宏盟集團 (OMC) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Omnicom first quarter 2009 earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded at this time.

And now I would like to turn the conference over to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Thank you. And thank you all for taking the time to listen to our first quarter 2009 earnings call. We hope everyone's had a chance to review the earnings release. We've also posted to our website both the press release and a presentation covering the information that we're going to present this morning. This call is being simulcast and will be archived on our website as well.

Before we start, I've been asked to remind everyone to read the forward-looking statements and other information that's included on page one of our investor presentation and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements, our present expectations and actual events and results may differ materially.

We're going to begin the call with some brief remarks from John Wren. Following John's remarks we'll review our financial performance for the quarter, and then both John and I will be happy to take questions at the end.

Good morning and thank you for joining our conference call. Given the global economic downturn, our first quarter performance was in line with our expectations. As all of you have seen, revenue for the quarter declined 14% or $448 million to $2.75 billion. The loss, the decline is attributable to the significant strengthening of the US dollar, which resulted in 7.8% of this reduction and organic growth declined 6.6% or $210 million in the quarter.

The decline correlates closely to industry sectors under stress and individual countries where the GDP is negative and finally the elimination of discretionary projects and events by some of our clients. Regionally, the decline was suffered most in the developed countries, the US, Europe, Japan and Korea. Our revenue performance was strong in most emerging markets, the Middle East, China, India and Brazil. In the US, the decline was negatively affected because of of our mix of business by the reduction in spending at Chrysler and three other units which are really US-based. Our recruitment advertising business and our specialty media businesses.

In evaluating revenue by sector, the largest decline was in automotive. Other sectors had less significant declines as projects were eliminated. Food and beverage, pharmaceutical, healthcare, travel, technology and telecommunications. The revenue declines were partially offset by aggressive cost actions, which were started in the fourth quarter of 2008. Those actions included reducing our staff to reflect our ongoing client needs, reduction in discretionary expenditures, reduction in incentive costs, and offsetting that, increasing expenses for the quarter, was an increase in severance-related expenditures.

Despite the cuts, management continues to invest in training development of our staff and our agencies are well positioned to deliver exceptional creative products to our clients as we go forward. As Randy said, we'll answer any specific questions you may have after his remarks. But looking forward, our views haven't changed much since our last conference call. As the pace of the economic decline finds a bottom, we do believe companies will focus on revenue growth and start investing or reinvesting in their brands. We're also hopeful that the massive stimulus spending by most governments should start to have a positive impact in the fourth quarter of this year and the first half of next year. And finally -- not finally, but our new business wins have been strong in this period. We've been able to win more than whenever we have the opportunity to pitch, and those gains should start to reflect in our numbers in I think the second half of this year. Our cost actions have also been timely and they really should provide us with some flexibility as conditions improve.

And with that, I think I'll turn it over to Randy and then we'll come back and answer questions.

Thanks, John. It's certainly been an interesting couple of quarters. Breadth and depth of the economic recession has obviously been challenging for everyone. Fortunately, the vast majority of our agencies have risen to the challenge, making the difficult decisions necessary to position their agencies for the future, while continuing to deliver exceptional service and creativity to their clients. However, due to the combination of the overall economic environment and the significant change that occurred in FX rates at the end of last year, revenue declined in the quarter by $448.8 million, to $2.75 billion. That was a decrease of 14%, of which approximately 7.8% was due to FX rates alone.

Operating income for the quarter decreased 19.5% to $282.4 million. We were able to largely offset the decrease in revenue with aggressive cost actions that began in Q4 and continued through Q1. These actions, while properly positioning the Company for the future, added substantial costs in both quarters. The result was an operating income or EBIT margin of 10.3%, down about 70 basis points, and an EBITDA margin of 12.3%, which was down about 50 basis points from last year and equating to about $12.5 million. Adjusting for the cost of severance actions taken in the quarter, which totaled almost $38 million versus $19 million last year on a constant currency basis, our EBIT margin was 11.7%, which was about flat with the same number last year, and our EBITDA margin, ex severance, was about 13% which was up about 20 basis points year-over-year.

Net interest expense for the quarter was $21.4 million. That was up $10.4 million from last year and down about $2.5 million from the fourth quarter. The increase versus Q1 2008 was primarily the result of the supplemental interest payment made on our 2032 notes in July of last year, and a reduction in interest income earned on our cash balances held in foreign markets, caused primarily by a reduction in interest rates, and then the negative FX effect on those earnings. The decrease versus Q4 was primarily due to a decrease in the interest expense paid on our short-term borrowings. That resulted from decreases in the 30 day LIBOR rate, and the stabilization of the commercial paper market, as well as the diligent cash management efforts of our agencies.

On the tax front, our reported tax rate for the quarter was about 34%. That was up slightly from 33.9% in Q1 of last year. And net income for the quarter declined 21.2% to $164.5 million. That left diluted earnings per share in the quarter down 17.2% to $0.53 a share.

The comparative diluted EPS figure for Q1 2008 was $0.64 per share. There was a change effective in Q1 in the way we compute EPS, reflecting our adoption as of January 1st of a new accounting pronouncement, EITF 0361. As a result, our 2008 Q1 EPS was reduced by $0.01. Under the new calculation, we need to allocate a portion of our earnings to unvested restricted stock, which reduces the amount of earnings available to common shareholders. The effect in Q1 of this year was also about $0.01 per share. To make it easier going forward to analyze our results, we've included in the slide presentation and our investor presentation that recalculates diluted EPS for each of the quarters last year. The summary of that change had an effect of about $0.01 in each of the quarters of 2008, and about a $0.03 change for the full year.

Analyzing our revenue performance, continuing the trend from the fourth quarter, the US dollar strengthened significantly versus virtually every other currency, causing a significant negative effect in our FX rates. In the quarter, $252.3 million, or about 7.8% of the revenue decline, was a result of FX. While rates have generally stabilized, assuming rates remain at their current levels, FX will have a negative impact of about 8.5% in Q2, about 7.5% in Q3, and about 1% in Q4. For the full year, the year-over-year dollar impact of the FX changes would be about $800 million. Growth from acquisitions net of dispositions added about $14 million to our revenue in the quarter or about 0.4%.

While the pricing expectations on potential acquisitions has improved significantly from the middle of last year, our recent focus has been more on making sure our existing agencies are well-positioned and performing well, knowing that most opportunities will continue to be there in three to six months. And on the organic front, organic growth declined by $210.6 million or about 6.6%. As for our mix of business, traditional media advertising accounted for 44.2% of revenue and marketing services, 55.8. As for their respective growth rates, traditional media declined 12.8% in the quarter, had an organic decline of 4.3%, or about $60 million. And marketing services declined 15% in total, with an organic decline of 8.4%, or about $150 million.

Within the marketing services revenue category, CRM was down 13% with organic growth of minus 5.6%. Other than a couple of businesses that were impacted by significant client-specific cutbacks, overall the sector is performing fairly well. Public relations was down 17.4% for the quarter, with negative organic growth of 10.5%. And while our agencies have performed well in winning new business, projects from existing clients have slowed across our agencies and across markets.

Specialty communications, which is our toughest sector, was down 20.1% in the quarter, with negative organic growth of about 16.2%. This category consists primarily of specialty media, recruitment advertising, and our healthcare businesses. Specialty media, which is primarily our directory or Yellow Pages business, is a sector that's been in decline due to technological changes. Recruitment advertising, which is our most economically sensitive business, was down almost 40% in the quarter and the healthcare sector was down pretty much in line with the overall market.

Our geographic mix of business in the quarter was 55.8% US, and 44.2% international. In the US, revenue declined $128.9 million or 7.8%. Acquisitions added $11.2 million and organic growth was a negative 8.4% or $140 million. International revenue decreased $320 million, or about 21%. FX was the biggest driver, reducing revenue by $252 million or about 16.4%. Acquisitions added $3 million. And organic growth was negative 4.6%, or about $70.5 million.

While overall economic conditions were very difficult, our organic growth decline in the quarter was somewhat skewed by four isolated areas. Specifically, the declines in recruitment marketing, our specialty and newspaper media businesses, and our Chrysler business, accounted for more than 30% of our overall organic decline, and these businesses, which are predominantly US-focused, accounted for almost 45% of our US organic decline. Internationally, we had strong performances in the emerging markets of Asia, especially China, the Philippines and India. We also continue to have strong performances in Latin America and the Middle East. Developed Asia, specifically Japan and Korea, were down sharply. The declines in Western Europe were generally in line with the overall market, with a few exceptions. On the negative side, Finland, Italy and Spain were each down double digits and on the positive side, France and Germany were relatively strong.

Moving to cash flow. Our operating cash flow in the quarter was quite strong. While credit quality and working capital management are always a focus, in the current economic environment, these topics are an even higher priority. As a result of our efforts, our overall performance has stayed strong and consistent with prior years. Our primary sources of cash, net income, adjusted for basic non-cash charges, primarily stock-based compensation charges and the related tax benefits, and then depreciation and amortization, totaled $235 million. Since we're taking active measures to manage our cash, our primary uses of cash were down versus the prior year.

Dividends totaled $46.7 million in the quarter, down from $49.1 million last year, due to the reduction in outstanding shares. Capital expenditures totaled about $23.3 million, versus $42.2 million last year. And acquisitions, including earn-out payments on prior acquisitions, totaled approximately $3.1 million, down from $89 million last year. As for financing activities in the quarter, as most everyone is aware, the majority of our 2031 convertible bond was put back to the Company in February, which we funded primarily with a combination of cash on hand, and additional borrowings under our revolving credit facility. At the end of the quarter, we had about $475 million drawn under the revolver, and an additional $30 million of commercial paper outstanding.

Our current credit picture, as a result of our operating performance and working capital efforts, we finished the quarter in a strong capital markets position. Our operating leverage ratios, that is EBITDA to gross interest and total debt to EBITDA, while down a bit from last year due the combination of higher gross interest expense and a small decline in EBITDA, remained very strong at 14.7 times and 1.5 times respectively. And well inside our only debt covenants, which I think most people know, our EBITDA to gross interest expense is not less than 5 times and total debt to EBITDA of not greater than three times.

As we discussed on our year end call, our debt structure changed during the quarter as a result of the put of our 2031 convertible notes in February, which as I mentioned was primarily funded with a combination of cash and drawing down on the revolver. It's also worth noting that S&P recently completed its credit review of Omnicom, and reaffirmed our ratings and removed us from credit watch. Current liquidity, from a liquidity perspective, we finished the quarter in an extremely strong position, with cash and undrawn committed credit facilities totaling just over $2.4 billion, and we had uncommitted facilities available, totaling an additional $370 million.

So all in, while a very challenging economic environment, we believe we're well-positioned financially, and while difficult, we think our agencies are taking the appropriate actions to ensure continued success. And now I'll open up the call for questions.

Great. Thank you very much. (Operator Instructions). And our first question comes from the line of Jason Helfstein with Oppenheimer. Please go ahead.

Hi. Thanks. So first question on expenses, so given the timing of headcount reductions, could second quarter expenses be down even more, ex severance? And then just of the expenses that are coming out, assuming there is some recovery next year, how much of those expenses have to come back ? And then I've got a follow-up.

Well, I mean, we'll go through the second quarter as we go through it. I'm sure there's still more cost actions to be taken. That have to be done -- the cost actions are taken agency by agency and based upon specific changes in staffing requirements, by client. The second quarter is also a difficult comp quarter. It's generally one of the larger quarters in the year, so I probably wouldn't give you too aggressive quite this early.

Okay, and then just, of the expense reductions, assuming things start to grow next year, any of those expenses have to come back? And then just a revenue-driven question. Can you just talk about overall sentiment among your larger clients? Are you seeing more fear or hesitation now versus when you had your prior call in February? Thanks.

First, in terms of the costs that would come back in a growing environment, there would be selective needs to increase staff as we grow, for places where we've properly sized the business already. And then incentives obviously would come back into play as we get into 2010. More than what we're planning to -- what we're anticipating at the moment.

Basically use reductions of incentive compensation and discretionary spending to cover off the severance costs or the cost action costs and to help absorb some of the more fixed overhead structures or overhead costs with the decline. It certainly takes longer for those to right-size to the current business levels. So there is some costs that will come back as revenues grow. It's not the revenues won't flow through 100%.

Our major clients, answering your second question, are in the same conservative mode as I think we are. People are encouraged by -- and are hopeful that we're in a bottoming out period right now, that the worst is over, and as soon as that's confirmed for them, they'll put in place other plans that they have. So it's a little early. I think cautious optimism prevails with most major clients.

Thank you.

Thank you, Jason.

Thanks. And our next question comes from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you. A couple of questions. First, I guess if you can comment a bit, John or Randy, in terms of what you're seeing so far in Q2 in terms of revenue trends. Has it changed dramatically from what you saw in the first quarter? And then a second question, really on the auto revenues, particularly the international clients, if you can comment on how that business is trending in the sense, do you think we've hit a bottom in terms of the rate of declines you're seeing or are we still deteriorating?

Well, the last one is probably easier. The rate of decline has stopped accelerating. I say that jokingly, because that doesn't say very much. I think the people who are at all optimistic are looking towards the fourth -- the real back end of this year and the beginning of next. I think you'll continue to see similar caution in the second quarter that you've seen this quarter in terms of people spending and starting to be aggressive.

Yes, I think as you go you through our revenues, you can break them up into sort of three categories. Commissions, projects and fees. Commissions and projects adjusted very fast, and there seem to have been really a step change in the fourth quarter of last year, and certainly carried on through the first quarter of this year. I don't really realistically think that those numbers can get significantly worse from their current levels. I'll knock on wood when I say that. Fees are something that takes a while to negotiate. So, we certainly through the first half of this year, have been working with clients to adjust fee structures to their spending needs and their requirements.

And then just looking at the severance expense that you had in the quarter, should we assume -- I guess was it concentrated in any one geography, or should we assume it really just reflected the areas of weakness that you had in your prepared remarks.

Certainly reflected where we had weakness and the reductions anticipated are principally in the developed countries around the world. There are a couple of markets where it's difficult to reduce staff and that takes a little bit longer, so it continues to be an ongoing discussion. But in the scope of Omnicom, those markets are not that large.

And then just lastly, do you have the breakup of salaries and related expenses and O and G in the quarter?

Yes. We'll get that for you and when I get it, I'll say it.

All right. Thank you.

Thank you.

Great. Thanks. And our next question comes from the line of Craig Huber with Barclays. Please go ahead.

Yes. Good morning. Somewhat similar question. As you look forward, can you help us think about in this quarter, you were able to match your total cost decline of 13.6% with your total revenue decline of 14%. Is there anything one time in nature in this quarter that allows you to do that that you don't think you could do that in the second, third and perhaps fourth quarter.

The second quarter is certainly a more difficult comp than the first quarter, so that probably makes the challenge that much harder. But generally, I don't think so.

No. I mean, the actions taken were across the board and they reflect -- there wasn't anything mitigating that in the quarter.

There weren't any one-time positive items that --

Right, that mitigated the --

And also, if I could. Usually you're able to give us the dollar figure for your new business wins in terms of billings each quarter. How did that do in the first quarter?

About $970 million.

And just remind people, how was that in the fourth quarter, perhaps for all of last year?

How much was it in the fourth quarter? I don't know. I'll get that number for you as well. I don't have it off the top of my head.

Okay. Thank you.

Sure.

Thanks. And our next question comes from the line of Michael Nathanson with Sanford Bernstein. Please go ahead.

If I could just follow up. When you say the second quarter is a more difficult comp, is it on the cost side? Looks like the revenue comp is not that different.

Both are harder. It's a higher margin and higher revenue quarter than the first quarter or the third quarters. You know, as I mentioned, when we go through our revenue, I think there was a step change with our commission-based business that adjusts almost immediately with client spending and project business and fees are something that are being renegotiated with some clients as we go through the first half of the year.

Okay. And let me ask this. On incentive comp, you definitely had to step up for severance costs but what was the incentive comp benefit this quarter versus same quarter last year?

I don't have that number off the top of my head either. I'll get that one for you as well. Craig, to answer your question, net new business win in Q4 was $780 million.

Versus 970, 75 in this quarter.

While we're getting that, we want to -- do you have a -- ?

No, I was going to respond. I'll get you offline and I'll ask you some more questions about that.

Okay. We'll go on to the next question and we'll get that answer.

Thank you. And our next question then comes from the line of John Janedis with Wachovia. Please go ahead.

Thank you, good morning. How are you thinking about the auto industry for the balance of the year? Did 1Q come in as planned? And would you expect any potential restrictions on marketing spend on companies that may file for bankruptcy or have filed or will file?

One more time. I'm sorry.

Yeah, please.

Sorry. So on the auto industry, how are you guys thinking about it for the balance of the year? Did 1Q come in as planned, and would you expect any potential restrictions on marketing spend for companies that file for bankruptcy?

Marketing spend came in where we expected in the first quarter and I think the forecast for the balance of the year in that sector, without any bankruptcies, is very similar to what we experienced in the first quarter.

Okay.

And if anybody does file for reorganization, we don't expect them -- we don't expect any restrictions on marketing. We would think if new co comes out of a restructured auto industry, I would imagine those companies would be looking to aggressively move the product that they have.

Okay. And just anecdotally, are you seeing different spending patterns outside of the couple of companies you mentioned earlier, from your top 50 or so clients relative to the next 100 or so. And when spending recovers, would you expect budgets at some of the clients to serve as leading indicators?

I wouldn't. I'm not necessarily the expert and I don't know whatever client is thinking, but looking at it, most clients seem to adjust their spending pretty rationally with the economic environment and how their business has been affected. We have some areas, a couple of the areas that we mentioned were affected more significantly but again, they are sort of tangential businesses or specialty businesses that you might expect to be hurt. Newspaper advertising can you certainly see it in the newspaper companies, Chrysler in particular is facing -- faced some difficulties but I think certainly their spending seemed fairly rational with their business. The overall auto sector, global auto sales are down. I think global auto marketing plans, at least as we see them seem fairly rational with the change in business. Some of the other sectors that John mentioned, seem like they're in line with the overall economy.

Okay. Thank you.

Thanks. And our next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thanks. Good morning, guys, if I could ask two. One, I don't know if Randy if you'd be able to give the level of headcount reductions in the fourth quarter and first quarter that you've taken and what you think the sort of run rate savings are on those reductions. And then for either or both of you, on emerging markets where you continue to see some strength, what's your expectation for those regions going forward? Are you continuing to see that strength, or is it a sort of lagging indicator that may end up coming back down-to-earth as it sort of deals with the more global pullback that we've seen?

Let me -- I'll answer the first question. You need to repeat the second second one.

Sure.

The expected savings of severance in Q4 was around $215 million, and the expected savings of severance actions taken in Q1 is about $125 million. As far as headcount, that's not a number that we've given out.

Those are annualized numbers?

Yes.

Yes.

Okay. Yeah, I was just curious. You mentioned in your prepared remarks emerging markets continue to be strong. I think you said Middle East, Latin America, some of the developing Asian markets. I'm just wondering as you look out through the rest of this year, what your expectation is for those regions, just given the sort of global malaise we're seeing, if you expect those spending levels to decline or to decelerate, I should say, or if you think that growth is all secular and just continues to move forward?

This is a personal view. I think it's reasonable to expect that their growth rates may slow. I don't think they'll go negative. But I'm -- I don't pretend to be an economist to know those markets well enough to say.

Thank you.

Great. Thank you. And our next question comes from the line of Dan Salmon with BMO. Please go ahead.

Good morning, guys. Two quick questions. One, Randy, on your cash flow statement, changes to operating capital came down to about an outflow of $474 million from about 810 last year. If you could give us some comments on maybe some of the things you're doing there in a challenging environment to keep that number in check. And then second, you filed a shelf a month or so ago, if you could maybe give us a little bit of color on what your plans are there. That would be great, thank you.

The shelf is easy. We just replaced one that was expiring and it's more cost effective to do it right as you're filing your K. That way, all your filings and fees, et cetera, are up-to-date. So there's nothing to read into that. As far as our working capital efforts, as I said, working capital and cash management is always a focus of our agencies down deep in the organization. We certainly intensified those efforts even to another level. Obviously everyone knows that cash is extremely important and cash management and focus on the credit quality of our clients and vendors is extremely critical. The year-over-year changes, these numbers, I'll say it when it's good or when it's bad, the numbers can bounce around a bit on any given day. You can have $200 million or $300 million of swing on a day that you shouldn't take credit or not credit for. So I don't really think the performance in the first quarter this year versus the first quarter last year was dramatically different. I think our performance was very good but -- and obviously better than it was last year, but again, I don't think that difference is meaningful.

Okay. Fair enough. Thank you.

Sure. Thank you.

Great. Thanks and we have a question from the line of Peter Stabler with Credit Suisse. Please go ahead.

Good morning. Thanks for taking the question. We've been hearing anecdotally that clients are pressing hard for reduced fees, beyond those associated with reductions in scope. Could you comment on the nature of your ongoing fee negotiations with your existing clients? And on the new business win side, just from a judgment side, how much new business activity do you think is being motivated by companies who are seeking to reduce run rate fees?

We haven't seen -- we haven't experienced any client actions other than to respond to a reduction in the scope of work that we're providing. There have been a lot of conversations, but in each case where we've gone and we've had to sit with clients and adjust our staff, the expectation of service has been adjusted accordingly. And your second question?

Just on the new business side, do you have a sense that some large clients are initiating fee reviews, perhaps in this climate, more due to a goal of cost cutting than in normalized terms?

No. No. Most major advertisers are still following whatever procedures they've established for the selection of their partners and we haven't seen -- we haven't seen any of that -- any pitches that have been purely put up from a fee point of view. Simply to reduce fees. It's too vital, too vital an area for clients to -- for major advertisers to make decisions based upon -- purely on fees. It's the quality of the service that you're seeing.

Quick one for Randy, if I may. Thanks, John. On the Q4 call, you said minus 50 to 100 basis points on EBIT margin for the year would be a, quote, pretty strong performance. Has your outlook changed on that?

No, I still think that's a pretty strong performance.

Great. Thanks very much.

Great. Thank you. And we have a question from the line of Megan Friedman with William Blair & Company. Please go ahead.

Hi. Just a couple of quick questions. The first, on Chrysler, could you maybe talk at all about your potential liability there?

One more time, Megan, I'm sorry.

For Chrysler, could you talk at all about your potential liability there?

Sure. I think we've run -- I should say our team in Detroit has been working literally around the clock, unbelievable effort they've put out, probably run 100 different scenarios and I don't know which scenario is going to be the ultimate scenario. I think we're very well positioned overall. If the scenario is Chrysler goes into a reorganization, and they or their brands continue in business, they have a truly world class team and our team in Detroit, extremely experienced in the automotive industry, probably nobody in the United States more experienced than they are. I think our exposure is extremely limited, maybe really to the point of zero. If it were to go take an extreme scenario the other way, which I think is remote, maybe even impossible, which would be the brands went away and we had a complete shutdown of the office, I think our cash exposure is probably 25 to 30, $35 million. There may be some additional charges, write-off of furniture and fixtures and some things like that, but that I think is an extremely unlikely set of events.

Okay. That's very helpful. Thank you. And then one other question, just in terms of the phasing of organic revenue performance over the course of the quarter. Do things get even incrementally better in March, or was it pretty steady throughout the quarter?

I think it was pretty steady throughout the quarter.

Certain businesses -- I mean, not -- for instance, public relations was better in March than it was in January and February. But they're relatively small in the scope of our overall reporting. So while it's hopeful and it was a good trend, it's not -- I mean a good month, it isn't yet a trend. So it would be difficult to say that March was better than the prior month.

Yeah. You have -- there's so many different --

So many variables.

There's three different types of revenue. Commission revenue, project revenue and fee revenue. The PR business is really more of a project revenue business. It's on retainer with projects. That stepped up. I think our fee revenue is probably not stepping up. It's still working through the changes. And the projects and commissions adjust much more rapidly up or down.

Okay. Great. Thank you.

Someone had asked a question with respect to year-over-year incentive compensation. Total incentives in the quarter on a constant currency basis were down about $20 million to $25 million.

Great. Thank you. We do have time for one last question. That question comes from the line of Thomas Singlehurst with Citi. Please go ahead.

Good morning. Thomas from Citigroup here. I had one question on the international revenues. It looked like the revenue trend sequentially deteriorated quite a lot. You're still seeing organic growth in the 4Q 2008 and obviously near a 5% decline in 1Q 2009. Can you just go through the components of that because presumably those problem areas, whether it's specialty or Chrysler are obviously largely US revenue sources.

Yes, as I mentioned, there's really a few different pieces to our revenues. While commissions and projects can adjust fairly quickly, fees will take probably a full six months to adjust. I think that's basically what was -- what's been kind of rolling through the revenue line. As far as the international markets go, I think things kind of pretty much continued the trends that we saw at the end of the fourth quarter. I think in the first quarter we just probably saw more of the full effect of it.

Got you. One quick question. Is there any massive difference in profitability between your US and international operations, i.e., is the decline from currency from the international revenues also helping the margin?

No.

No.

No, it would go the other way. The US businesses at the agency level generally are a bit higher margin than the international businesses. The US businesses, cost actions are generally faster to take on average. Some international markets you can -- your cost actions are relatively fast and in line with the costs from the US. Many of the international markets is much more difficult. I think it's probably safe to say, FX for forecasting purposes or evaluation purposes, largely has a similar effect down through the P&L. Interest, that line item gets bounced around a little bit because most of our interest income, the way we run our Treasury operations, is foreign interest, and obviously the FX has a very significant impact on that, so there isn't really a mix when it comes to interest income.

Got you. That's very clear. Thank you very much.

Thank you. And thank you all very much for taking the time to listen to our call.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T's executive teleconference. You may now disconnect.