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10-K
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-K on 02/22/2016
Entire Document
 

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



East, partially offset by an organic decrease in the Continental Europe region due to a continued challenging economic climate. Since the global recession, the economic recovery in Continental Europe, taken as a group, has been subdued and as a result has lagged behind most other mature economies. Relatively high unemployment and very low inflation has led to lower than expected gross domestic product, resulting in a challenging economic climate. We expect economic and business conditions in this region to improve at a slow to moderate pace in 2015 and 2016.
Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES
 
Years ended December 31,
 
2015
 
2014
 
2013
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
% of
Revenue
Salaries and related expenses
$
4,857.7

 
63.8
%
 
$
4,820.4

 
64.0
%
 
$
4,545.5

 
63.8
%
Office and general expenses
1,885.0

 
24.8
%
 
1,928.1

 
25.6
%
 
1,917.9

 
26.9
%
Restructuring and other reorganization-related (reversals) charges, net
(0.8
)
 
0.0
%
 
0.2

 
0.0
%
 
60.6

 
0.9
%
Total operating expenses
$
6,741.9

 
 
 
$
6,748.7

 
 
 
$
6,524.0

 
 
Operating income
$
871.9

 
11.5
%
 
$
788.4

 
10.5
%
 
$
598.3

 
8.4
%
In 2015, compared to our revenue change of 1.0% from 2014, total operating expenses decreased 0.1%, resulting in operating margin expansion to 11.5% from 10.5%. In 2014, compared to our revenue increase of 5.8% from 2013, total operating expenses increased 3.4%, resulting in operating margin expansion to 10.5% from 8.4%. Our operating profit grew 10.6% in 2015 to $871.9, and grew 31.8% in 2014 to $788.4. Operating profit in 2013 included $60.6 of restructuring and other reorganization-related charges.

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
2014 - 2015
$
4,820.4

 
$
(250.1
)
 
$
17.1

 
$
270.3

 
$
4,857.7

 
5.6
%
 
0.8
%
2013 - 2014
4,545.5

 
(38.3
)
 
59.3

 
253.9

 
4,820.4

 
5.6
%
 
6.0
%
Salaries and related expenses in 2015 increased by $37.3 compared to 2014, comprised of an organic increase of $270.3 and the effect of net acquisitions of $17.1, largely offset by a favorable foreign currency rate impact of $250.1. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $238.7, primarily due to increases in our workforce at businesses where we had revenue growth or new business wins, most notably in the domestic market and in the Asia Pacific region. Also contributing to the organic increase was higher incentive awards expense resulting from improved financial performance. Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, decreased in 2015 to 63.8% from 64.0% when compared to the prior year.
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

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