Frank Mergenthaler - Chief Financial Officer and Executive Vice President Michael Roth - Chairman, Chief Executive Officer and Chairman of Executive Committee Jerome Leshne - Senior Vice President of Investor Relations

Daniel Salmon - BMO Capital Markets U.S. Benjamin Swinburne - Morgan Stanley Michael Nathanson - Nomura Securities Co. Ltd. Peter Stabler - Wells Fargo Securities, LLC Alexia Quadrani - JP Morgan Chase & Co Tim Nollen - Macquarie Research James Dix - Wedbush Securities Inc. John Janedis - UBS Investment Bank Matthew Chesler - Deutsche Bank AG David Bank - RBC Capital Markets, LLC

Good morning, and welcome to The Interpublic Group Second Quarter and First Half of 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded. I would like to introduce Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin.

Good morning. Jerry Leshne. Thank you for joining us. We have posted our earnings release and our slide presentation on our website, interpublic.com, and we'll refer to both in the course of this call. This morning, we are joined by Michael Roth and Frank Mergenthaler. We will begin with prepared remarks to be followed by Q&A. We plan to conclude before market open at 9:30 a.m. Eastern. During this call, we will refer to forward-looking statements about our company, which are subject to uncertainties in the cautionary statement included in our earnings release and the slide presentation, and further detailed in our 10-Q and other filings with the SEC. At this point, it is my pleasure to turn things over to Michael Roth.

Thank you, Jerry, and thank you all for joining us this morning as we review our results for the second quarter and first half of 2011. As always, I'll provide an overview, hand it off to Frank for an in-depth look at the results, then I'll return with some commentary on the agencies before we turn the call over for Q&A. As you've seen in our report this morning, Q2 organic revenue was 4.7%. Our operating profit in the quarter was $174 million compared to $177 million a year ago, and operating margin was 10% compared to 11% in Q2 '10. Diluted earnings per share were $0.19, ahead of last year's $0.15 a share. Because 2010 was a very strong growth year for us, our comps are quite challenging, and that accounts in part for the moderation in our overall growth rates. The second quarter organic revenue result of 4.7% is on top of last year's industry-leading Q2 result of 8.5%. Likewise, in the U.S., our second quarter organic growth was 4.2% on top of 13.6% growth in the second quarter of 2010. Two events hurt our U.S. organic revenue growth by 2.5% in the quarter. The loss of an account in the auto sector last year, as well as the winding down of the census work this year. We're pleased to see international organic growth of 5.5%. From a sector perspective, growth was led by clients in the health and personal care and auto industries. And while worldwide revenue grew in June, the largest month in the quarter outside North America, June revenue was not as strong as we had anticipated. Turning to cost. Our results reflect the fact they were comping against the first half of 2010 that saw strong revenue gains but low expense growth. At the same time, we continued to make investments in payroll during the quarter to support growth in areas of our business, notably in the areas of digital, strategic insights and creative capabilities. We are confident that continued disciplined investment in the quality of our people and our offerings will support the resumption of strong margin growth in the second half of this year. This long-standing commitment to investing in our talent has been a major driver in the success of our turnaround to date. In fact, we just completed our midyear operating reviews with all our major business units, and the tone of the business is strong, notwithstanding the June monthly result. Given our first half organic revenue growth of 6.8%, which is fully competitive with our peer group, combined with what we're hearing from our clients and from our agency leadership, we remain confident that we will achieve our organic growth target of 4% to 5% for the full year. Clients remain focused on growth, and are looking to us for help in maximizing the value they can drive with their brands. The consumer and media landscape remains extremely complex and the importance of marketing will only continue to increase. There's also beginning to be a pickup in new business activity, notably in the media arena. During the second quarter, our cost and revenue fell out of step, but we see this as an interim result, and all of our operating units will be highly focused on margin enhancement during the back half of 2011. This is why we are also continue to believe we will deliver at least 9.5% operating margin for this year. Our goal of sustained margin expansion to fully competitive profitability within the next few years, which we set out in detail at our Investor Day remains unchanged. Before closing, I want to update you on other key developments that have taken place since our last call, which demonstrates confidence in the long-term prospects of our company. During the second quarter, we were pleased to receive upgrades from both Moody's and S&P. Moody's took us up 2 notches to investment grade where Fitch already had us. S&P upgraded IPG to 1 notch below investment grade. These actions further validate the great progress we've made in terms of the financial strength and performance of our company. In terms of share repurchase program, the second quarter was the first full quarter under the authorization granted by our board in late February, and we repurchased approximately 11 million common shares using approximately $130 million during the quarter. That brings us to 12 million shares and $139 million since the inception of the program. This activity underscores that we believe that IPG represents a long-term opportunity for significant value creation and are, therefore, moving to deploy our capital to increase returns for our shareholders. At this point, let me turn things over to Frank for an in-depth review of the quarter and the year-to-date.

Good morning. As a reminder, I will be referring to the slide presentation that accompanies our webcast. On Slide 2, you'll see an overview of the quarter. We'll track some of the points Michael just made. 4.7% organic growth in Q2, somewhat stronger than international markets as a whole than the U.S., and 6.8% organic growth for the first half of the year. Our operating income in the second quarter of 2011 was $174 million, a 10% margin compared to operating income of $177 million in Q2 2010. To re-emphasize what Michael said earlier, we expect to deliver significant year-on-year margin improvement in the second half of the year. Diluted EPS was $0.19 per share compared to $0.15 per diluted share last year. We ended the quarter in a strong liquidity position that included $1.82 billion of cash in marketable securities in the balance sheet. This compares with $1.94 billion a year ago. The comparison reflects heavy use of approximately $200 million during the 12 months to pay down debt, $140 million to repurchase our shares and $55 million on our common stock dividend in 2011. During the quarter, we increased our corporate credit facility to $1 billion with more favorable terms and lower cost than the previous credit facility, which increases our financial flexibility. Turning to Slide 3, you see our P&L for the quarter. I'll cover revenue and operating expenses in detail on the slides to follow. It's worth noting that our Q2 effective tax rate was 30.5%, primarily reflecting a benefit in the quarter related to the conclusion of prior period tax audits. Turning to operations on Slide 4, beginning with revenue. Revenue in the quarter was $1.74 billion, an increase of 8%. Compared to Q2 2010, exchange rates added 3.6%, and it was a slight decrease from net acquisitions and dispositions. Our organic revenue increase was 4.7%. We had organic growth in almost every region of the world. International markets were up 5.5% and the U.S. was up 4.2% on an organic basis. On a sector basis, we had strong growth in Auto and Health and Personal care. We have decreases in Packaged Goods, and to a lesser extent, Tech and Telecom due to some softness in the latter part of the quarter. Our other sector also decreased due to a nonrecurring project in the public sector that Michael mentioned. In the first half of 2011, organic growth was 6.8%. On the bottom half of the slide, you can see the revenue performance of our operating segments. At our Integrated Agency Networks, organic growth was 3.9% in Q2 with growth in both the U.S., international markets. With strong contributions from Mediabrands and Draftfcb, partially offset elsewhere by the loss of an auto sector client last year and decreases in the Lat Am region. At our CMG segment, revenue increased 9.1% in organic basis in Q2 led by double-digit increases in several international markets. We were led by PR, notably Weber Shandwick, as well as event marketing and branding. Moving on to Slide 5, which provides a look at revenue by region. In the U.S., the organic increase of 4.2% in Q2 was driven by growth at all of our global networks and our marketing services specialists. We have very strong results from our Media business. We've already mentioned that our revenue growth was hurt by the loss of an auto brand last year and by a project that did not repeat this year. Leading client sectors in the U.S. were Health and Personal Care and Auto, Packaged Goods and Tech and Telecom sectors decreased. International organic growth was 5.5%. In the U.K., revenue increased 15.3% organically driven by a number of our agencies, including a strong result in our events business. The comparison also benefit from the timing of revenue in the quarter. In continental Europe, the organic increase was 2.3% in line with our expectations for the region. We continue to see mixed results by country. Among our largest markets, revenue increased in France and Germany. It was flat in Italy, but down in Spain. In Asia Pac, organic growth was 5.8% led by double-digit increases in India followed by growth in China. Japan was positive for the quarter due to the contributions of multinational clients. We saw growth in Australia though it is low-single digit level. In Lat Am, the organic change was a decrease of 1.4% driven by decreases in Brazil, across most client sectors. It's worth noting that we grew 5.1% for the 6 months and expect to resume our growth in the back half of this year. Our other markets grew 8.3% organically reflecting strong performance in South Africa and Canada. On Slide 6, we chart the longer view of our organic revenue change on a trailing 12-month basis. The most recent data point is 8.7% reflects Q2 2011 and a roll-off of Q2 last year. On Slide 7, we take a closer look at operating expenses. Salaries and related expenses were 62.9% of revenue this year compared to 61.5% of revenue in Q2 2010. As Michael mentioned earlier, some revenue shortfall late in the quarter, combined with our continued investment to grow our digital and [indiscernible] capabilities meant that cost were ultimately out of step with revenue in Q2. The combination of base payroll plus temporary labor increased 6.9% organically, compared with 4.7% organic revenue growth. We are managing aggressively to bring this relationship back into alignment, including stepped up oversight by our agencies on staffing, raises and temporary labor. In the quarter, total SRS was $1.1 billion compared with $191 million (sic) [$991 million], an increase of 10.6% or 6.9% organically. Base pay, benefits and tax was 52% of revenue compared with 51% a year ago, reflecting investments we have made during the last 12 months to support our strong growth. Headcount at quarter end was 42,100, an increase of 3.5% from a year ago and 0.7% sequentially from the end of the first quarter. The increases are in growth areas such as media, digital capabilities across our networks, and in our digital specialist agencies, and in public relations, which has also increasingly digitally-driven. Regionally, we had increases in India, China and Brazil. Severance expense was 1.3% of Q2 revenue compared with 1.1% of revenue a year ago. Our Q2 headcount actions was focused in the U.S. and Europe and were related to talent and leadership upgrades, as well as to driving improved efficiency going forward. Incentive expense in the quarter was 3.5% of revenue compared with 3.4% a year ago. For the full year, we continue to expect incentive expense in our historical range of 3.5% to 4% of revenue. Temporary labor expense was 3.8% compared with 3.4% a year ago, which is something we will be aggressively addressing going forward. All other salaries and related expenses were flat and decreased to 2.3% of revenues, compared with 2.6% a year ago. Turning to ops and general expenses on the lower half of this slide. Energy expense was 27% of revenue compared with 27.5% a year ago, a 50 basis point improvement. O&G was a $471 million, an increase of 6.3% and 2.8% on an organic basis. Occupancy expense as a percent of revenue decreased 10 basis points, and professional fees as a percent of revenue remained unchanged. T&E, office supplies and telecom increased slightly as a percent of revenue. Other O&G expenses decreased 60 basis points as a percent of revenue reflecting leverage on general cost and depreciation. On a year-to-year basis, O&G expense was 28.3% of revenue through June 30, compared to 29.2% a year ago. On Slide 8, as usual, we show an adjusted operating margin history on a trailing 12-month basis, which was 8.3% as of the end of Q2, a slight decrease from the end of Q1. Margin expansion to fully competitive levels within the next few years continues to be our primary financial objective. On Slide 9, we turn to cash flow for the quarter. Cash from operations was $199 million compared with $354 million in Q2, with cash from working capital contributing $67 million compared with $167 million a year ago. Investing activities used $68 million, included here under acquisitions, our acquisition of a digital agency in the U.K. during the quarter. CapEx is chiefly for IT and real estate improvements. Financing activities used $175 million, primarily the repurchase of 11 million shares of our common stock for $128 million and our quarterly common stock dividend of $28 million. Acquisition-related payments of $44 million primarily refers to the increases in our investment and consolidated subsidiaries. The net decrease in cash and marketable securities in the quarter was $31 million. Turning to the current portion of our balance sheet on Slide 10. We ended the quarter with $1.82 billion in cash and short-term marketable securities, compared with $1.94 billion a year ago, a decrease of approximately $120 million. Including the activity in Q2 that I just reviewed, over the past 12 months, we have used a total of approximately $200 million to pay down debt. We were pleased to receive upgrades from 2 credit agencies during the quarter. We also increased our corporate credit facility to $1 billion from $650 million during the second quarter. The amended facility also extends the maturity to May 2016 from July 2013, reduces our expenses and has less restricted financial covenants. On Slide 11, you see our debt maturity schedule as of June 30. As reflected here, total debt, including our convertible notes is $1.8 billion on June 30. We have $189 million due this year, most of which is short term debt used locally for working capital purposes that typically remains outstanding. The smaller piece is the maturity of our August 2011 note, of which only 36 remains and which we intend to pay from cash on hand. Looking ahead to 2012 and 2013, the $400 million and $200 million amounts are the first optional put and call dates of our convertible notes rather than their 2023 maturity dates. These notes have a $12.30 parity price with our underlying common stock. In summary, on Slide 12. For both the quarter and the half year, we continue to see revenue growth rate that supports our financial targets for the full year and will support our longer-term financial objectives. We are budgeting significantly slower operating expense growth during the second half of the year. With the 4% to 5% organic growth we are expecting for the full year, our second half targets are approximately 200 basis points of leverage compared to last year's second half. We should come roughly evenly from 100 basis points on our salaries and related expense and 100 basis points in our ops and general expense. If you look at the change in our operating expenses last year, it makes sense that expense growth should decrease fairly dramatically in the second half of the year. Last year, operating expenses decreased 1% organically in the first half and increased over 8% in the second half. This primarily reflects the course of re-staffing following the recession. As a result, the expense comparison, if you will, was more challenging in the first half of this year but will ease in the second half. Given our seasonality, in which the fourth quarter is the largest of the year, the fourth quarter has always figured very importantly in our margin growth for the past few years. We expect to do it again in 2011. Now I'd like to turn the call back over to Michael.

Thank you, Frank. In reviewing the quarter and the year-to-date, there are number of themes that emerge. The strength of our professional offerings remains evident in our 6.8% first half organic revenue growth that is near the top of our peer group, even though we were facing the toughest comps in our sector and slower-than-expected growth in June. Also for the first 6 months, all geographic world regions posted organic revenue growth, as did all of our major global networks. The competitiveness of our offering can be seen across the board. You have only to look at how effectively our media agencies go to market, whether it's in the global pitches or against specialist agencies for digital assignments. Mediabrands' new emerging lab in New York and their new global cluster organization will make them even more attractive to forward-thinking marketers. The Draftfcb-integrated model has contributed to making it among the strongest topline contributors from our portfolio. The agency has been successfully upgrading its top creative talent in a number of key markets and a global management team that's highly disciplined and proven when it comes to delivering results. We're seeing CMG continue to take share from the competition particularly in the PR space, where Weber Shandwick is a dominant player, building exceptional social media expertise and with the recent agency redesign at GolinHarris is defining the PR agency model for the future. Strong collaboration at Octagon, Jack Morton and FutureBrand is also part of the CMG success story. We're also seeing strong revenue growth in international expansion at R/GA, HUGE and McCann's MRM. Our U.S. Independence continued to perform well, led by the Martin Agency, Hill Holliday and Mullen and Lowe keeps on delivering for its largest multi-national clients and winning new assignments from them. At McCann, we're pleased to see more senior-level executives joining the organization. There continues to be an influx of people in the creative area, in account leadership roles and among its market leaders. This type of investment in reinvigorating the Worldgroup will allow us to leverage its unrivaled roster of multinational clients. The key for us in the case of both McCann, and of the organization as a whole, will be to bring a high degree of focus for the remainder of this year to balancing investment and return. Though our profitability at midyear is ahead of where we were at this time in 2010, we are seeing signs that cost are out of step with revenue. We're aware of the focus that is required on margin enhancement. And in recent years, we have shown that we can successfully manage to margin targets. And as we've indicated in the past, this is a seasonal business and we managed to the full year. And looking forward to the rest of the year, we clearly have the right offerings and people to compete effectively in the marketplace. We remain confident that we will achieve our 4% to 5% organic revenue growth objective for the year and at least 9.5% operating margin, which is consistent with the long-term plan for the business that we shared at Investor Day. This level of performance, combined with targeted strategic M&A activity and a return of capital to our owners, will allow us to continue to deliver significant shareholder value appreciation. I thank you, and let's open the floor for questions.

[Operator Instructions] Our first question comes from Alexia Quadrani with JPMorgan. Alexia Quadrani - JP Morgan Chase & Co: Frank, could you provide a bit more detail on the revenues in the quarter, specifically how significant was the drop off in June? And really, I guess, what was behind it? Was it just some softness in the Package Goods category in June? Was it one client-specific, one region-specific? Any detail you can give us in June will be helpful.

Yes, Alexia, as you know, June is by far the largest month in the quarter. And we were feeling pretty good through April, May. And we did see June fall off, although there was growth. Most of the falloff happened outside the U.S. and some of the sectors you called out were the drivers. Some, especially in Latin America, we saw some revenue move out of the quarter. But in talking to the folks down there, our expectation is that there's not a pullback in spend, it's just a timing issue. And some of the markets in Europe were relatively soft in the fourth quarter -- or in June.

Let me just comment on the tone because it's a relevant answer to your question overall. And we do see this as interim, particularly as Frank pointed out in Brazil, we view that particularly in the package goods side, which accounted for the softness in that area as a timing issue in Brazil, as well as 1 or 2 clients that we were expecting some greater revenue had some pullback in terms of government controls and so on. So we view this as a timing issue, which will make up in the back half of the year. But overall, the tone of the business continues to be solid. And frankly, obviously, there's an overhang, if you will, in terms of what's happening in Washington and in terms of the world economic platform. But I've been meeting with a number of our clients, and the leadership indicate that even in this uncertainty, they still believe they have to invest behind their brands, which is why we believe for the rest of the year, we'll be able to deliver the results that we said we can. Alexia Quadrani - JP Morgan Chase & Co: So basically, I mean, it sounds like it's somewhat June-specific or somewhat maybe summer-specific, and so we should see maybe a better revenue picture in the third quarter? Is that what you're suggesting? And then the second part of that question is, since it seems like most of sort of the surprise weakness in June was outside the U.S., did McCann come in sort of as expected? Was McCann, I guess, U.S. McCann, I'm talking to, did they continue to see sort of healthy or more similar growth in Q2 as they saw in Q1 adjusting for comparison?

Well, as we indicated, we've seen growth across all our global networks, okay. And again, we can't answer questions on a quarterly basis. All I can tell you is that we know from the pipeline that there's revenue in the second half of the year. To be frank, whether it comes in, in the third quarter or fourth quarter, I can't comment on it. Obviously, we saw a miss, if you will, in this quarter. But we're confident for the full year that it will happen. With respect to McCann, we know there are a couple of wins in the pipeline that we can't announce yet that will add to the indication of the talent having an impact in the marketplace for McCann. So we're pleased with the direction that they are heading in, and we're confident that they will deliver according to what we think they should deliver for the full year. Alexia Quadrani - JP Morgan Chase & Co: I guess, asking the question sort of in a different way than, if we can't pinpoint the revenue recovery whether it's going to be Q3, Q4, and I can understand that, because obviously you don't have it until fall [ph] have you adjusted the cost structure to assume that maybe the revenues don't come back in Q3?

No, I think, remember, we manage our business to the margins, Alexia. And as we said, given the level of 4% to 5%, which we think is consistent with where we will end up, we manage our margins and when you add it all up, comes down to at least 9.5%. And so therefore, by definition, the cost will come in line with the revenue. And again, remembering the second half of the year, our comps in terms of expenses become easier than what we just went through. And Frank just went through in detail how the build up of the expenses was a mismatch to our revenue. But as we go through the year, they will fall in line with our objective. Alexia Quadrani - JP Morgan Chase & Co: Okay. Then just a last question, should we assume the rate of buyback continues sort of pace you saw in the quarter?

One of the questions in our last quarter was everyone is disappointed in the fact that we had 3 weeks of buyback, and we haven't used it all up. I think what you've seen is an indication that we believe in the shareholder value of returning cash to our shareholders, and we view this as an opportunity. So I think you can assume we will continue to be active in the marketplace. Again, consistent with an overall plan, but I think you've seen how our plan has been implemented in the past quarter. And I think you should expect that we will continue to keep shareholder value in mind as we move forward.

Our next question comes from David Bank with RBC Capital Markets. David Bank - RBC Capital Markets, LLC: I guess a little clarity, thanks for the detail and sort of the sequential progression in the quarter. I think you guys called out the Tech and Telecom category I was wondering if there's any more specific color you can give around what drove the volatility? And then second, you kind of highlighted 2 issues on the margin side. One was the mismatch of, I guess, really a mismatch of revenue and expenses, right? So if revenues have kind of come in maybe where you had expected them to in the first place, I mean, tough question to ask, but like how different would margins have looked?

Yes, I mean, it's a great question. Let me put this whole thing in perspective for you, okay. If you just look at our operating income number, which was $174 million, if we had added $26 million of incremental revenue compared to $1.7 billion of total, we would have come in at $200 million operating income number, and all of these organic numbers and all our margin targets would've been met. So in terms of order of magnitude, compared to where we are, granted it's not where we would like to have been because of the various items we're talking about, we're talking about $26 million, okay. And that certainly within the range of an area over the next 2 quarters and the run rate that we certainly are comfortable that we'll make up. So I think it's fair to look at, and if you also look at the increase in our salary and expense line, compared to last year, for example, we were up 3.5%, but compared to the last quarter, we were up less than 1%. So it's not that all of a sudden our expenses are ramping up. It has so much to do with the comparison that we have to last year, okay. So we are on track, if you will, to achieve the numbers that we're saying we are. It just happens to be that they sell out of line in this quarter. And third quarter is, still, we're running into some issues on tracking, but we look at it on a full year basis. On your question of Tech and Telecom, it's a big sector for us. It's over 20%. So we have at least 5 or 6 pluses in Tech and Telecom, and we have a few pullbacks in Tech and Telecom. So that accounts for the fact that it was down, and obviously, the pluses we hope to continue for the rest of the year. And for example, we were cycling through a small client that was acquired through a merger, and so we see those kind of things. So it's not that we're falling out of bed here, it just happens to be that in this particular quarter, some of the pluses and minuses came out, not as we had scheduled them to fall throughout the year, the quarter if you would.

[Operator Instructions] Our next question comes from Chris Carasis [ph] with Wells Fargo. Peter Stabler - Wells Fargo Securities, LLC: It's Peter Stabler at Wells Fargo Securities. So just a question about the guidance of 4% to 5% for the year. If you're to take a midpoint there, it implies a second half growth in the 3% range. Can you offer a little more color on the trajectory here? I mean, we all know that comps and how steep they get but are you seeing that the tone of client conversations change 3% would obviously reflect a rather market deceleration from first half, so that's the first question. And then with the second question just a little bit of clarification, you called out Auto and 2.5% minus contribution from Auto and another client. Could you give us a sense of how that impacted IAN specifically? And can I assume that the majority of that auto is Chevrolet?

We don't like to call out clients, but you know our business pretty well. Let me look at it that way. And look, again, when we gave the guidance at 4% to 5% for the overall year in terms of the revenue, then you're talking about a 3% to 4.5% organic for the second half of the year. And if you model it out, we get to at least a 9.5% margin that we're talking about, and we believe that, that's a reasonable assumption to make.

And Peter, we expect our normal seasonality with the fourth quarter is by far the strongest quarter. Peter Stabler - Wells Fargo Securities, LLC: Okay. So at this point, no indications, I know Q4 is we get heavily weighted projects but nothing really abnormally different in terms of the cycling of those conversations and the timing of those conversations of clients right now. We're in mid-July, visibility should be improving on Q4, correct?

Right. We are cycling through some. And what do we say, about 1% of headwinds in terms of organic?

For the 2 issues that you called out in the second quarter, the census work and the Auto client, that's about 2% of headwind for the back half of the year.

2%. Peter Stabler - Wells Fargo Securities, LLC: And then very quickly, that 2.5% of headwinds in the U.S., can you translate that into headwinds to IAN in this quarter where the 3.9% or is that not math yet?

The majority of it was IAN.

Yes.

Our next question comes from Matt Chesler with Deutsche Bank. Matthew Chesler - Deutsche Bank AG: Maybe you can just further go into the nature of the misalignment between revenue and cost? Are you suggesting that it's always related to the revenue shortfall due to the items that you flagged, or is it also due to costs as well? Just kind of wondering the nature of those alignments, I'm sure the organization is maniacally focused on delivering their margin targets. So how do you get out of line? When did you learn about it and what are your levers as management to be able to ensure that they get back in line as we're heading into the important part of the year for your margin build?

I thought I went through that in terms of my other answer but I'll briefly do it again. The 2.5% that we referred to is on the revenue side. And remember, what Frank said and what I just said is, if you look at our expenses, there was a large growth last year and a slower ramping up of the expenses last year. And then in the back half of the year, we started ramping up those expenses. So our comps for the rest of the year on the expense level, since we already spent and ramped up for this year will become easier. So the combination of the revenue side and the fact that our expense levels had leveled off, okay, maybe that's another way of looking at it. But for the rest of the year, we don't expect to see that type of mismatch between revenue and expenses.

And Matt, to repeat what Michael said earlier, if you look at it sequentially, what happened to our salary line from Q1 to Q2, the increase was de minimis. And so it's not as if we hired a whole boatload of people in the second quarter that got us misaligned. And with respect to kind of when did we know, as we said earlier, the first 2 months of the quarter from the revenue perspective was strong. And June, which is the biggest month in the quarter, was weaker than we expected.

Let me add to it the fact that obviously June was a bit of a surprise to us, okay. And so as you can tell, we've done a great deal of analysis into what happened here. So we have an explanation for it. We can explain it from a mathematical point of view. But the real issue is from a tone point of view, was it a dramatic falloff in our business. And the answer to that is, no. I mean, the tone of the business continues to be exactly as we stated. And I think that's the what we have to keep in mind. And you made the point that we're maniacal about watching the expenses. The answer to that is, yes, we are. And we make sure that as we go through the rest of the year, that what we just said in terms of the alignment in the expenses and the revenue coming to alignment as they should, and that's frankly what we're focused on.

Our next question comes from John Janedis with UBS. John Janedis - UBS Investment Bank: I think the obsession on this call from a margin perspective is that you kept the full year revenue guidance tacked at lower the top end of the margin. And I know looking a few years back, you saw some margin pressure on digital investments. So can you just talk longer term about your confidence level that you don't need further investment that may pressure the future margin opportunities that you referenced at the Analyst Day?

Yes, it's a fair point. When we say 9.5% to 10%, it's a range. And that's how we look at it. I wish this business was as predictable so that we can model, help you with your models and tell you exactly how everything is going to flow in, but it just doesn't work that way. So we always have to deal with the range. That's why we gave you 4% to 5% on the revenue side. And when we say at least 9.5%, at least means at least. It could be more, it could be at least 9.5%. So it's a range, John, and we can't be specific in it. The point is that we have modeled out. We have new hires built into our modeling. We have staff level expectations from our units. And that all takes into consideration open positions, which include the ramping up, if you will, on the digital side and everything. But of course, hopefully, we'll have some new clients that we pick up, which we have to hire again. And it may cause us to ramp up a little bit on the expense side, but that's a good thing. What we're not going to do is ramp up expenses without matching revenue that it applies to. And I think that's when you have to get concerned. If we're increasing expenses without the expectation or the fact of revenue, then we're not managing our business correctly. And so if there is any additional hiring, we have a very tight lid on the hiring, there has to be a correlation on the revenue side for us to do those hires. John Janedis - UBS Investment Bank: Okay. And then look, if we look back to past cycles, often times when we talk of the business getting pushed out, it tends to really to never fully come back. And so is the confidence and timing coming because of that's come or booked in July or what is the confidence there?

It's both. We have some timing issues on contracts. We have some -- basically, we know that there are projects out there that have been pushed off from one part of the year to the second half of the year. So it's a combination of that.

Our next question comes from Ben Swinburne with Morgan Stanley. Benjamin Swinburne - Morgan Stanley: I wanted to not ask about margins, so I'll ask, Frank, about your cash balance and has generally we should think about sort of new IPG now that you guys are ringing into a little bit in a better position and your free cash flow ramping nicely, I know you've given long-term free cash flow guidance. Cash moves around quarter-to-quarter a lot in your business, but is there a way for us to look at the cash balance and sort of think about where that should normalize to, now? Looking back at IPG over the last 3 years when you are carrying well above $2 billion typically. I'm thinking about it in the context of return to capital obviously, what the potential is there. So if you could talk about how you're funding the business, how you're thinking about that stuff, that'll be helpful.

Ben, we're pleased at the rating agency actions we saw this quarter. So investment grade, you have 2 to 3 agencies, where we hope 1/3 to get there sooner rather then later, which helps in financial flexibility. We are pleased with the bank deal we did in the quarter, which again added financial flexibility. We've been relatively aggressive in our share buyback, and right now, we're going to execute against that plan. We expect free cash flow to continue the seasonal patterns that it has. So from a deployment of that cash, nothing has changed other than the scenario continues to improve. Benjamin Swinburne - Morgan Stanley: Okay. Is there any relationship between the timing of free cash flow generation during the year and your buyback activity?

No, we have a regimented program. And if we did, we do look at how our seasonal cash flows work, and that's built into the program that we've got in place currently.

Yes, and put it in perspective, we always said we had excess cash on our balance sheet. And the question has been, what do we do with that excess cash? The fact that we were upgraded to investment grade, freed up and increased our facility to $1 billion. That freed up our flexibility to return cash to our shareholders. So it really wasn't specifically tied to any specific cash flow event. We've consistently said we had excess cash on our balance sheet. Benjamin Swinburne - Morgan Stanley: Okay. And then just, Michael, a couple of things that you probably can't comment on but I'll ask anyway. Any update on SC Johnson and anything, any comment whatsoever on just [ph] Media and now that, that business is a little bit smaller than it was before.

We've always commented that would be an interesting addition to us, but the size of it and what it would add to us incrementally at this point is not exactly high on our radar in terms of use of our cash and our financial flexibility. And as far as SC Johnson, nothing new has changed since the last time we updated everyone.

Our next question comes from Michael Nathanson with Nomura. Michael Nathanson - Nomura Securities Co. Ltd.: Frank, we heard ANACOM talk about foreign exchange impact to margins. Can you talk a bit about if currency stays where it is -- or in this quarter, how much has foreign exchange impacted the year-over-year margin?

For this quarter, Michael, it was about 20 basis points negative. Michael Nathanson - Nomura Securities Co. Ltd.: And for the rest of the year, you're assuming currencies stays where it is, so is that part of your, maybe, the reason of bringing down the range from 9.5%...

It was not a large contributor to our thought process. Michael Nathanson - Nomura Securities Co. Ltd.: Second question will be, we've heard, or we've seen competitors buy into Brazil, get big in Latin America, I know we talked about this in the past, but I wonder if weakness in Latin America were made in positioning makes you think about doing more acquisitions, more digital acquisitions down there? So can you claim any of this, maybe an offering change or weakness in offering versus peer?

No, absolutely not. We've always targeted Brazil as an area where we're going to be adding -- the CUBOCC and Washington Olivetto transaction were indication, were our investments in Brazil. And we have a couple of bolt-ons that we're dealing with in Brazil. So that hasn't changed. We're continuing to expand in Brazil, invest in Brazil in both people and agencies that we think are a good fit for us. So the fact that there was a decline had to do, as I indicated, with some timing on the revenue side and a particular client that expectations on the spend had changed. Michael Nathanson - Nomura Securities Co. Ltd.: One for both of you guys, it's about visibility, and I just question, when you look at company and earnings, typically the last month of the quarter is when they have to smooth. So given the tone of conversations that you're getting now, I kind of wonder how relevant are tones about July versus tones in September? So can you talk a bit about how your own companies deal with quarterly moves on ad spent to kind of cushion their own earnings growth?

Well, the days of smoothing earnings and setting up reserves and so on are -- I remember the good old days if you will, those days are pretty well behind us. Granted agencies like to lowball us in terms of the expectations. The visibility we have into our businesses now and the reporting, if you will, of the CFOs, into Frank and the meetings we have on a regular basis were operating units, it doesn't leave a lot of room for surprises in terms of smoothing or anything like that. Part of the tone, and granted, if you're managing a business, you like to have some comfort zone. And frankly, the operating of the meetings that we just had, we felt that the businesses were very confident in their numbers. And frankly, if that were true, they would've been less confident in our meetings. So that gives us the belief, as we stated, in our ability to meet our objectives.

Our next question comes from James Dix with Wedbush. James Dix - Wedbush Securities Inc.: Three questions, I think, relatively brief. First, is your outlook for the second half of the year fairly similar to what it was 3 months ago? And if not, how has it changed?

Actually the outlook is similar to -- and that's when I talk about the tone of the business. So it hasn't changed other than everyone is still raising the question of if there's an implosion in the macroeconomic side of the world, then now would have an impact on our business. But absent that, yes, clients are demanding more for less. That's not new in our business. They're asking us to show that what we're doing is moving the needle. That's not new to our business. They want us to see all the new offerings. They want to make sure they're current in terms of the social media, in terms of the digital type of approach in the marketplace, whether they're spending their dollars in the right place, but that's all normal conversation. The good news is we're having those conversations. If you go back to the recession, we weren't having those conversations, everyone was in a standstill. So I say the tone supports, in fact, the tones does support what we're saying. And if there's a hiccup in the economy, that's what will affect our ability to deliver. James Dix - Wedbush Securities Inc.: Okay, great. And I guess, a slight follow up to that, I think you mentioned in your opening remarks, Michael, that you were seeing some pickup in new business activity. Is there anything particular you can highlight for us, were your contention to pick up some material business? And would you say this level of new business activity now is kind of in line with what you would expect for this point in the cycle? Or is it maybe still running a little bit below what you might expect?

I say the pipeline is pretty good. And the new business picture, there are number of new pictures out on the media side, which I referred to. Clearly, Mobil Exxon is the big one that's out there, and McCann is in the finals there. So we're hoping that, that one goes our way. We're in the pitch for BMW. And as I indicated, there are a couple of wins at McCann that we can't specifically announce yet but that's encouraging for us. So I'd say all the numbers we're talking about, this is a good indication why we're comfortable with the forecast. James Dix - Wedbush Securities Inc.: Okay, Great. And then one last one, just generally in terms of salary increases that you feel you need to remain competitive with peers, are you seeing any move or pressure on the salary increases you feel you need to offer or is it kind of in line with what you've been expecting?

We meet with our HR committee, and we have outside advisers working with us in terms of compensation. Every once in a while, there's a one-off when you're looking to hire a specific talent. And it's competitive in the marketplace and you have to sweeten the deal. But overall, our compensation levels are competitive. It's all factored into the numbers that we're referring to. So if there are sums of money set aside to bring in expertise on the digital side, clearly in the growth areas, that's built into our plan. And our managers manage to the margins. So if they have to pay more to bring in those types of expertise, they have to justify it on their margin objective. James Dix - Wedbush Securities Inc.: Because I guess I was hearing from some peers they weren't seeing any particular pressure but they were kind of planning on low single-digit base salary increases.

Yes. Our industry went through the recession and we held salaries. We didn't give out increases and so, and that's already built into the numbers. Yes, we did build in increases. We did get back to normal raises and things like that. But again, it's all part of how we manage to the margins.

Our next question comes from Tim Nollen with Macquarie. Tim Nollen - Macquarie Research: Sorry to come back to this issue about the margins, and I know we shouldn't necessarily obsess about a single quarter number but if I can just .double check my understanding, you're saying, you expect the growth that you're talking about and you can manage margins to that, but your margin target, I assume is not assuming that your revenues if they were to fall below what you're saying that you could still meet that margin. Because in that case, I guess your severance expense would go up and things like that. So am I just understanding that right, your margin target is dependent on your revenue target?

Well, yes. I mean whether it's specifically that target and whether we can make up any small shortfall, yes. But absent the revenue goal that we're talking about, it's hard to deliver on the margins. We have some tweaking room in between because there are levers as you point out, like incentive comp. We can take more severance and so on. But we only have 6 months left, no less than 6 months in the year. So it's hard to do that. I think the biggest lever there would be incentive expense. So to the extent we're short on the profitability, then you'll see a drop in our incentive expense commensurate with the miss, if you will. And by the way, that's another indication that we're comfortable with our full year target. I don't know whether I'm allowed to do this, but I'll do it anyhow. When you look at how you calculate your incentive expense, you assume what your incentive expense is going to be for the full year. If you notice for the first half, we haven't taken it down. So that's another indication that we're comfortable that we're going to indicate we're going to achieve our target. Otherwise, we would've taken down our incentive expense. So that's a nuance that's in there, but that's how the levers work. Tim Nollen - Macquarie Research: Okay. I just want to make sure there's a little bit of wiggle room. I understand that there was. So that helps, thanks. Can I just ask one other little question, just housekeeping really, your tax rate is 30.5, I think, percent. What should we assume for the last 2 quarters of the year and ongoing? Because I guess, in a while you said it got you down in Q2, is that right?

Right. In Q2, we settled some small items. So that drove that. I mean we actually got cash back. So we're still, for the full year, we have the 40% to 42% effective rate, still reasonable. Tim Nollen - Macquarie Research: You use that rate for the full year. Okay, got it.

Our next question comes from Dan Salmon with BMO Capital Markets. Daniel Salmon - BMO Capital Markets U.S.: I'll go a little outlook into the M&A area and in particular emerging markets, there has been a lot of activity around the group lately, still mostly small things and I know you talked a bit about it's hard to buy things that are of size in the BRIC and other fast growing markets. But what are you seeing there? Is there any sort of change in your position there? I know pricing has been a challenge, but how are you looking at that as you continue to stabilize and improve the balance sheet?

We have capital to spend. We've set aside $150 million for acquisition money. And as we went through our operating reviews just recently at the end of every meeting, we ask the groups to see what opportunities they have and whether they would like to see them beef up their organizations and bring those transactions. We've stepped up our own activity in terms of looking at specific transactions that we think are strategic to our overall plan. So we're in the market. We're bringing a couple of small deals that we hope to close in the next month or so, and in the emerging markets, in particular and of course all different disciplines. So we are active out there, but the pricing on them are very aggressive. And we've shown, for example, on the Digital side, we've grown R/GA, we've grown HUGE, we've grown MRM on a global expansion basis organically. And we feel that, that's a more effective way for us to grow those specific expertise without paying huge premiums to bring them into the fold. And we're doing the same thing with our networks. So for example, the Blue Barracuda transaction at Draftfcb in the UK is a good example. Here's a global network, they saw a great organization with good leadership that they've been working with, and so we allocated capital and we did that kind of transaction. So we're seeing that across the globe and particularly in the emerging markets.

At this time, there are no other questions.

Okay, great. Well, thank you all. I know it's a confusing quarter. I hope we clarified a lot of the questions that you had. We are working hard, and hope you appreciate that we understand the business. We're managing towards our objectives, and we're comfortable that we will be able to deliver on that, and we thank you for all your participation.

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