宏盟集團 (OMC) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2004 earnings release. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. If you do need assistance during the call today, please press the star, followed by the zero. At this time, I would like to turn the conference over to the Executive Vice President and Chief Financial Officer, Mr. Randall Weisenburger. Please go ahead, sir.

Good morning. Thank you for taking the time to listen to our third quarter 2004 earnings call. We hope everyone has had a chance to review our earnings release. We've also posted to our website both the press release and a presentation covering the information that we will present this morning. This call is also being simulcast and will be archived on our website. Before we start, we need to provide one accounting reminder. As mentioned in our previous calls, effective January 1, 2004, we adopted SFAS No. 123. That is accounting for stock-based compensation. As a result, we're including the costs of employee stock compensation in our reported results. In connection with the adoption of SFAS 123, we've also restated our 2002 and 2003 annual results, and our 2003 quarterly results to make them more comparable. Therefore today's earnings release and our comments reflect the impact of this restatement. With that out of the way, we will begin the call with some brief remarks from John Wren. Following John's remarks, we will review our financial performance for the quarter in more detail and then both John and I will be happy to take questions.

Good morning. We are very pleased with the Company's performance in the third quarter. As he mentioned, Randy will take you through the results in more detail when I'm done and then we will both be available for questions. Progress was made in a number of areas in the quarter. First, revenue. And as we expected the Olympics had a positive effect. We believe that 1 to 2% of our growth was attributable to client shifts in spending in support of the event. Growth in all of our marketing disciplines -- advertising, CRM, PR, specialty advertising -- were all strong during the quarter. From a geographic point, the third quarter results are in line with the trends that we've seen through the first six months of this year. Spending for the quarter and for the nine months was solid in the United States, Asia, South America and Africa. In Europe, all Euro and nonEuro countries performed well, except for France, which was down a little bit year-over-year, and the U.K. which was flat for the quarter and slightly up for the nine months. We expect these trends to continue into the fourth quarter. Specific clients' spending plans on discretionary year-end projects should be getting a little bit clearer after we have the Presidential election. Now if I can, the good news for the quarter was really in our margins where the results of our prior cost actions began to take effect. Despite the increases in costs for new regulations like Sarbanes-Oxley and continued severance costs we are able to make significant progress in restoring our incentive compensation pools and hold our margins flat with last year. As many of you will recall, one of our objectives for the year was to continue to grow both the top and the bottom lines, restore our margins and increase our compensation levels to -- compensation levels to appropriate historic levels. I will now turn the call back to Randy who will take you through the results.

Thanks, John. Again, we're very pleased with the performance of our agencies in the quarter. We think we're on track for the year. We believe this Company's financial performance is beginning to reflect the significant progress that our agencies have made in adjusting our cost models as well as the success they've had in gaining market share. And as a result, our overall utilization rates have been improving. In summary for the quarter, revenue increased $290 million, to $2.319 billion. That was an increase of 14.3%. Operating margins as John said were flat in the quarter. Net income increased 16.6%, to $145.3 million, and diluted earnings per share increased 19.7%, or 13 cents a share, to 79 cents per share for the quarter. For the nine months, revenue increased 13.8%, to $6.958 billion. Net income increased 15.9%, to $487 million, and diluted earnings per share increased 15.6% to $2.60 a share. Analyzing our revenue performance, organic growth was very strong, increasing 8.4% in the quarter and accounting for 170.6 million of our revenue growth. However, we believe that between 30 million and 40 million of that revenue or between 1.5 and 2% of our organic growth in the quarter was a result of clients shifting programs forward from Q4, primarily related to the Olympics. Acquisition revenue in the quarter totaled 37.8 million, adding 1.9% to our revenue. Based only on the acquisitions that we've completed through the end of Q3, acquisition revenue growth will be approximately 1% in Q4. We do, however, expect -- we do, however, have a relatively full pipeline of potential acquisitions that we're currently evaluating and we would expect to complete at least a couple of those transactions prior to year-end. FX in the quarter continued to have a positive impact adding $82 million to our reported revenue, or about 4%. That's up from about 3.5% in Q2.

Based upon our current FX rates we would expect the FX impact in Q4 to be in the 2% range. Obviously between now and year-end those rates could change either up or down. As for our mix of business in the quarter, traditional media advertising accounted for 41.8% of our revenue, and marketing services accounted for 58.2%. As for the respected growth rates in the quarter, traditional media advertising continued to show steady growth at 10.7%. And marketing services, which is driven by the continuing strong performance of our CRM businesses and healthcare businesses, as well as an improving PR sector, grew 17%. Breaking down marketing services for the quarter, CRM was approximately 35.6%; public relations, 11.1%; and specialty communications, 11.5%. As for the respective total growth rates, CRM continued to be strong and steady, increasing 17.7% in the quarter. Public relations, which we began to recover in the second half of 2003, continued to gain momentum, growing 14% in the quarter, up from 10.5% in Q2. And specialty communications which increased 18% in the quarter continued to benefit from the strong performance of our healthcare agencies, as well as beginning to see improvement in the recruitment sector. Our geographic mix of the business in the quarter was 54.4% U.S., and 45.6% international. That's basically in line with Q2. In the United States, total revenue growth for the quarter was $155.7 million or 14.1%. Acquisition growth totaled 33 million, and organic growth totaled $122.4 million. For the nine months, total revenue growth in the U.S. was 396 million, also up 11.7%. Acquisition growth totaled 112.1 million, and organic growth totaled 283.9 million.

International revenue increased 134.7 million in the quarter, or 14.6%. That was made up of acquisition growth of 4.5 million. Organic growth was 48.2 million, and as I mentioned before, FX had a positive impact of 82 million. For the nine months, international revenue increased 446.7 million, or 16.4%, made up of acquisition growth of 32.6 million, organic growth of 127 million, and FX was positive at 287.1. On the new business front, aggregate net new business wins in the quarter totaled 949 million. Year-to-date, net new business wins are on pace with our prior year's level of just over 3 billion. Some of the more significant gains and losses in the quarter included Quizino's -- or Quizno's, Mars and Subway restaurants. On the loss side we lost E-trade. Operating income, moving down the income statement a little bit, operating income for the quarter was 247.4 million, that is up 14%. That's an operating margin of about 10.7% which was flat with last year. While we strongly believe that it is most appropriate to evaluate our cost structure taken as a whole, a few of the larger items that impacted our margins in the quarter included the following. First, our overall utilization rates in the areas of basic compensation and occupancy costs continue to improve in the quarter as a result of our agency's prior cost actions, market share gains, as well as generally improving market conditions. For example, while revenue in the quarter increased approximately 14.3%, basic compensation, that is, compensation excluding incentives, increased less than 11%. And occupancy costs increased only about 2%. As a result of these improvements, we've been able to absorb the increased costs associated with implementing Sarbanes 404, which we estimate between 10 million and $15 million per quarter. And at the same time, as we've discussed previously, we've made significant progress in rebuilding our incentive compensation pools. For the quarter, our aggregate incentive compensation pools increased approximately $28.6 million, year-over-year. Excluding the cost of options, which we began expensing this year, incentive pools increased approximately 35.6 million.

For the nine months, our aggregate incentive compensation pools increased 73.6 million, and excluding the cost of options, incentive pools increased approximately 90.6 million. Interest expense in the quarter was approximately $8.8 million. That's down from 11.5 million reported in the third quarter of 2003. The decrease from prior year is a result of not having to pay a sweetener this past February on our 2031 convertible bonds as well as a reduction in our average outstanding borrowing. This was offset by the sweetener payment we made in August of this year on our 2032 convertible bonds and the FX impact or effect on the Euro denominated interest that we've had on our outstanding Euro notes. Our tax rate for the quarter was 33.6%, that's in line with our 2003 full-year rate, and equal to the rate that we had in Q2. Net income and EPS as a final result, net income for the quarter increased 16.6%, or 145.3 million and diluted EPS increased 19.7 million, that's 13 cents a share, up to 79 cents per share. As we've previously mentioned, we believe that between 30 million and 40 million of revenue in the quarter was the result of clients shifting programs from Q4 into Q3, mostly associated with the Olympics.

We estimate that this shift increased our EPS in the quarter by approximately 2 cents per share. And since this is timing we would also expect to see this reverse in Q4. For the nine months net income increased 15.9%, to 487 million. And diluted earnings increased 15.6%, to $2.60 a share. As many of you recall, last quarter we provided a table that showed the pro forma impact on our diluted EPS calculation in the event EITF 04-8 was ratified, and we were unable to make certain minor amendments to our existing bonds. Since then, the EITF was ratified earlier this month and will be effective for financial statements issued after December 15, 2004, for convertible bonds that remain outstanding and unamended at that time. Since our last earnings call, we have amended our 2032 bond, and last Thursday we initiated a consent offer to amend our 2033 bond which we expect to receive in early November. The amendments which are very minor bring the bonds into compliance with EITF 90-19 so-called instrument C. As a result, the bonds will be appropriately accounted for under the treasury method, and will not result in dilution to earnings until they're in the money. Which is approximately $110 per share for the 2031 and 2032 bonds and $103 a share for the 2033 bond. On pages 10 and 11 of the investor presentation that we posted to our website, we provided a preliminary analysis which shows the pro forma impact of applying EITF 04-8 to our convertible bonds for 2002, 2003, and the first nine months of 2004 under under two different scenarios. The first on page 10 assumes that our 2031 and 2033 bonds are not amended prior to year-end.

As I mentioned before, we have -- we went out last Thursday with a consent for the 2033 bonds so this scenario assumes that that consent does not come through as we would expect -- as we expect. In this scenario, the net result would be dilution of about 2.9% for 2002, 1.5% for 2003, and 4.2% for the first nine months of 2004. The second scenario, which we believe is more likely, is shown on page 11, assumes a consent offer we initiated last Thursday on the 2033 bond is accepted, and only the 2031 bond is included in the calculation. The net result in this scenario would be dilution of about 2.9% in 2002, 0% in 2003, and 1.9% for the first nine months of 2004. A third scenario, which we're currently evaluating, would be for us to seek consent to amend our 2031 bond prior to year-end as well. Obviously, under this scenario, if we're successful, there would be no dilution or restatement required. As I mentioned going forward, the amendments to the bonds would require us to account for the bonds using the treasury method. We believe this method is more accurately reflects the economics of the bonds, and was in fact the method under which we had expected to account for the bonds when we originally issued them. Under the treasury method, the bonds are appropriately not dilutive until the stock price exceeds the conversion price of the bonds. Which is, as I mentioned, approximately $110 per share for the 2031 and 2032 bonds, and $103 a share for the 2033 bonds. As you would expect, all these estimates are subject to change based on actual events in the future. But with that, now we will ask the Operator to open up the call for questions.

Thank you. And ladies and gentlemen, if you do wish to ask a question, please press the star, followed by the one on your touch-tone phone. You will hear a tone indicating you've been placed in queue. And you may remove yourself from queue by pressing the pound key. If you are using a speaker phone you may need to pick up your handset before pressing the star and then one. So once again, if do you have a question, please press star, then one, at this time. And our first question comes from the line of Lauren Fine with Merrill Lynch. Please go ahead.

Thank you. Wonderful quarter. I'm wondering, Randy, if you could tell us if there were several purchases in the quarter, and if there were, the number of shares and the amount? And then, if you could talk, John, when were you speaking, you mentioned that there had also been severance in the quarter or it sounded like that. I'm wondering if you could also quantify that? And then while I recognize that maybe clients haven't articulated their plans yet and want to wait until post the election, if you have any anecdotes you can share of just the overall tone of what you think some of your major clients are thinking right now.

Let me deal with the last one first, Lauren.

Mmm-hmm.

Our base business is very strong. We know what that is. What I was referring to was nobody knows, this election is so close, nobody knows what is going on, and we don't know if we're going to wake up the following morning and have a President or this is going to continue, you know, through the courts or whatever. So what I was referring to is there is always in the fourth quarter of every year a number of projects which are completely discretionary on the part of the clients. And they don't have to pull the trigger to say we're going to do these or not do these until late in November. And I think until that -- the marketplace clears a little bit, until we get past, you know, these events, we won't have the certainty as to, you know, when those projects are going to occur and when they're not. It is incremental. As Randy said, we're comfortable with the year, with everything that we've said in terms of what our results are going to be. We just -- we are just waiting to see, and get a bit more clarity after the election.

Okay, your technical questions, we spent just under $160 million for share repurchase in the quarter, bought in right around 2.25 million shares, and as far as severance goes, it was just over $15 million of severance in the quarter.

Great, and one last quick question if I could. I know in a lot of contracts now with clients, there are some type of either pay-for-performance or exceeding performance type of measures. And I didn't know if a lot of that was weighted towards the fourth quarter, and if you had any sense of, you know, sort of how you're tracking on those contracts? And again, it is a vague question. You have a lot of clients. But just directionally.

The cutoff dates -- go through the year on where these -- where this applies, Lauren, but it is not -- the pay-for-performance was in a margin of error in terms of what its impact is on our results. And as far as I know, we're tracking as we should and it is reflective in what we -- our results -- and what we're comfortable with going forward. So it is not -- it hasn't overtaken the industry, you know. It is part of normal compensation.

Okay. Well, thank you again. Wonderful quarter.

Thank you.

Thanks. We have a question then from Alexia Quadrani's line with Bear Stearns. Please go ahead.

Hi, good morning. On your comments earlier about the European performance, I think you mentioned, you know, a nice pickup but the U.K. remains relatively flat. Do you see that turning or getting stronger I guess going into the fourth quarter? And the second question, Randy, you mentioned utilization rates getting a little bit better in the quarter. Is there any way you can give us a little more color of where they fall maybe relative to the trough and the peak, going back about five years or so?

Let me do the first one first. As I think I said Alexia, we expect the trends that we've seen for the first nine months of this year to really continue into the fourth quarter. Europe, the latter part of last year when the recovery started here and through the first nine months of this year, has been -- you know, the economies in Western Europe have yet to reignite in the same way that you've seen in the United States, Asia and some of the other markets around the world. So we don't expect any huge shift for the remaining two months of the year in those markets. And we're hopeful, as we get into 2005, we will see continued improvement.

As far as utilization rates go, you know, I don't have -- I don't have numbers calculated the way you would think, going back five years. Our utilization rates now are certainly not as high as they were five years ago or in 19 -- I guess that would be 1999. I'm not quite sure that we would expect them to get to those levels potentially ever. That was a pretty robust period of time.

I guess put another way, do you see further upside from where they are now?

Yes, absolutely.

And just if I can follow-up with one other question about Europe, John. In terms of maybe your cost picture, do you see the -- your margins improving a bit in Europe?

Yes, the answer has got to be yes. I mean as most -- a lot of the severance costs that we've incurred during the year have been, as in the latter part of last year when restructuring some of our European operations, where revenue had declined because of market conditions, or because we decided to reorganize some of the smaller operating units, so as we get past that, implicitly, there will be an improvement in the margins in those areas. But -- in those countries.

Thank you.

Thank you.

Thanks. We do have a question then from Troy Mastin's line with William Blair. Please go ahead.

Good morning. Thank you. Given your commentary on the Olympics, I want to dig in on maybe the average organic growth rate here over the last several quarters, I think it has been around 6% and I want to understand if that is sort of the trend line that you see today and what does this mean for the fourth quarter? You mentioned revenue potentially shifting out of Q4 and into Q3, would this mean we would be below that trend line most likely in Q4?

[overlapping speakers] We're not providing a forecast one way or the other. I've always said plus or minus, you know, 1% in any given quarter on organic growth rates is really impossible to measure. But you're right, the trend line, you know, year-to-date, has been, you know, in the 6% zone or just above 6% zone. Seems like where the numbers are coming out.

Okay. And maybe if you could give some context on how this might impact margins, I guess most notably in the fourth quarter. Have you accrued more for your incentive pools in Q3 as a result of the robust performance in the shift in revenue? Or would accruals be pretty similar in Q4?

Performance is similar. I think the accruals would be similar.

So does that mean that accruals would be higher in Q3 than typical because your earnings growth is higher than typical?

Well, the accruals come in line with a combination of the performance, the current performance, or the year-to-date performance, and the expected outcomes for the year.

I guess I'm really just trying to understand if you would have accrued more in the third quarter, as a result of the impact of the Olympics.

Yes, somewhat.

Okay. And then you didn't mention Germany. I'm curious if that has turned the corner then, because it sounds like it didn't shrink, and if it has, are there specific steps that you have taken that have really improved this market? Thanks.

Germany, I think, for the quarter, you know, for the quarter was a little bit better year-over-year. It is not enough to call it a trend yet.

First of all, our actions can really only impact our cost structures in getting our agencies, you know, properly sized, taking cost actions for what's happening in the marketplace. We can't really impact the economy of those countries very much.

Yeah, and something that we've noted on prior calls. In Germany, for instance, in two of our largest -- two of our largest units, we've gone through -- one unit we've gone through two succession plans, we're very comfortable with the manager we have in place right now, but we had a -- we started a succession earlier in the year and then we changed to our -- to a better choice. That had to have a little bit of impact on our Germany. And another operating unit we put a new manager in as well. So a lot of it is Omnicom-related and we're very comfortable having made the shifts with the teams that we have in place now and they're addressing themselves in the marketplace. That takes a little time, though.

Thank you.

Thank you.

Thanks. We have a question then from William Bird with Smith Barney. Please go ahead.

Thank you. Yeah, John, as you look at your rate of recovery now, this cycle versus prior cycles, I was wondering if you could talk a little bit about some of the key differences that stands out -- stand out? And also was wondering if you could talk a little bit about, you know, the fourth quarter from another angle. Some have speculated that there may be some pent-up demand for advertising which could be released after the election. Just wondering what your point of view is on this? Thanks.

With respect to the last recession, I think the Company is completely different than the situation back in '92, '93, in terms of the complement of services that we had. We were far more heavily weighted towards advertising in the last recession. So this is -- this is a bit -- this is a lot different, it is just a different environment. The patterns, what really happened in that time frame is there was a catalytic moment when P&G announced that it was changing its behavior and then the markets went off to the races. I don't see any catalytic moment this time around, plus Asia wasn't such a robust part of the equation the last time around. And we fully expect that the Asian growth will continue to be very, very strong as we move forward. With respect to the fourth quarter. It is difficult to hedge. I mean as I said earlier, our base business we are very, very knowledgeable about it and what's there. What we're waiting to ascertain is whether or not projects will be released in the fourth quarter, in total. So in terms of general media or advertising, television, a lot of those decisions have been taken.

Our fourth quarter revenue numbers generally have, I don't know, 100 to $200 million of sort of year-end project-oriented business. It is obviously a very large number of projects across a broad range of clients and disciplines, et cetera. But those are short lead time or shorter lead time projects that's harder to have visibility on.

So whether it's 60 or 110, you know, until the end of November we won't have a very good reading on that.

Thank you.

Thanks, we have a question then from Michael Nathanson with Bernstein. Please go ahead.

Thank you. I want to drill down more on the margins in the quarter. Can you give me a sense of is the Olympic money that came through a higher margin type of spending? That would imply from what you're saying with earnings.

Absolutely not.

Okay. Because if you take a look at the 1 to 2 cent impact on earnings you said in the quarter, that would kind of imply back that it was a bit higher margin, given what you said about revenues, basically. Does that make sense?

What we're doing is saying that revenue to support the Olympics, by those who were sponsors and those who bought into the Olympics because they're rivals with sponsors, was more robust. And attendant with that is just our regular profit margins. These are some of our largest clients that are spending money in this area. And our arrangements, those are fairly fixed.

So the 30 to 40 million number is a rough estimate?

Yeah, that's all it can be because clients have flexibility -- we're talking about a very small amount of money when you consider the fact that, for the first nine months, the revenue for the Company was $7 billion. So we've just -- we just are highlighting it because we believe we should. But it's not that -- not that large.

Okay. But then to go to the 1 to 2 cent question of -- on earnings, and so that's just an approximation. If I were basically to assume the 1 to 2 cent earnings number backwards, right, and assume the margin rate of the Company, that would be the average size of what you think the overall spending was, in Olympic-related money?

You know --

Pardon me?

Well, basically, let's say you take the 1 to 2 cent you think was in this quarter, that was above estimate, or above expectation, right?

Time out. It is not above expectation. We said from the beginning of the year that we fully expected in the Olympics that there would be a shift in where clients spend money because of the Olympics, and that they don't necessarily increase their budgets for the year. Many clients shift. So I want to just -- just clear that up in terms of what expectations are or were in any event and now Randy can answer the other question.

Okay. The other question I have would be, can you give us a sense of what severance was last year? You said 15 million this year and I wonder what severance was in the third quarter last year.

Severance was about 25 million last year. So it is down about 10 million in the quarter. Personnel fees on the other side of it was up about 5 million year-over-year.

Okay. And lastly would be, I think that the question people were going back to is margins by geography. Was there anything special in this quarter on a margin basis by geography? Did, you know, Asia continue to get stronger? Was Europe surprisingly better? Anything on a geographical mix on revenues -- on margins, sorry.

From a margin perspective, no.

No, it was -- okay. Thanks.

Thank you. And we do have a question then from Steven Barlow with Prudential Equity Group. Please go ahead.

Thanks. A quick housekeeping one, Randy. Just give us the number of basic shares at the end of the quarter. And then I got a couple more after that.

Basically, you're talking weighted average for the quarter?

I just want the quarter-end numbers as a start for October 1.

It will take us a second. Go on to your next question while someone looks that up.

In terms of the Lion 31, why not go ahead and just get it done in the fourth quarter? Next question would be, when does the Sarbox expense end? Obviously it is always going to be there but in terms of the rate of 10 to 15 million, can we expect in '05 that the number to be more of a 5 to 10 or kind of number on a quarterly basis?

The 2031 bond, that has a put date next February.

Correct.

So obviously, in a put date, it's a logical time to seek the amendment, pay a sweetener if necessary to keep the bonds outstanding. What we're evaluating is going out, seeking a consent to amend the bonds, and paying a sweetening payment for the bond holders to forego the put in February. It wouldn't make a lot of sense going out and trying to get a consent and then having to face the put again next February. So we have to try to accomplish two things at once. We're evaluating if that makes any sense. Let's see. Your --

Sarbox.

Sarbox, I think the 10 to $15 million per quarter number is probably going to be a reasonable number on an ongoing basis. We've taken, you know, a very conservative approach to this, we do quarterly testing at every one of our control units, which is, you know, almost 1,000 units. In addition to that, obviously, KPMG is going to be doing the work that they have to do. That 10 or $15 million number that we have now per quarter is predominantly internal costs. Frankly there will be some increased costs, although, you know, relative -- I will say relatively modest, they're high, since KPMG is listening I think they are too high but relatively modest costs on top of that 10 or 15 million.

But we will cycle through them after -- you know, the base of it --

There won't be a year-over-year increase in costs.

As you move forward.

As we move forward. But I don't think the costs are going to go down.

Okay. And then on the pipeline, could you talk a little bit about sort of the type location geographically of where you might be looking from that pipeline you've got there?

Acquisitions you're talking about?

Yes.

The only regional thrust that is a keen interest to me is Asia, China. It is business as usual other than that, in that we look at our individual business units and our strategic platforms and we see how we can support them and support the activities of our major clients. We're open to listen to everything as it comes up, but in terms of a major thrust, that's what's mostly in the pipeline right now.

Still wrestling, trying to find you your basic --

Okay. I will go on to the next question and try me when you got it.

Thank you.

Actually, here it is. It is about 183.6 million, 184 million. Something in that zone.

Thank you.

Thanks a lot. We have a question then from Michael Russell with Morgan Stanley. Please go ahead.

Randy, I was wondering the salaries and service cost you put in the 10-Q, you've given us different components, can you give us just what that number is going to be? Do you have that now?

Let's see. I don't know if I have it or not.

Maybe just while Randy looks at that, John, can you give us an idea, the new business opportunities, are they increasing in plentifulness or are they kind of reduced because of the elections? Give us an idea of what the tone is of the new business pipeline.

The new business pipeline is pretty robust. You have a number of clients that are currently in review. And we fully expect that there will be more, as you move -- as you move forward. Wherever there is a management change, sometimes whenever there is difficulty or change within the industry, with some of our competitors, that generally triggers opportunities where people put their accounts in review or at least sit down and have conversations about moving their business. So it is fairly robust. The fourth quarter is -- with the holidays, typically, you know, any activity that's initiated gets started from October 1st through the 15th of November and then it kind of trails down seasonally, and people wait until after the holidays to start up again. But we think it has been fairly strong this year. And we think that's going to continue. And the more activity there is in the industry, the greater the opportunity for increased activity.

And Randy, your FX going from a 4% to a guidance of 2%, given the fact that international has lower margins, does that lead us to believe that maybe we could see a modest margin uptick just from this contributing factor alone in the fourth quarter?

Improving our margins is our objective but we don't forecast them.

I don't think that is going to have too much of an impact now during the quarter, but, you know, it probably doesn't hurt.

Okay. And then last question. I know, John, it sounds like pretty obvious that people would shift money from one pile to the other for the Olympics, but it never seemed to be that significant in the limited amount of history we have to look back at it. Is this kind of the normal that we should have expected but obviously since you beat consensus by so much, people hadn't pegged that in? Is this a typical thing?

I think it has always been true, Michael, but I think you have to go back and you look at how robust the markets were in the last Olympics.

Yeah, because the third quarter of '00, I mean obviously it was a very different time, but it wasn't discernibly different. So it wasn't like we could see any precedent for that shift being as big as it was.

Where were the Olympics in '00? Greece was a completely different but a very successful Olympics. And people -- it is a different world, Michael.

Mmm-hmm.

You know, we -- and we're not talking about hundreds of millions of dollars here. So, you know, it is -- it is very positive for us. And we're very happy it happened but it is not seismic.

I think you know, you were looking at --

Outside Europe --

When you were starting with low double digit organic growth rates, you know, in the -- I don't know, [overlapping speakers] -- I don't know the numbers off the top of my head but I would guess it was 12, 13%, 14% organic growth range, you know, 20 to 30 -- 2 or 3% movement or 1.5 to 2% movement wasn't as noticeable as it is when you've got, you know, maybe a trend line 6, 6.5% organic growth range.

And sure, the other events which impacted the client's decision of media placement and all the rest, you had European games earlier, and then you had an unprecedented amount of money spent this year in the Presidential election. Everybody anticipated that it would be an unprecedented amount of money spent. Although that doesn't affect us directly, it affects how quickly our earlier made decisions about getting media and making sure that you're not going to get lost in the clutter. So the environment is clearly a different environment and the way clients are viewing it is clearly different. But again, it is certainly within a margin of error.

Mike, I don't have that salary and service cost grouping right now, the way it shows up in the Q. I've asked somebody to get it. Why don't we take the next call and I hope if I get the answer back before the call is over, I will just say it on one of the next questions. If not, I will call you later today.

Great. Thank you.

Uh-huh.

Thanks. We do have a question then from Jason Helfstein with CIBC. Please go ahead.

Thanks. Just three quick questions. First, would you consider right now share repurchases more attractive than acquisitions? And if not, is there anything relating to perhaps Sarbanes-Oxley that is holding back your acquisition -- holding back the amount of acquisitions you're doing? And then I've got a follow-up.

First one depends on what the acquisition is. If we elect to make an acquisition, we think it's, you know, a very good use of our capital. As I've said a couple of times before, we've had a relatively good pipeline of acquisitions. However, we require a great deal of work to be done before we close any acquisitions, and frankly, as we've implemented Sarbanes and other things over the course of the year, our financial tasks have been pretty much consumed in getting, you know, that done, and have not had the time to do the work that we require to keep the pace of acquisitions up. We're not willing to modify our approach or the diligence that we require on acquisitions. If we don't have time, we just don't have time, we will -- we don't think the world is going to move away from us, and Sarbanes had to be first priority because there was a deadline.

So it would be reasonable to assume that the stock stayed at kind of relative levels and didn't correct at all and kind of seller expectations remained where they are, it would probably be reasonable to assume a pickup in acquisition opportunity next year relative to this year, correct?

The light level we've had this year, I think it is very reasonable to pick up.

Very much so, yes.

And then just another question, I think going into 2004, there was kind of a -- I think a general upbeatness from large advertisers, your clients, probably the heads of your agencies on spending plans and kind of as we move through the year, I think overall spending plans, particularly for the pure advertising component came in and I think you guys have bucked that trend because of the amount of share gains you've made against your competition or business wins. John, is there kind of similar commentary you could give us as far as maybe what you're hearing from the agency heads, buying heads, et cetera, going into next year? Could this be the reverse where expectations go in, you know, a little more conservative and perhaps we actually see it invert and accelerate through next year?

We haven't fully sat down with -- and our planning process for next year is really just starting now. In terms of what gets reported up and then in our conversations with our individual operating units and that goes -- starts about now and goes on until about the second week of December. A lot of spending plans really have to do with what is going on in a particular industry. We've seen positive trends in terms of automotive spending for the new product launches. We've seen technology, which was absent from the market, you know, start back in. So we're not -- we don't have a robust answer, you know, from today and say 2005 is going to be significantly higher, because we haven't sat down and done the capital examination of those budgets yet. But we don't see anything going, you know -- dampening our optimism, either. So it is just much too early to call.

Okay.

I think there will also be a lot of clarity, you know, there is a fair amount of speculation out there, as to who the winners and losers will be, post an election. It is too hard to tell at this moment. We have to get past it. We have to see what the marketplace looks like. But --

Okay.

And oil, as ridiculous as that sounds, has an impact on consumer confidence, and consumer confidence has an impact on what people spend. So there is a lot in flux at the moment. But we're very confident about our base. And the rest of it comes down to management skill and improvement in economic conditions.

Thank you.

Mike, to answer your question from earlier, obviously subject to a little bit of true-up, et cetera, a billion 659.5, roughly, for that salary and service cost.

Thank you. And we do have time for one last question and that question comes from the line of Brian Shipman with UBS. Please go ahead.

Thanks. Good morning. Just a question on marketing services. It looked particularly strong in the quarter. Could you, from a specific standpoint, could you break it down a little bit more for us differentiating between organic growth, FX and acquisitions? And also, a macro question, related to marketing service. Marketing services. Does this strength signal increasing momentum towards acceptance to marketing services type products from your clientele? I mean it really seems like traditional channels are losing out to these newer ways to reach the consumer. Thank you.

Marketing services probably has been the dominant component of our revenue for quite some time, you know, in terms of mix. And what's interesting about marketing services versus traditional media advertising is there is a pretty clear definition as to what broadcast and print are. There is less of a definition in terms of the mediums and the techniques and the processes that you go through, and we would deem marketing services to reach or touch consumers.

I guess it is more of a momentum question. Does a team like -- it's just becoming more of a focus for your clientele?

I think that trend has been there for, you know, a number of years. I think what you find, what we found over the past several years is the most consistent steady performer is probably traditional media advertising. But as, you know, clients increase their budgets, you know, probably a greater percentage is going into, you know, some area of marketing services. Again, as John said, marketing services area that is undefined, so as people come up with, you know, new, maybe more cutting edge or, you know, experimental type programs, they tend to fall into the area of marketing services. Also in marketing serves for us is healthcare, which is a category that has been very strong. Recently, PR, which was an area that was probably our most severely hurt in, you know, in 2001, has, you know, started recovering, I guess, over the past four or five quarters. This quarter was, you know, the first kind of strong double digit performance in the PR sector in a while. As far as breaking out growth within marketing and services, that's not something that we do. I can tell you that most of our acquisitions have been in the marketing services area versus traditional media advertising.

And would we're very comfortable with the mix. I mean in terms of the distribution of our assets there, geographic reach in there, the diversity of the different services that we have, so as clients shift money to some of these new areas, we're able to provide the services that they need and they don't have to go outside of our group of companies in order to get the best in craft in those areas.

Great. Thank you.

Thank you. And thank you all for taking the time to listen to our call this morning. Have a good day. Bye-bye.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation. Thanks for your participation. You may now disconnect.