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10-K
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-K on 02/23/2015
Entire Document
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)



contributing to our international organic revenue increase was net higher spending from existing clients throughout nearly all client sectors, most notably in the technology and telecom and healthcare sectors. The international organic revenue increase was partially offset by a decline in the Continental Europe region, across most countries in the market, due to a continued challenging economic climate.
Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES
 
Years ended December 31,
 
2014
 
2013
 
2012
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
% of
Revenue
Salaries and related expenses
$
4,820.4

 
64.0
%
 
$
4,545.5

 
63.8
%
 
$
4,391.9

 
63.1
 %
Office and general expenses
1,928.1

 
25.6
%
 
1,917.9

 
26.9
%
 
1,887.2

 
27.1
 %
Restructuring and other reorganization-related charges (reversals), net
0.2

 
0.0
%
 
60.6

 
0.9
%
 
(1.2
)
 
0.0
 %
Total operating expenses
$
6,748.7

 
 
 
$
6,524.0

 
 
 
$
6,277.9

 
 
Operating income
$
788.4

 
10.5
%
 
$
598.3

 
8.4
%
 
$
678.3

 
9.8
 %

Salaries and Related Expenses
Salaries and related expenses consist of payroll costs, employee performance incentives, including annual bonus and long-term incentive awards, costs for temporary workers, severance and other benefits associated with client service professional staff and administrative staff. Salaries and related expenses do not vary significantly with short-term changes in revenue levels, however, salaries may fluctuate due to the timing of the hiring of personnel to support revenue growth and changes in the performance levels and types of employee incentive awards. Additionally, we may take severance actions in areas where we have or anticipate decreases in operating performance or to enhance our teams or leadership. Changes in our incentive awards mix can impact future-period expense, as annual bonus awards are expensed during the year in which they are earned, and long-term incentive awards are expensed over the performance period, generally three years. Factors impacting long-term incentive awards are the actual number of awards vesting, the change in our stock price, actual results and changes to our projected results, which could impact the achievement of certain performance targets.
 
Prior Year Amount
 
Components of Change
 
Total Amount
 
Change
 
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Organic
 
Total
2013 - 2014
$
4,545.5

 
$
(38.3
)
 
$
59.3

 
$
253.9

 
$
4,820.4

 
5.6
%
 
6.0
%
2012 - 2013
4,391.9

 
(40.3
)
 
28.2

 
165.7

 
4,545.5

 
3.8
%
 
3.5
%
Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased in 2014 to 64.0% from 63.8% in 2013. Salaries and related expenses in 2014 increased by $274.9 compared to 2013, comprised of an organic increase of $253.9 and the effect of net acquisitions of $59.3, partially offset by a favorable foreign currency rate impact of $38.3. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $202.1, primarily due to increases in our workforce at businesses where we had revenue growth or new business wins, primarily in the domestic market and in the United Kingdom and Asia Pacific region. Also contributing to the organic increase was higher incentive awards expense and certain agency-related bonus accruals resulting from improved financial performance, partially offset by lower severance expense.
Our staff cost ratio increased in 2013 to 63.8% from 63.1% in 2012. Salaries and related expenses in 2013 increased by $153.6 compared to 2012, comprised of an organic increase of $165.7 and the effect of net acquisitions of $28.2, partially offset by a favorable foreign currency rate impact of $40.3. The organic increase was primarily due to an increase in base salaries, benefits and temporary help of $150.1, primarily due to increases in our workforce in international markets, predominantly in the Asia Pacific and Latin America regions, as well as in our domestic market at businesses where we had revenue growth or new business wins, and to a lesser extent, modest wage increases.


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