectives on the issues and opportunities here at IPG. I did my own substantial due diligence before I joined this company, and I'm pleased to [inaudible] I continue to be very excited about the Company and the opportunity. In fact, I am more convinced than ever that there are great assets within this company and great potential.

However, as David signaled, the turnaround that is required will not be an easy or quick process. The extensive number of acquisitions that the Company pursued up until just a few years ago has left us with a complex and disjointed organization. Analyzing what happened here is fairly straightforward. In a matter of just a few years, Interpublic bought hundreds of companies around the world. Many of these companies were run by first-generation entrepreneurs whose support staff seldom had the functional expertise to manage in a global company -- a global public company environment. Integration became one of Interpublic's biggest challenges and the Company did not have a comprehensive integration plan.

This remains one of our most pressing issues. Progress is being made in improving our financial reporting process, but more improvement is required. Essentially, the Company outstripped its infrastructure. Management did not adapt to the Company's new size and complexity. This explains why Interpublic has had such a difficult time in getting true information and appropriate information at the center. We need better, faster information to enable management to monitor the state of the business and make [inaudible] decisions. Lacking this information, the Company has been slow to react in the face of a very difficult, both internal and external business conditions that have prevailed during the advertising downturn over the past two years, particularly that outside the United States.

Ultimately, the Company lost credibility with shareholders. This lack of credibility can be seen in the Company's EPS guidance to Wall Street. And here is what's happened; IPG would communicate an EPS range against the backdrop of uncertainty and a pattern of recent messes, the financial community would understandably express its skepticism by making its own generally more conservative assumptions. The invariable result would be a large deviation in analysts' estimates and even larger deviations between those estimates and that of management guidance. Then into next quarterly call the whole process would repeat itself.

Given this situation, combined with the business environment that remains challenging particularly outside the United States where we have our most significant issues, the ambitious change agenda the team here is developing, and our stated goal of getting the Company's past issues such as to continue impairment charges and the pro forma mentality behind us as quickly as possible, we do not believe it is in anyone's best interest for Interpublic to continue to provide EPS guidance. Having been here only six weeks, I need to have more in-depth knowledge of the Company and its people as well as more confidence in our systems before I stand in front of you and tell you with confidence what we can deliver.

We are in a situation where there are many moving parts. As David indicated, we have new leadership in critical operating positions. Those new CEOs are moving aggressively to make many changes. These are changes that we believe will enhance long-term shareholder value, but may also entail short-term cost and uncertainty. We are therefore withdrawing our previous EPS guidance, those estimates as well as those on the part of the analysts were made on a pro forma basis.

With the number and complexity of items such as restructurings, asset impairments and other unique items, it has become almost impossible to simply and understandably reconcile individual pro forma earnings estimates to GAAP EPS. This is also complicated by the new requirements under Reg. G. However, as you can see, there were no significant surprises in the second quarter and the quarter does highlight a number of improvements in operating performance. The restructuring actions we have taken and those that remain to be taken will build on those improvements. We will continue to move forcibly to resolve these issues and put them behind this as quickly as possible.

Those of you who know me know I believe in making and meeting commitments. The commitment I can make to you today is that our year-end call in early 2004, we will be in a position to come to you with a set of quantitative metrics that will provide a clear understanding of our business and its prospects. In the interim, I believe in providing as much detail and information as possible concerning developments that affect our financial performance which brings me to the two strategic pillars that I am taking charge of here at Interpublic.

First, financial accountability and reliability -- we need to continue to improve our control environment; this includes people, systems, and processes. We will also be adding to the capabilities that enable us to undertake more in-depth analysis of our financial performance so that business decisions are based on sound economic analysis. Interpublic has within it more than 1500 legal entities and 900 financial reporting units. We must simplify this organization in order to better measure and manage financial performance and again to make decisions quickly.

We alter the reporting relationships between the CFOs of our major operating units and Interpublic Finance. These individuals and their organizations now report to us at IPG as well as to their unit's CEO. We are undertaking a top 10 analysis of our financial talent around the world and we will make changes and upgrades where necessary. Going forward, I am incorporating into these operating CFOs performance criteria a regular review of their organization's [404] or internal control systems and compliance, as well as the accuracy in their forecasting of financial results.

Moving on to margins, it is clear that the declining revenue growth and weak cost controls have led to a downward spiral in our operating performance. The restructuring we have begun is a first step in addressing that situation. By year-end, we will have a new cost structure in place and a base line to gauge our performance. The restructuring alone is not enough to get our performance back to where want it to be.

The key long-term issue, as David indicated, is revenue growth and he has already discussed some of our key initiatives in that area. There are, however, many other opportunities for us to improve margin and enhance shareholder value. Let me briefly review for you some of those areas we have identified as the most promising. One is real estate; we are developing a long-term real estate master plan. Reducing our worldwide square footage per employee to the levels of some of our competitors, we'll deliver a large future savings; however, this plan will require some time as existing lease commitments must lapse.

Another area is leveraging our purchasing power. For example, of our $800m of U.S. non-billable spend; only about 25% is sourced through national contracts. So there are significant savings to be realized here as well. We are now evaluating the greatest near-term opportunities. I was pleased to see upon my arrival that our IT originations have already started a program to simplify, rationalize, and consolidate operations.

Third, we must fix our international operations. By eliminating and consolidating legal entities, and simplifying our management structure, we can eliminate overhead. This will generate stronger results in these international markets. Improving international performance will drive down our tax rate and improve cash flow. So the road map is taking shape; this will not be easy and it will take time. Our past shortcomings have not proven to be fatal, but what would be is a failure to change and that's what we are committed to. It's what David and I and the rest of the team are focused on, driving fundamental change throughout the corporation. I look forward to meeting with many of you in the months to come and in keeping you updated on the progress of our turnaround.

Now, I'll open it up to questions.

Ladies and gentlemen, if you do have a question at this time, please press "*" followed by "1" on your touch-tone phone, and your name will be announced when it is your turn for your question. Again, press "*" followed by "1" on your touch-tone phone at this time if you have questions.

Our first question comes from Jason Helfstein of CIBC World Markets.

Thanks. A few questions; first question on the net new business wins and losses, obviously the new business win number was quite impressive, but the business loss number was also quite large, perhaps you can give us some color on -- specifically on the business loss number. Secondly, I know you don't intend to give specific guidance, but if we're doing our own math, should we assume that margins get worse excluding one-time items and severance before they get better in the third quarter? And then lastly, just some further color on Europe and as far as the decline and if you can just give us an update on the European business top line? Thank you.

Thank you Jason. And welcome to the feat, and we're glad you had the first question. On the -- first question on net new business, there were three rather large losses, one of which of course was Burger King, which those in the industry know has moved regularly, in fact sometimes as often as twice a year, and it was their turn to move. As you will remember, Deutsche in fact resigned Pfizer, which was a large piece of business. A part of that business came back again in the third quarter to McCann-Erickson.

Additionally, Deutsche was successful in winning a number of important assignments from Novartis. And the third loss was Abbott labs. Those were the pieces. Frankly, we were not as pleased with the second quarter net new business wins as we have been in previous quarters. We are, however, very pleased at the beginning of the third quarter, both in terms of pipeline and in terms of some of the large-scale competitions that we're in, including the Kentucky Fried Chicken one at Foote, Cone, & Belding.

On the European issue, as we've indicated before, we have made a number of changes there, which we believe will be positive. But frankly in those markets, we believe that there was an intense period of acquisitions, which frankly took the isle of the organic growth fall, a major period of cost takeout, which did the same thing, and as we moved to change the organic growth culture as well as some new leadership in some of our organizations, we believe there is no reason why that organic growth in that region shouldn't pick up. Additionally, there've been some organic growth loss in some of the other regions, but as you'll recall, we have a disproportionate share in Latin America and Japan, for example.

Chris, do you want to add anything?

Yeah. Let me comment, Jason, on the question about guidance and should you assume that margins excluding one-time items would improve. We are pleased with progress being made in getting our cost base down. I'm not going to give a specific guidance on margins, as again I don't want to get into the mapping of one-time items. I think we will be, we'll have, and we'll continue to give you enough information on the unique items that are in our number. So I think with that disclosure, we won't be giving specific margin guidance for the remainder of the year. Next question.

Yes sir, our next question is from Lauren Rich Fine with Merrill Lynch.

Thank you very much. Just a few quick questions. One, I know in the appendix you have some of the breakdown between the performance of advertising and media versus Marketing Communications and services, but I am wondering if you could sort of flush out some of the individual businesses and how they did or individual services I should say? And then specifically, I was surprised that U.S. advertising and media didn't perform as well as I might have expected. So if you could flush that out?

And then just a couple of quick items, of the full 200m on restructuring that you anticipate, do you have any sense what portion of that will represent cash expense? And then, you know, David you made a comment with the SEC that you are cooperating; has there been any further contact beyond their initial request for information? And then also I seem to recall that you might have a new incentive program in place now, and I am wondering if you do have it in place, could you discuss that?

Well, that's a range of questions, let me deal with the first one on the SEC, we haven't disclosed anything further except to say that their investigation continues and we continue to cooperate. Actually, we did signal some of the things that we were pleased with in some of the organic growth in the U.S. We have been pleased by the public relation stabilization in that sector, both in Golin/Harris and Weber Shandwick. We have pleased to watch the Jack Morton business, which, as you know, is the largest global event and meeting company, began to firm up and grow again as companies began to schedule meetings etc. And as always, our strong portfolio of independent agencies in the U.S. has grown nicely. Healthcare has been a strong performer as well as we've indicated, I think, in the last one that the media-only business has begun to show some revenue increases.

Well; now I'll response to the question on the amount of the estimated 200m in restructuring charges that will be cash. Right now, our best estimate is about a $150-175m.

Okay, and actually of the 94.4 -- I mean the 94m in charges you took in the second quarter, how quickly will that convert into savings?

I think that you will see much of it start to generate savings in the third quarter as actions have already been taken. There will be some time period within the third quarter, but we will see most of it really take effect by the fourth quarter, but we will see an impact in the third quarter as well.

Okay, and then I think I had the other question on incentives if there had been a new program put in place?

It was the organic growth initiative program, which was the overlay program based on collaboration, which has actually been -- and we have had a number of applications for it online already. So that program is in place. We will be having in all top executive meeting early in September in which we will be unveiling the new incentive program, which will be a incentive program for our management teams based on the areas that Interpublic needs to focus on going forward and I think you know what those are.

Thank you.

Thank you.

Next question is from Michael Russell of Morgan Stanley.

Thank you, I just wanted to clarify there -- was it 1453 jobs that Sean mentioned were eliminated and could you give us some idea what ones actually have been eliminated, which ones are going to be or whether its your attrition, just give us an idea of kind of what you've done in terms of job cuts so far and then going forward, how many you would expect to be in total?

Michael, what I said was 1450 positions have been eliminated as of June 30, which means that according to the accounting rules, those positions had to be eliminated and the people have to be out of the Company by the end of August, which is why there is a bit of a time lag to a certain extent in the realization of these benefits in the third quarter and you won't have a full effect of the savings until the fourth quarter.

As we had indicated earlier Michael, on our second quarter conference call, a number of these people were taken out in Europe, in the McCann organization it was about taking out redundant structures and so those are the areas where it's come out. 70m of the 100m there about 70% of the amount has been international and international is the area where we've lagged in margin and that's why the focus has been international.

And would you feel that perhaps the organization was distracted during this period of time of wondering or dealing with those reductions? I mean, when you look at the new business wins or you look at other parts of the business, is it possible that there is a period of distraction during those cuts that won't exist in, you know, the second half, although it persists, do you think because there are still further cuts to go?

Well, one, we had not ramped up our organic growth initiative at that point in the second quarter. Number two, yes; I believe that any time that you are focused on a program like that which is important for the future, it takes time away. But as we indicated earlier, the organic growth numbers were offset really by those three rather large losses and the [inaudible] going forward this is very strong.

Okay, and then lastly, advertising, have you done something that looking at the square footage per employee and doing some calculations there and it's kind of hard sometimes not having the full idea of the number of employees or about the total real estate expense, but is there a kind of an idea -- a goal of square footage per full-time equivalent or something else that you're shooting toward? Chris, you had mentioned in your real estate comments. Is there something specific that as a metric that you're pointing to, to know when you'll have reduced the real estate cost enough?

Yes. What we're doing right now is making sure that our database in terms of the real estate that we currently have under contract is complete and that we put together this long-term plan and we will be putting together a metric for us to, you know, map against. So we will be providing more information on that as we go forward, and we will be measuring our success against that as we go on.

I think, Michael, to add to that you could assume that we'll be looking hard at benchmarks and professional service firms as well as our competition as we apply those metrics to our own situation.

Okay. And then just lastly, the $140-150m worth of savings that had come from the restructurings -- the fact that you've done about half the restructuring now, does that mean about half of the savings are things that we should start to look forward to as Chris alluded to, I guess, that the fourth quarter would be one we'd see the fuller impact of that, is that the right way to do the math?

Yeah. I think, you know, it's probably reasonable to assume that that might be, you know, a reasonable assumption as you go forward.

Okay. Thanks very much.

Okay. Our next question is from Alexia Quadrani with Bear Stearns.

Hi, good morning -- good afternoon. I'm Alexia Quadrani. Just following up some questions that you -- on the restructuring process. I guess being into it 3-4 months now, let me guess why is it taking a little bit longer than you initially suggested, I think, in one of the most recent filings that it would be in the second and third quarter and now you're saying into first quarter of '04? And then in terms of the process, you had mentioned that you would really focus on the international market first. Are you also approaching it one agency at a time, or should we expect McCann to be completed, for example, before some of the other agencies?

Let me comment on that. First, I think that this is not taking I don't think any appreciable time longer than was expected. We announced at the end of the last quarter that this program would be put in place that we were moving aggressively forward and most of the actions have been taken in certain countries through our timeframes in giving notification, dealing with broker counsels and the like. So, I think that we are pleased and a vast, vast majority of it will be done by the end of this year. In fact, I think the vast majority of it will be done by the end of the third quarter. So, I think what you are seeing is there are certain places and every agency that is going through this process is doing it at the same time. We are not going one at a time. We are looking at the whole business structure and are taking actions.

And so, we also indicated that it may dribble out into other quarters because of the new rules on restructuring, which does not signal that we are not moving aggressively or quickly.

And do you still think that 200m is the approximate -- appropriate amount at this point?

Yes.

And then in terms of your professional fees, we saw a little bit of an increase in Q2 over Q1. Could you give us any guidance what do you expect in Q3?

We are not going to give specific guidance on professional fees, but I -- the issues that were driving those professional fees remain with us, and will remain with us for some period of time.

And lastly, any update on progress in terms of selling other parts of Octagon?

We are looking at the potential of selling certain of our properties within the racing motor sports business, and some initials fevers have gone out, offering memorandums are being put out within this month. So we will see what the value of those are and then make a decision in terms of whether we dispose of those additional properties. Those are the really growing ones that we are currently evaluating right now.

Okay, thank you very much.

Our next question is from Kevin Sullivan with Lehman Brothers.

Hi, good afternoon, I just have a couple of housekeeping items. One; can you just bring us up-to-date with respect to your debt covenants and where you stand? And secondly, in terms of an affective tax rate assumption for the remainder of the year, do you have any ballpark if you can help that with?

Yes, nice Kevin. We are in compliance with all our debt covenants and expect to be throughout the year. There are a lot of one-time and unusual items that affect our tax rate, but I think if use about a 45% rate, that would be for the full year that would be, you know, the mid 40s.

Great, thank you.

The next question is from Frederick Searby with J.P. Morgan.

Hi, it's Frederick Searby from J.P. Morgan, just couple of questions, you have made strides with your balance sheet and I just wondered if you could update us on where you stand with the covenants; and then secondly, we had some positive macroeconomic data from Japan, which has been one of the issues, I think, bedeviling you and if you can just say -- tell us whether you expect just an inflexion point in Japanese market and your ad businesses are feeling it at all?

Yes. Again Fredrick to reiterate on the covenants, we are in compliance with overall covenants and expect to be throughout the year [passed] it.

Yes, we are encouraged by what seems to be the beginning of the tipping point in Japan. We are hopeful that it will flow through into our business units, particularly McCann-Erickson, which is the largest western agency in Japan, as well as our minority interest in the new combined entity of Unico, Daiko, Hakuhodo.

Nice pronunciation, okay, and thank you.

Our next question is from Dale Wettlaufer with Legg Mason Funds.

Yes, I got to be a little more quicker with the dial-in because everybody has got all the good questions already, so thank you very much.

We are glad to hear from you though Dale.

Thanks David.

Next question is from Shree Nadasam (ph.) with Wachovia.

Thank you, a few questions; one is that you have a substantial amount of cash in your balance sheet right now. I think that amounts to close to $1b right now and given the outlook, it's likely that number could rise. What are your thoughts in terms of putting that cash to use? I know that you are restricted in terms of paying dividends; right now I think you can pay up to 25m if I am not mistaken. But in terms of your debt reduction plans, I know that you don't have too much flexibility, but some of your high coupon debt in the fixed income markets these [inaudible] quarters and the [7-8s], I think, what are your thoughts about that, and I'll have a couple of follow-ups.

Okay. We don't have quite as much cash as you indicated. Again, we have I think about 700m -- again that doesn't include the pay down of the Prudential debt, which happened in August. So you'll have to reduce that by some 174m I believe. And again, I think, what we are looking for in terms of our cash flow going forward is first we need to stabilize the business and go through our restructuring program. That's our first and foremost use of cash; we do believe, we'll be in a good cash position, and we'll be able then to pay down some debt and get back in a dividend mode. But again the critical thing is to get the business turnaround stabilize.

Of that in the proceeds from NFO as well?

Right.

Couple of other questions. One is, on slide 11 you showed a severance cost amount of close to $10m, I think $9.6m, why is that not part of the restructuring costs? And also on the same slide you have a benefit in terms of lower operating expenses to the extent of $14.3m, could you shed some light on the nature of that benefit?

Yes, on your question on the severance, there are certain severance actions that under the accounting guidelines do not qualify as restructuring. So, then if you sever someone, say for performance you are going to replace that person in the same job, then that wouldn't count. So there is no ongoing severance that exists within a business, and again we are making sure that we are putting high performers in to our various companies, so that's the major driver there. The second piece of your question again?

The -- on slide 11, you show a benefit of about $14.3m?

Oh right.

[inaudible] the reduction of operating expenses?

Right, again we have been have been undertaking efforts to reduce cost on an ongoing basis, really since the beginning of the year; and we are seeing the reduction in salary and wages and other expenses and travel and entertainment expenses and just good cost control measures. So, again I think that shows that on an operating basis, we are making progress in reducing our cost base.

And the point of the chart is that the businesses exclusive of these items that we have singled out are attempting to reduce their run rate operating expenses. But with that, the reductions aren't enough to offset the decline in organic revenue, so we know we have to cut costs deeper and faster.

Okay the last question is on Octagon. I know you've mentioned something a little while earlier but would that business still be part of IPG, let's say two quarters down the line, are there any restrictions in terms of selling the entire unit, could you give us a little more color on that?

As we've stated previously, we have separated the Brands Hatch Motorsports business with a new name from Octagon. And we've detailed our plans and progress against the Motorsports business. In terms of Octagon, its self-consulting athlete management etcetera; it's a very strong business and we have no intention of deposing ourselves off it.

Thank you.

Operator we will take one more question.

We have a question from Troy Mastin's line with William Blair & Company.

A few parts of my question, first I wanted to ask you about the pace of new business wins so far in the third quarter you alluded to what seemed like a strong start; and in your press release, I am just curious if you can give some idea on how it is pacing maybe when compared to the last quarter, and if your expectations for new business wins would be perhaps higher than in the past given your organic growth initiatives?

Yes, I will. It's early days, but we have indicated already Monster Worldwide was won by Deutsche in a very major shootout, FCB is down to 2 in the Kentucky fried chicken, there is a very major unnamed piece of business that we have three of our groups competing for, and we also did win the John Deere business, which was jointly done by [inaudible], etc. So, those are kind of the things that are happening, but we monitor routinely the pipeline on our businesses and we feel good so far this quarter.

I guess I am trying to get at how you feel relative to last quarter, is that pacing above and where you have been; and is this organic growth initiative starting to pay off through new business or should we look for that to really capitalize itself through?

Last quarter there was a lot of activity, but the size of the activity was not as large as it had been in previous quarters. The organic growth initiative actually was just launched about a week and half ago. So, its ability to really gain traction will take a period of time. I am referring more to the normal pipeline of new business that our business units report. International, particularly in Europe and some of the markets like Germany, continues to be slow, and Latin America continues to be slower than we'd like it to be, but in the U.S. it's begun to pick up. Susan would like to add something as well.

Troy, we have a comprehensive new business reporting system within the Company, but they're not required to report their business until the middle of the month. So we're a couple of days early to have the full July results.

Okay. And then maybe if I could get one more question and I'm curious when you began to give some enhanced metrics on the business, it sounds like early next year, can you at least give some idea what those metrics will look like? I'm assuming we'll see an outlook for organic growth, for EPS, things of that nature or are you referring to other metrics that we might not be accustomed to?

Yes, Troy, what I'd like to do is to make sure that we go through and do a really thorough analysis of what the key metrics are in terms of the drivers of the business. Some of those may be metrics that you're used to and others may be new metrics that we think are really important for us to measure performance and what drives this business for long-term value. So we're not going to list them now, but we will do a comprehensive review and then come back to you in about 6 months with those very specifically.

I think Chris indicated some of the areas that we're going to be going after in costs and if you look at his remarks earlier, you can get some of the buckets where those additional metrics might possibly come from.

Thank you very much.

Thank you all for joining us. We look forward to our third quarter conference call.