IPG
    Print Page  Close Window

SEC Filings

10-K
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-K on 02/21/2017
Entire Document
 

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



and in the United Kingdom. Also contributing to our international organic revenue increase were our digital specialist agencies and public relations businesses across all regions.
Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES
 
Years ended December 31,
 
2016
 
2015
 
2014
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
% of
Revenue
Salaries and related expenses
$
5,038.1

 
64.2
%
 
$
4,857.7

 
63.8
%
 
$
4,820.4

 
64.0
%
Office and general expenses
1,870.5

 
23.8
%
 
1,884.2

 
24.7
%
 
1,928.3

 
25.6
%
Total operating expenses
$
6,908.6

 
 
 
$
6,741.9

 
 
 
$
6,748.7

 
 
Operating income
$
938.0

 
12.0
%
 
$
871.9

 
11.5
%
 
$
788.4

 
10.5
%
In 2016, our change in revenue of 3.1% from 2015 outpaced an increase in total operating expenses of 2.5%, resulting in operating margin expansion to 12.0% from 11.5%. In 2015, our change in revenue of 1.0% from 2014, compared with a decrease in total operating expenses of 0.1%, resulting in operating margin expansion to 11.5% from 10.5%. Our operating income grew 7.6% in 2016 to $938.0, and 10.6% in 2015 to $871.9.

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, including freelancers, 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, assumptions regarding forfeiture rates, 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
2015 - 2016
$
4,857.7

 
$
(99.7
)
 
$
2.2

 
$
277.9

 
$
5,038.1

 
5.7
%
 
3.7
%
2014 - 2015
4,820.4

 
(250.1
)
 
17.1

 
270.3

 
4,857.7

 
5.6
%
 
0.8
%
Salaries and related expenses in 2016 increased by $180.4 compared to 2015, comprised of an organic increase of $277.9 and the effect of net acquisitions of $2.2, partially offset by a favorable foreign currency rate impact of $99.7. The organic increase was primarily attributable to an increase in base salaries, benefits and tax as a result of increases in our workforce at businesses and in regions where we had revenue growth or new business wins over the last twelve months, and higher long-term incentive awards expense, as a result of improved financial performance. Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased in 2016 to 64.2% from 63.8% when compared to the prior year.
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, 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 decreased in 2015 to 63.8% from 64.0% in 2014.

18