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

Good morning, and welcome to the Interpublic Group Third Quarter 2011 Earnings Conference Call. [Operator Instructions] This conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Mr. Jerry Leshne, Senior Vice President of Investor Relations. Sir, you may begin. Jerome J. Leshne: Thank you. Good morning, and thanks, everyone, 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 the 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. Michael I. Roth: Thank you, Jerry, and thank you all for joining us this morning. We're pleased to report strong organic revenue growth, operating profit and net income for both the third quarter and the first 9 months of 2011. As you have seen in our release this morning, Q3 organic revenue growth was very strong at 8.7%. Operating profit was $173 million, an increase of 73% from a year ago. Our operating margin was 10% compared to 6.5% a year ago, and diluted earnings per share were $0.40, $0.16, excluding our gain on the Facebook transaction. The $0.16 of earnings per diluted share compares very favorably to the $0.08 for the same period last year. For the 9 months, organic growth was 7.5% on top of strong growth during the same period a year ago. Operating profit thus far in 2011 increased 38%. In the third quarter, growth was led by our businesses in the U.S., Lat Am, Asia Pac and the U.K. We had growth in most client sectors. Digital was a major contributor to our growth. Our specialist agencies and, just as notably, the digital capabilities within our integrated agencies, marketing services firms and those at our media businesses all contributed to our strong performance. This performance further validates our digital strategy, which is to ensure that all of our agencies embed digital expertise at the core of their offerings, primarily through investments in talent and tools, as well as targeted acquisitions where necessary. We're pleased to see high-single to low-double-digit organic growth at all of our integrated global networks, as well as double-digit growth in marketing services. We continue to manage our growth carefully and strategically. High-quality operating talent, combined with effective business controls, means that top line growth is accompanied by expense discipline and, therefore, converted to operating profit. In the third quarter, we achieved 350 basis points of margin expansion. For the 9 months, that number was 130 basis points. This improvement was achieved by leveraging both our principal expense lines. At quarter end, our trailing 12-month operating margin was 9.1%, which is the highest for any 12-month period at IPG in many years. During our prior conference call, we expressed confidence that the pacing of revenue and expenses in 2011 would result in strong margin expansion. I'm sure you will agree that our third quarter results are indicative of that fact. We believe that disciplined investment in our people and our offerings will continue to drive competitive, organic revenue growth and improved profitability. This is a long-standing commitment, one that is backed by the track record of this management team and our operating unit leadership in recent years. Our performance in the 9 months has us positioned to deliver on this year's financial targets. We believe that we will also remain on track for fully competitive profitability and significant value creation as outlined at the Investor Day presentation we shared with you back in March. In Q3, we also returned capital to our shareholders at a rate above that contemplated when we initiated our repurchase program in late February. During the quarter we purchased 15 million shares, using $130 million alongside $27 million in common share dividends. Through 9 months, we've utilized $269 million towards repurchase and buying in 27 million shares. And as you know, in conjunction with the Facebook transaction in August, our board raised the total authorization under the repurchase plan to $450 million. Coming into this year and on our previous conference call, we shared financial performance targets with you, a 4% to 5% organic revenue growth for the year and operating margin of 9.5% or better. Taking into account our strong performance for the 9 months and balancing an appropriate degree of caution due to the current uncertainty in the global economic environment, we feel we can exceed these targets this year, particularly with respect to our revenue growth. As we move forward into the fourth quarter, the tone of the business remains solid. We've seen little in the way of pullbacks among clients, despite the economic climate. The outlook of our project-based business is holding firm and the performance of the most economically-sensitive client sectors, auto, financial services and retail, remains solid in the third quarter. We all know that the macroeconomic picture is uncertain, particularly in some markets in Europe. In addition, we will be cycling against extremely challenging comps since in the fourth quarter of 2010, we grew 11.2% organically. Notwithstanding these hurdles, we remain comfortable with our stated performance targets. We're very pleased with the strong quarter and year-to-date, which gives us a real confidence that we can drive strong value creation for the balance of 2011 and beyond. At this point, let me turn things over to Frank.

Good morning. As a reminder, I'll be referring to the slide presentation that accompanies our webcast. On Slide 2, you'll see an overview which tracks some of the points that Michael just made. 8.7% organic growth in Q3 led by double-digit growth in the U.S. and high growth in emerging markets internationally. It comes on top of 9.4% growth a year ago and brings us to 7.5% growth for the 9 months. Operating income in the quarter was $173 million, 73% higher than a year ago. To be clear, the gain on our Facebook shares is reflected in other income, not operating income. Q3 operating margin was 10% compared to 6.5% in Q3 2010. For the 9 months, operating margin is 130 basis points ahead of last year, and on a trailing 12-month basis, operating margin is 9.1%. Diluted EPS was $0.40 per share, which includes the benefit of Facebook gain. You'll recall that mid-August, we announced that we had sold approximately half of our position in Facebook for net proceeds of $133 million, which resulted in a pretax gain of $132 million. Excluding the gain on Facebook, our diluted EPS would have been $0.16 in the third quarter on 521 million diluted shares. We ended the quarter in a strong liquidity position. We've got $1.8 billion of cash and marketable securities in the balance sheet compared with $1.94 billion a year ago. Comparison includes having used approximately $269 million to repurchase our shares, $84 million on our common stock dividends in 2011 and $230 million during the 12 months to pay down debt. Turning to Slide 3, you'll see our P&L for the quarter. I'll cover revenue and operating expenses in detail in the slides to follow. Here it's worth highlighting that other income of $137 million is almost entirely the gain from our Facebook sale. Our effective Q3 tax rate was 24.5%, which includes the very low rate on the Facebook transaction. Excluding that transaction, our effective rate would've been 42.3%. Our basic share count for the quarter was 465 million, which includes the average of our repurchase activity for the period. Corresponding number as of September 30 was 455 million. With respect to diluted shares, we had 530 million shares in Q3 this year, which includes the assumed conversion of our convertible preferred shares. Turning to operations on Slide 4, beginning with revenue. Revenue in the quarter was $1.73 billion, an increase of 11.1% compared to Q3 2010 exchange rate added 3.1%, and the change due to net acquisitions, dispositions was negative 70 basis points. Our organic revenue increase was 8.7%. The U.S. was up 10.1% organically, while Lat Am and Asia Pac posted double-digit gains as well. International markets overall increased 6.7% on an organic basis. We had growth in most client sectors in the quarter led by retail, financial services, health and personal care, and food and beverage. In the first 9 months of the year, organic growth was 7.5%, fairly evenly balanced between U.S. and international markets. At the bottom half of the slide, you can see that both of our reported operating segments have contributed to our quarter and 9-month performance. Our Integrated Agency Network's organic growth in the quarter was 8.3%. We had strong contributions from all of our global networks, including Mediabrands, Lowe & Partners, Draftfcb and McCann Worldgroup. At our CMG segment, revenue increased 10.9% in organic base in Q3 and by double-digit increase in the U.S. and Asia Pac with strong results in our PR and events business. Year-to-date, IAN is up 7.1% organically and CMG has grown 9.3%. Moving to Slide 5, revenue by region. In the U.S., 10.1% organic growth was driven by all of our global networks, our marketing services specialists and a number of our U.S. integrated independents as well. We had strong results by Lowe & Partners, Mediabrands, Draftfcb and McCann Worldgroup. Leading client sectors in the U.S. were retail, financial services, and food and beverage. Turning to organic change in our international markets. In the U.K., our revenue increased 4.3% with contributions from a number of our agencies. Continental Europe decreased 1.8%. We continue to see mixed results by country. Among our largest markets, revenue decreased in France, which was partially offset by increases in Italy, Germany and Spain. Europe, of course, has been the center of macroeconomic concerns. The sense of our operators is that we saw some softening of activity in the quarter in certain markets on the continent. For 9 months, we increased 1.5%, which is in line with our expectations. Asia Pac grew 15.3% led by double-digit increases in each of our largest markets: China, Japan, India and Australia. In Lat Am, growth was 21.7% driven by very strong increases in Brazil, underpinned by contributions from all of our global networks. In the 9 months, we grew 11.5%. So while the pace of revenue by quarter was different from last year, we've had very strong growth year-to-date. Our other markets group decreased 2.6% but grew 5% for the 9 months. On Slide 6, we chart the longer view of our organic revenue change on a trailing 12-month basis, which is 8.6% as of the end of Q3. This view effectively demonstrates what we have often said about not focusing excessively on any single quarter but keeping an eye on the broader picture of where we've come from and, more recently, that we have sustained a strong growth trend since coming out of the recession. On Slide 7, operating expenses. We continue to be pleased with the operating discipline of our agencies, which continue to move us forward on our annual and longer-term margin objectives. Total operating expenses increased 4.5% organically compared to last year under 8.7% organic revenue growth. For the 9 months, operating expenses increased 6% compared with 7.5% organic revenue growth. Sequentially, moving from Q2 to Q3 this year, operating expenses decreased $13 million. Between Q2 and Q3, we saw greater efficiency in base payroll, benefits and tax, lower O&G expenses and lower severance expense, which was partially offset by higher accrual for incentive awards with the company's strong performance through September. While we continue to invest in growing areas of our portfolio, net headcount growth was less than 0.5% in the quarter. Total salaries and related expense in the quarter were 63% of revenue compared to 64.8% in Q3 2010. Underneath that, base pay, benefits and tax was 51.5% of revenue compared with 53.4% a year ago, an improvement of 190 basis points. Headcount at quarter end was 42,300, an increase of only 2.6% from a year ago. The increases are in growth areas, such as media and digital services throughout our agencies and, as Michael mentioned, and in China, and in India and Brazil. Severance expense was 1.1% of Q3 revenue compared with 1% of revenue a year ago. Incentive expense in the quarter was 4.1% of revenue compared with 4.3% 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 3.7% of revenue compared with 3.8% a year ago, while all other salaries and related expense were 2.6% of revenues compared with 2.3% last year. Turning to ops and general expenses on the lower half of the slide. O&G expense was 27% of revenue compared with 28.6% a year ago, 160 basis point improvement. O&G was up $466 million, an increase of 2.5% on an organic basis. Occupancy expenses as a percent of revenue decreased 60 basis points, result of continued focus on efficiencies in our real estate portfolio. In addition, we continue to leverage a range of expenses as professional fees decreased 20 basis points as a percent of revenue; T&E, office supplies and telecom decreased 20 basis points; and other O&G expenses decreased 60 basis points. Through 9 months, O&G expense was 27.8% of revenue compared to 29% in the prior year. On Slide 8, we show our operating margin history on a trailing 12-month basis, which was 9.1% as of the end of Q3. This chart clearly shows that we have been very consistent in our improvement with the understandable exception of the recession in 2009. It also shows why we are confident that the investments we have made in tools and technology and process improvements to drive greater efficiency will allow us to sustain our margin expansion growth. On Slide 9, we turn to cash flow for the quarter. Cash from operations was $158 million compared with $40 million in Q3 2010. Cash used by working capital was $34 million compared with the use of $60 million a year ago. These working capital results are seasonally typical for the third quarter. Investing activities generated $94 million, which includes the proceeds from the sale of approximately half of our investment in Facebook. That's partially offset, of course, by our acquisitions in CapEx. During the quarter, we acquired 3 digital agencies, a PR firm in Brazil and a highly creative group in Australia. Financing activities used $203 million, primarily to repurchase 15 million shares of our common stock for $130 million and our quarterly common stock dividend of $27 million. Since the inception of our repurchase program at the end of February, we have repurchased 27 million shares of our common stock with $269 million. Acquisition-related payments of $22 million primarily relate to the increases in investment and consolidated subsidiaries. We also paid $36 million at the maturity of the remaining portion of our 7.25% senior notes. Net decrease in cash and marketable securities in the quarter was $25 million. Turning to the current portion of our balance sheet on Slide 10. We entered the quarter with $1.8 billion in cash and short-term marketable securities compared with $1.94 billion a year ago, a decrease of approximately $140 million. Including the activity in Q3 that I just reviewed, over the past 12 months, we have used a total of approximately $230 million to pay down debt. On Slide 11, you see our debt maturity schedule as of September 30. As reflected here, total debt including our convertible notes was $1.7 billion on September 30. $151 million shown as due this year is chiefly short-term debt used locally for working capital purposes that typically remains outstanding. Looking ahead, $400 million in March 2012 and $200 million in March 2013 are the first optional cash put and call dates of our convertible notes. Both tranches have a $12.30 parity price with our underlying common stock. In summary, on Slide 12, we believe our results speak to the fact that Interpublic is fully competitive. We are winning in high-growth markets and in the most contemporary digital marketing disciplines, and we are executing to a high standard across our business. We continue to realize the benefits of a globally diversified business and client base, and we are seeing tangible yield on the investments we have made in tools and talent in recent years. Now let me turn it back over to Michael. Michael I. Roth: Thank you, Frank. In reviewing the quarter and the year-to-date, a few additional major headlines standout. First, our competitiveness is evident in organic growth that is at the top of our peer group, despite facing the toughest comps in our sector. During the first 9 months of this year, all geographic regions posted organic revenue growth, as did all of our major global networks. Another long-term positive for us is the fact that the competitiveness of our offering results from investments that we've been making in talent, so that all of our agencies migrate their offerings to incorporate fast-growth, digital competencies, as well as the recent acquisitions in digital and geographic growth markets. At Mediabrands, both of our global networks, Initiative and UM, are among the best in terms of contemporary and high-quality media thinking. The addition of assets such as ORION Trading, ID Media, or our Cadreon Audience Platform, which we've built based on proprietary data analytics technology, allow us to deliver customized solutions for a broad range of marketer needs. A new lab that's set to launch in New York next week will be a further showcase of the ways Mediabrands works closely with media owners and technology companies to stay on the leading edge and act as true business partners for their clients. At Draftfcb, despite the recent client loss, has an equal resolve to demonstrate that the agency's integrated model is a powerful engine for growth. Channel-agnostic marketing advise is what our clients need most, especially when it's informed by the behavior-based research and analytic tools available at Draftfcb. The agency has also been able to significantly strengthen its creative leadership. During the quarter, Draftfcb was once again a strong contributor to top and bottom line performance for IPG overall. At McCann, there's an appropriate speed and focus in the new management team's transformation efforts. Recent wins with existing multinationals show that we are moving in the right direction. Dynamic new leadership is joining us in key markets such as Brazil, Germany and Japan, as well as in North American regional level. The emphasis on collaboration within Worldgroup is also on target, as are our efforts to build an accountability practice that will allow the agency to share in the upside value of the iconic ideas it creates. We continue to see CMG companies take share from the competition, particularly in the PR space. Weber Shandwick is a dominant player with terrific depth of management and practice area leadership. The agency was recently named 1 of the 4 best places to work in social media by the respected Mashable news blog. That's among all companies, not just those in our sector. GolinHarris, Octagon, Jack Morton and FutureBrand are also making great strides as leaders in their respective disciplines and as part of a larger integrated team. Lowe & Partners' solid performance supports the fact that the business has a clear and focused positioning as a creator of populist, creative ideas that drives business results, such as the terrific work for Unilever around the world and the work Deutsch is doing for Volkswagen. It has an impressive footprint and reputation in the high-growth, emerging economies, and it is developing a strong offer in the area of a shopper marketing while partnering with huge digital capabilities. All of which, which put it on the track to broaden this portfolio of multinational clients as seen in the recent wins from Microsoft, which have been a result of combining Deutsch's U.S. strength and the Lowe worldwide network. As mentioned earlier, our digital specialist agencies are among the best in the business, and we're seeing strong results from them. R/GA continues to be the premier name in the space. Growth at HUGE has been dramatic, and the agency is now expanding internationally. MRM is another strong performer. It's worth noting that while an integral part of the Worldgroup, MRM is also one of the world's largest global digital agency networks, with offices in over 30 world markets. Our U.S. independents continued to perform well because they combine high-caliber creativity and content-creation capability, deep strategic insights and digital expertise with a full range of communications disciplines from PR to CRM. Once again, the Martin Agency, Hill Holliday and Mullen were particular standouts. Our results reflect the fact that we have the right offerings and people to successfully compete in the marketplace. And while there is economic uncertainty, we have shown that we are capable of effectively controlling expenses and continuing to make margin progress in a range of revenue environments. We've also indicated to you that we manage to the year end and cautioned against reading too much into any single quarter's results. With respect to 2012, it's still too early in our planning cycle to comment on next year. Though the macroeconomic environment is uncertain, we will still stay vigilant on our cost. The third quarter and first 9 months were very strong in terms of increased profitability. Of course, we leverage strong organic growth with careful expense management. We continue to invest in growth areas of the businesses, supporting our agencies as they step up the transition to digital and we expect further into high-growth emerging markets. And we also follow through on our commitment to put cash to work through dividend and share repurchase programs. To summarize, we're well-positioned to meet or surpass our targets of 4% to 5% organic growth and at least 9.5% operating margin. This is consistent with the longer-term plan for the businesses that we shared at Investor Day. This level of performance, combined with targeted strategic M&A activity and return of capital to our owners, will allow us to deliver increased shareholder value. I thank you for your support and now open the floor for questions?

[Operator Instructions] Now our first request is from Alexia Quadrani of JPMorgan. Alexia S. Quadrani: Can you just dig in a bit further on the impressive revenue performance in the quarter, specifically in the U.S.? Where did you really see most of the acceleration in revenue growth in the quarter? And any, I guess, further comments you can give us on the performance of McCann? Michael I. Roth: Yes. One of the things about our agencies, if you couple the independent agencies with our global networks -- obviously, as you know, 60% of our overall revenue comes from North America, which, in this environment, we think, is positive. We saw strong growth in the retail sector in particular, which was very helpful to us given the performance and the spend in that investment. The financial service sector, particularly in the United States, led by clients like MasterCard and eBay, and of course, our digital offerings of R/GA and HUGE were significant in the U.S. growth. So you couple all of those together, I think continues to show that our footprint in the United States, coupled with our overall global footprint, is what's driving these strong results. Alexia S. Quadrani: And understanding you have a more difficult comp in the Q4 that you mentioned, but does it feel like this relative -- this sort of acceleration you're seeing continues into October? And then -- Michael, you know I had to ask that. And then on the severance number, does that include SC Johnson in the quarter? Michael I. Roth: Yes, the severance number does include SC Johnson. 1.1% is a little bit higher than the numbers -- we usually tell you to use around 1%. I think given the environment we're in and some of the performance in some of our European agencies, I think a little north of 1% is a good number to use for the severance numbers going forward. The fourth quarter, we continue to say, Alexia -- and I loved your headline in your note, I thank you -- is we got to look at this on a full year basis. And which is why we're saying we keep looking at 4% to 5%. Probably, we should be able to do better than that, and the 9.5% or better margin. Fourth quarter has strong headwinds, and obviously, if we continue to perform the way we are, we're hopeful to see a good performance in the fourth quarter. But it's just very difficult for us to go quarter-to-quarter. But the tone is very solid. And the key there, of course, is our project business, and we haven't seen any pullback in the project business. And if you recall, 2008, we really didn't see that pullback until the end of November and December, so. And you've heard me say this. This doesn't feel like 2008. Our clients have a fair amount of cash on their balance sheets. They have access to the capital markets, and we don't get a sense of any big pullback in the fourth quarter. So all of that leads to the conclusions we stated in terms of our goals for the full year.

Our next request from John Janedis of UBS.

Guys, if we look back over to the last 10 years or so, I don't think you've ever had a period where the second and the third quarter operating margins were equal to each other. And I know the driver, Frank, was the base and benefits line, but can you dig a little bit more in terms of specificity on that line item? And if there were no shifts of costs, do we expect 2Q and 3Q margins to be close to equal going forward?

John, I'm not sure I can comment on the go forward of Q2 and Q3, but I think it is worth calling out again as we did in our last call that the sequential buildup of costs in 2010 was dramatic, given the phasing of revenue growth coming out of the recession. So what you saw was, as growth came back in the equation in the second quarter of 2010, we couldn't hire quick enough and we had to somewhat catch-up in the back half of the year. For 2011, right now, the growth is at a more sustained pace. And as we said in the second quarter call, you should expect that H2 cost increases should not be as dramatic as they were in the prior year, and I think that was evident in the third quarter. Michael I. Roth: I think it's a legitimate question to ask that as we've seen this growth, do we have to hire a significant amount of people to support that? And consistent with what Frank just said, again, we manage to the full year. And so we don't see a big ramp up in our cost in the fourth quarter, which would give people concern. And I think that's the discipline that we've shown, we've been able to continually show in our performance.

And just quickly, can you remind us how much project business added to your organic growth in the fourth quarter last year?

I don't know the definition, John, what we could describe as a project. I mean, we saw in -- as Michael pointed out, we don't see this as 2008 all over again, but things you would have considered not project business in 2008 have dried up pretty quickly. So there's a fair amount of variability against all the fourth quarter revenue. And to Michael's point, right now, operators are still feeling pretty good about how business feels going into the last 3 months. Michael I. Roth: Yes, but, I mean -- don't think about project businesses as providing the majority of our revenue in the fourth quarter, okay? We still have a regular -- the rest of our businesses to perform.

Our next request from Ben Swinburne, Morgan Stanley.

Just a couple of questions. One clarification, Michael and Frank, is all the severance related to the SC Johnson account loss already accrued?

There's some amount that you're going to see, Ben, in the fourth quarter, but the majority of it was dealt with in the third quarter.

Okay, terrific. And then any comment on the buyback pace? Or maybe a better way to ask the question is, are there things in the third versus the fourth quarter that we should be keeping in mind around cash flow, and obviously, the Facebook proceeds this quarter, that we should -- that factor into how you guys think about the buyback that we should just keep in mind? Michael I. Roth: One of the questions that always comes up is, during this past quarter, we've seen a depressed stock price, which, if this was a pure opportunistic buyback, when we were below $8 a share or even below, we would've taken all our cash and bought in our shares. I understand that some people are of that view. We view the share buyback program as a program. And that is, over a period of time, we return cash to our shareholders in a very thoughtful way. That said, you can see we've accelerated our share buyback program and use of, a, by the Facebook shares, but the other authorization that we had prior to the Facebook transaction, and that was an indication that we did believe that our shares were oversold, and there was an opportunity for us to buy in shares at what we viewed as an attractive price. But we're not going to use our share buyback program as a vehicle to pick the right stock price for us to buy-in our shares. So I think with the tone of us accelerating at the rate we did puts us on track to complete the share buyback program before it was originally contemplated when we instituted the plan. But again, it's not going to cause us to accelerate in a dramatic pace if the share price declines.

Got you. I don't think you'll have that problem today. Michael I. Roth: I don't think so -- I hope not. Thank you.

And then just lastly, I mean, last quarter, we were all freaking out about revenue being pushed out into the rest of the year. I didn't know -- I think you guys had called out Latin America, maybe specifically Brazil. Was that part of the acceleration in that region this quarter? Michael I. Roth: Well, I think what we said was some of it was timing. And I think what you've seen is the recovery in Brazil is exactly that. We saw the timing give rise in the third quarter. Again, it goes to the issue of we can't particularly call out exactly what quarter a lot of this revenue is going to fall in. But aside from the timing of that particular event, we've seen a very strong business environment in Brazil, and it's reflected in the double-digit growth that you're seeing.

Our next request now is from David Bank of RBC Capital Markets.

Two questions. The first is, we have seen a lot of headlines, some high-profile headlines in the first half of the year on some of the kind of losses that occurred. But those in theory did open up some opportunities as you are conflicted pretty heavily by some of them. Can you update us on how you see new business coming together? Is there a timeframe? Is there any color you can give us on how you're sort of filling the hole in a sense, looking into 2012? And the second question is, a little bit of a follow-up on the last one, which is, if you look at what drove the outperformance, can you talk about how much of it was about stuff that was within your control like increased scope of business, more business earned as opposed to the actual client spend, stuff that you don't so much control but certainly benefited from? Michael I. Roth: Yes, let me talk about headwinds. It seems to be -- unfortunately, I've always articulated that -- first of all, our strongest growth comes from our existing clients, okay? And I think the positive results that you're seeing is consistent with that, okay? Because it's hard to cycle through the client losses that we are cycling through both in 2011 and the cycling that we have headwinds in going to 2012. And our biggest mantra here is keep our existing clients happy and to continue to grow within those clients. And fortunately, that's what we've been able to do. So a good portion of our growth is coming from our existing client base. And coming into 2011, we had some difficult headwinds that we were able to overcome. And, yes, we have some client losses that we have to cycle through in 2012. That's a headwind. But on business units, in particular, the ones who were -- like Draftfcb, which has to cycle through that client loss, they're very focused on replacing that business. It's not going to happen overnight, but they have a game plan. They've been working on it. You're right, absolutely, that it opened up a category for them, which previously they couldn't approach because of the exclusivity. But more importantly, that category has opened up for all of our global brands. And that category has some of the great multinational companies on a global footprint. And we're already working those clients to see how we pick up revenue from those -- that sector, if you will. So I think it will take some time, but I'm confident that we'll be able to overtake those headwinds, particularly at Draftfcb and the rest of our global clients and networks. On the question of timing and things like that, in the good old days, you can address timing and smoothing on revenue and expenses from an accounting point of view, and shame on us for missing by $26 million. I'll have to reiterate, it was only $26 million in the second quarter. But it goes to show you that we really don't have that type of control, and we don't control the scope of work. And the fact is, we have a scope of work that we work against. And the timing of that -- we don't all of a sudden run out and have all of our people complete everything at the end of the third quarter so that we can meet targets. So what you're really asking is that we move a lot of our business from the fourth quarter into the third quarter...

No, Mike. I'm really -- that really wasn't the question. The question was more about, is it kind of about client spend that's somewhat unpredictable and maybe came in stronger? Or is it that -- are you increasing your scope of business with clients? Are there -- Are you sort of winning more wallet share out of your clients? Michael I. Roth: Yes, absolutely. And that's my point about -- if you took our top 20 clients, we see good organic growth from them. And the answer to that, that has historically been a key portion of our organic growth. And, yes, the wallet share and the scope -- area scope. Project business, by definition, is one-offs, and it goes on top of our normal revenue stream. And that's why when we say project business is strong, that's good for us. And the way we get more money from our existing client is exactly the key to our success. And that is we bring more of our expertise, we bring more of the integrated offering to the table, and hopefully, we bring in some of our other disciplines throughout IPG and to our existing clients. That's how our model is supposed to work.

Our next request from Bill Bird of Lazard. William G. Bird: I was wondering if you could just talk about your relative appetite for larger acquisitions like $1 billion-plus acquisitions? Michael I. Roth: We constantly look at a lot of these transactions that are out there, particularly in the digital space. We see the prices that are being asked. And it's a time for us to reiterate our strategy on digital. We don't believe we have to go out and buy huge digital offerings. We have premier -- R/GA is growing dramatically on a global basis. What we did with HUGE is a great example of our strategy, and that is, we bought a create company, headquartered in Brooklyn and coupled it with a low footprint and the rest of IPG and their own expertise. They're growing on a global basis. We're very competitive on the digital basis, and we pick up strategic digital transactions as you saw we did in the third quarter. So we don't see any need for us to spend huge amount of money to add to our digital portfolio. If we were losing in the digital environment, whether it be our specialist digital agencies or our global networks like McCann, Draftfcb or Lowe, and if we were losing obviously, with the Worldgroup having MRM -- and I already referenced them in terms of them being one of the largest global digital agencies, there's no need for us to go out and spend that kind of money to bring in the expertise because we already have the expertise within the umbrella. On the media side, which is a subtle way of your question, sure, there are markets where we would like to have a bigger scale. But there's no need for us to go out and spend $1 billion for us to capture those markets. So we're going to grow those markets organically. We're going to add to our talent pool. If we see strategic acquisitions on those markets that will fit in within our global objective -- we've been spending about $150 million a year on acquisitions, and there's no reason for us to ramp that up to $1 billion. It's only if we were missing an expertise would we spend that kind of money right now. William G. Bird: And on the buyback program, is it your intention to have buybacks mirror cash flow as you figure out how to deploy it for a year? Michael I. Roth: Well, clearly, cash flow was a factor that goes into buybacks. Remember, we had built up an excess cash position on our balance sheet as we were going -- as we -- going through our turnaround period. And given the confidence level that management and the board has in our business offerings and the future of IPG, that certainly added to the fact that we implemented a dividend as well as the share buyback program. But you have to keep sight of your cash flow before you go out and continue, particularly with share buyback. The dividend, we believe, you don't institute a dividend if you're not highly confident that it will continue out into the out-years. So we will be very conscious of our cash flows, which continue to support the buyback program and the dividend that you see. William G. Bird: And I may have missed it in your last response, and I apologize, but on new business, just wondering how new business opportunities look right now. Michael I. Roth: Actually, there are announced global pitches that are out there. McCann Worldgroup is in the finals of the Exxon pitch. General Motors has some big media, as well as a pitch going on right now, which we're participating in. As Exxon goes, we don't see any big global pitches. But on the other side, we are winning business. I always comment about this, whenever we lose business, it's always out in the papers. When we win business from multinational clients, they like to keep it quiet. So it just so happens, when we win business, we can't announce it. When we lose business, it's all over the papers. So we've had some good client wins already, which are adding to our growth numbers, and we're very pleased with it. I'd rather win the business and not announce it than not have it.

Our next question now is from Peter Stabler, Wells Fargo.

Revisiting some of the Investor Day commentary, I think, Frank, that you gave, and thinking about 2012, I understand visibility is poor, it's cloudy you're in the middle of discussions with clients about projected scope of work, et cetera. But in your longer-term ramp towards competitive level of margins kind of laid out a 30% incremental margin target or metric, if you will, and just thinking about 2012, organic growth, I would say the street's probably looking at anywhere from 1% to 4%, somewhere in there. What do you need on organic growth to get to that kind of incremental margin? And in kind of a bear-case scenario, if the clouds darken and build a little bit more here and we're looking at a poor year for 2012, can you still build margin? Can you still step forward?

On Investor Day discussion, Peter, we used a growth rate of 4% to 5%. We saw the 30% conversion rate on that was reasonable, and we still think that based upon where we are today. If we see growth pull back a bit some more, can we still have margin improvement? I think we can, yes. We've got a number of initiatives around the company with respect to investment against tools and technology and back-office consolidation and shared service. So there's a whole bunch of other things going on to drive operating efficiency. And I think we're already seeing some of the benefits of that in our cost controls this year. Michael I. Roth: If we enter a period as we did, and I don't believe we are of 2009, it's obviously difficult to expand margin in that environment. But on a flat to slightly positive organic growth for '12, we should be able to expand margin. It just won't be expanding at the rate that we've expanded it, obviously, in 2011. But I think flat to positive, we should be able to expand margin.

Great. And a quick revisit to a prior question on the new business versus organic growth from existing clients. I guess just to rephrase, did you see anything in this quarter, which kind of disproportionately changed the contribution of those 2 buckets? Or was it kind of a normal, we have new business money come in and we have growth from existing clients? Michael I. Roth: Yes, I think it's a combination of that. And frankly, the strength of our digital offerings is very powerful. And if you take our MRM, you take HUGE and you take R/GA, those 3 offerings are growing at very attractive rates. And the fact that they're global, I think, is adding to those results and, frankly, which is why -- it adds to our comfort level on growth going into the out-years.

Our next request now from Tim Nollen, Macquarie.

My questions have been basically answered. Just 2 quick touchups, please. My understanding coming into Q3 was you were still cycling against some cost build up from last year. I just want to clarify that, that is more or less out of the system now on a relative basis when you started rebuilding cost last year. And then secondly, again on new business, obviously, there was at least one very high-profile loss. I don't know if you'd care to give a figure or a trend on that new business in the quarter. But maybe another way to ask it would be is would net new account wins in Q3 contribute to ongoing growth or perhaps withdraw from that? Michael I. Roth: Well, I'll let Frank answer the question on the cost. But we're still net new business negative, and we still have headwinds going into 2012. But there were, obviously, wins to offset the headwinds we had on those clients coming into the third quarter, and some of it were client-specific. So if we had a headwind, for example, on Microsoft, which we did, the fact that Deutsch won business from Microsoft in terms of their Windows and their B2B business, that obviously offsets some of the headwinds. So that's the kind of stuff that we're talking about. The one client at Draftfcb, that is discrete, and that's a headwind going into 2011, and we're starting to build up revenue against that loss.

Tim, on the cost side, what we said was we don't expect to see the second half costs accelerate compared to the first half, some of the pace -- the same pace we saw 2010. But let's remember that you have sequential revenue growth Q3 to Q4 that will require some incremental cost, but we don't expect that cost to be at the same pace that we saw growth in the prior year. Michael I. Roth: Yes, let me clarify one other point. For example, on General Motors, MRM continues to win digital business and scope on its projects with General Motors. So on an IPG basis, we had a headwind from the loss of Chevy at Campbell-Ewald and yet, MRM is growing General Motors, so that accounts for a part of the -- obviously a good part of the makeup on that particular client.

Okay. So after the losses that we all know about, the trend in replacing that is positive? Correct? Michael I. Roth: Yes, it's flat to positive, but obviously, our goal is to turn positive.

Our next request now is from James Dix of Wedbush.

Two things, one on growth, which you guys have discussed a little bit before for 2012. You've talked as of third quarter that you're showing that your competitive levels in terms of your offering and ability of win in the market, that seems a little bit modest, given today's results, but obviously, you also have some headwinds, which you've also talked about, some client losses. So looking forward, is it best for us in terms of modeling to think about whatever our industry growth assumption is and make some haircut to it for you, just given known headwinds? Or do you think maybe you're still positioned to grow in line with the industry, whatever that's going to be next year? And then second, just in terms of margins, now that it looks like 2011 seems to be more in hand in terms of hitting your targets, just thinking about the longer term progression towards that 13% that you laid out in your Investor Day, could you just refresh or update in any way where you expect the bulk of that leverage to come from? Roughly what proportions from leverage against salaries and then versus other things? Michael I. Roth: Yes, I'll handle the headwinds issue. I'll let Frank talk about the margins. Well, I think you already said, we expect to convert the revenue with a 30% conversion, and that's how we get to the 2013 target using the growth assumptions of 4% to 5%. If I was modeling on a very conservative basis, I think your approach to industry norm minus headwinds would be a very conservative way to look at our numbers. That said, I do believe that we're very focused. We've opened up category here as a result of one of the big losses. We have had wins -- new business wins and we've had successes in growing organically. So obviously, we wouldn't view that as a good performance, okay? And certainly, when we outlined our budgets and our goals for the year, I wouldn't view that as a -- we wouldn't walk away being satisfied with that performance.

And James, on the margin progression, I think given where we are through 9 months, we still believe that the bridge we built you for Investor Day is still very accurate. There are some growth components to it, and I think most of the leverages have come out of base salaries.

Okay. So basically, that slide in your presentation pretty much still holds? Michael I. Roth: Still good.

Our next request now from Craig Huber of Access 342. Craig A. Huber: Most of my questions have been answered, but I was wondering if you could give us a little better breakdown by industry group how you guys did here. I'm particularly curious in the quarter how auto did, and what were some of your weaker categories? Michael I. Roth: Well, auto is where we were clearly cycling through the loss of Campbell-Ewald. It was still positive, but it wasn't at the double-digit growth that we saw in the second quarter. That said, we do have some wins, particularly as I outlined at MRM, and the spend at some of our existing other auto clients. It was in the low-single digits in terms of auto. Retail was particularly strong for us, as I said before, that being up double -- well into the double digits. Financial services, the same thing. Health and personal care was high-single digits for us, as was food and beverage.

What categories were weak in the quarter? Michael I. Roth: Packaged goods was a little bit soft, and that reflected as transitioning through a particular client, as you know. And tech and telecom, which is a big sector for us, was in the low-single digits. And there, we had a couple of small clients that we're still cycling through. But our big tech and telecom clients provided some growth to us.

What is your general sense of for 2012, the categories that you perhaps are most concerned about as you look out for the 12-month period? Is it the same categories that were weak in the third quarter? Are they... Michael I. Roth: I think packaged goods is always the one that you get concerned about. I think historically, on a full year basis, we see slow growth, but it's consistent. So I think that's a reasonable assumption for packaged goods going forward. Everyone is always concerned about the auto sector given the cyclicality of that. And if we're entering into a double dip, is there going be a pullback there? We haven't seen any indications of that. And I think our offerings in the auto sector continue to be very strong. Remember, in addition to General Motors, we do Volkswagen, Hyundai and Chrysler. So those are -- we have -- and Subaru, if you will. So we have offsets to one particular company, and I think that bodes well for us. And I think, again, in a difficult environment, financial services and retail always are a question, but so far, we've been very pleased with the spend in those markets. Craig A. Huber: And is your thoughts on auto in the fourth quarter, do you expect it to do better than you saw in the third quarter? Michael I. Roth: Well, we continue to see solid spend there. I can't comment yet with fourth quarter still ongoing. Okay. Well, I thank you all for your support, and obviously, we're quite pleased with this quarter, and we look forward to you -- with you sharing our year-end results. Thank you again.

Thank you, everyone, for your participation. The conference has concluded. All lines may please disconnect.