Omnicom Group Inc. (OMC) Q4 2010 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Omnicom Fourth Quarter 2010 Earnings Release Conference Call. [Operator Instructions] At this time, I would like to now introduce you to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Thank you all for taking the time to listen to our earnings call. We hope everyone's had a chance to review our earnings release. We’ve posted to our website both the press release and a presentation covering the information that we'll present this morning and a little more. This call is also being simulcast and will be archived on our website. Before we start, I've been asked to remind everyone to read the forward-looking statements and the other information that's included on Page 1 of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements and that these statements are our present expectations and actual events or results may differ materially. I've also been asked to remind you that during the course of this earnings call, we will discuss some non-GAAP measures in talking about Omnicom's performance. You can find a reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials posted to our website. We're going to begin the call with some brief remarks from John Wren. Following John's remarks, we'll review our financial performance for the quarter, and then both John and I will be happy to take questions.

Good morning, and thank you for joining our call. Before I talk about the quarter and some of our views about moving forward, I'd like to spend a few minutes to comment about 2010. When I spoke to you a year ago at this time, we believed we were at the beginning of the end of the recession. Over the course of 2010, we've seen a steady increase in the number of clients around the world who are again investing in their own growth. At the same time, we also understood that the rapid pace of economic and technological change affecting our industry would require us to make continuous adjustment to our businesses, to improve our operations and our core structures, to push ourselves to innovate business models and product offerings, to continue to invest in our high-performing businesses and rapidly growing markets, to reorganize or close businesses that were not well positioned to recover from the recession or that no longer met our strategic plans; and more recently, to make several important acquisitions in key growth markets and disciplines. Despite these challenges, we asked our agencies to get closer to their clients, deepen relationships, even in the absence of significant budgets, and to make the tough decisions quickly so that they could turn their attention to growth. We're happy to say that we believe our 2010 results demonstrate that we're making significant progress towards these goals. For this, I'd like to thank all of Omnicom's employees for their hard work and professionalism and our clients for their continued trust. Now let me turn to our fourth quarter results. Overall, our fourth quarter results showed significant improvements over Q4 2009 and improved trends relative to previous quarters. In particular, I want to highlight a few of these things today. First, organic growth in the fourth quarter was up 10%, this despite the loss of Chrysler in the first quarter of 2010, which lowered our organic growth by 1.5% for the quarter. The fourth quarter was the strongest of the year. Second, during the quarter, we've identified underperforming businesses and we started to dispose and/or reorganize some of these businesses. As Randy will discuss, we plan to take additional steps in the first half of 2011. We believe these actions will allow us to make steady progress towards our objective of improving our margins to 2007 levels by 2012. These changes will also allow us to focus greater management attention and resources on businesses well positioned for growth. During the quarter, we completed and announced a number of acquisitions designed to help us build our footprint geographically and to add important skill sets where appropriate. The largest of these transactions was our acquisition of the controlling stake in Clemenger, which closed earlier this month. Clemenger is the largest in premier communications group in Australia and New Zealand. This acquisition will give us additional flexibility to truly leverage the skills, reputation and people of Clemenger to grow our combined businesses throughout the Asia Pacific region. Fourth, following the announcement of our partnership with Google in the third quarter, we have completed additional partnerships with Microsoft and Yahoo!, which will be announced this week. We expect to complete several other strategic partnerships in the coming weeks. These partnerships are consistent with our philosophy of building internal competencies in digital marketing and media while partnering with the most innovative technology companies. We've also continued to invest in our people by expanding our digital education efforts to ensure continued training and development of every Omnicom employee. Our goal is to ensure that our employees are continuously improving their skills to keep pace with the technological changes affecting our business and to share the learnings of our agencies around the world. I'd like to make a comment on our awards and our product this year, too. During 2010, Omnicom agencies again demonstrated their leadership across a wide range of creative categories and geographic markets. I want to highlight just three. Cannes. Omnicom agencies once again topped the rankings at the International Advertising Festival in Cannes, including Agency of the Year and the number one and two rankings for the most awarded agency networks. Gunn Report. Omnicom agencies led the Gunn Report in 2010, finishing with three of the top five honors in both the most awarded network in the world and the most awarded digital agency in the world competition. And at Agency of the Year awards in Singapore, Omnicom agencies picked up the top honors in the Asia Pacific region, including the three network of the year titles for Creative Agency of the Year, DDB; Digital Agency Network of the Year, Tribal DDB; and Media Agency Network of the Year, PHD. I'm very proud of these awards and the efforts that we've made in Asia over the last several years. And I might add that these awards are only representative of an outstanding job of all our agencies and what they continue to perform and do for our clients. Turning back to our revenue growth, which Randy will cover in detail, I have a few additional comments. In the U.S., fourth quarter organic growth was 12.7%, which exceeded our internal forecast. Looking forward, our outlook remains positive but cautious. The midterm elections have signaled the renewed focus on fiscal restraint and a reduction in the level of anti-business rhetoric from Washington. On the other hand, unemployment and housing still represents a drag on potential growth. At this point, we expect growth in 2011 to return to normal levels. We should be able to outpace GDP growth by 100 to 200 basis points, with the caveat, and I might add, that we still have one more quarter of year-over-year comps on the Chrysler business. Outside of the United States, we're also seeing a generally improving picture. In 2010, we experienced significant double-digits top line organic growth in Asia. In South America, we continue to see strong positive results, and we're also pleased to see the continuation of a turnaround across Europe. Turning to disciplines. Our business growth is also broad-based across every discipline; advertising, public relations, CRM and specialty; and across a spectrum of industries we serve, we saw improved growth against trend. In new business, our organic growth continues to be driven by determined focus on client service and delivering value to our clients. For the quarter, we generated in excess of $2.1 billion in new business. We continue to see a robust pipeline as our clients and prospective clients reignite efforts to invest money as we move into 2011. On margins, our results are slightly better than the fourth quarter of 2009 and in line with what we expected. As I mentioned in the previous quarter, our goal is to restore margins by 2012 to our 2007 levels, and we expect to achieve progress towards this goal during 2011 as we execute our strategic initiatives. Let me finally turn to our balance sheet and free cash flow for a moment. As you know, we believe a strong balance sheet gives us tremendous flexibility to deploy capital in the most effective ways. We also continue to demonstrate the cash flow strength of our businesses, with over $1 billion in free cash flow generated in 2010. Given our balance sheet's strength and free cash flow, we regularly review our capital deployment policies with the Board of Directors, and we'll continue to drive return on equity by using our free cash flow to pay dividends, make acquisitions and repurchase our shares. Dividends. Many of you have probably seen the Board of Directors authorized a 25% increase in our quarterly dividend last evening. Share buybacks in October, the board authorized us to resume share repurchases. As Randy will explain, we began to purchase shares in the back end of the fourth quarter, and we plan to continue share buybacks in 2011. Taken together through share buybacks and dividends, we returned over $1.3 billion to shareholders in 2010. Lastly, in addition to the acquisition of Clemenger, we completed several smaller but important acquisitions during the fourth quarter, as described in our presentation. And since year end, we have closed several other acquisitions in important developing markets and social media. Overall, we're pleased with the performance of our business in 2010. As we look into 2011 and beyond, we feel confident in how we are positioned. While we recognize the continued risk to the economy, we're excited about the growth prospects we see around the globe, and we believe we have the right platform in place to harness that growth. Our strategy remains in place. We will continue to build our digital skill sets, both inside existing agencies and with new partnerships and acquisitions. We'll also continue to look for strongly managed organizations that will help us expand our presence in rapidly growing markets. And as always, we are working to retain, recruit and train our talented management teams and professionals around the world. I'll now turn the call back to Randy, who'll take you through the numbers in more detail. And then we'll both be available for questions.

Thank you, John. I'm pleased to say that the fourth quarter was a great finish to a solid recovery year. Again, this quarter, the world could be described as having three speeds. But this quarter, they were all moving forward. In the quarter, we experienced year-over-year growth in each of our marketing disciplines and in every industry group to which we provide services. On a sequential or quarter-to-quarter basis, we also experienced improvement in every geographical market we operate in. Even the markets with negative growth were less negative. Financially, we continue to focus on cash flow generation and return on capital. In 2010, we again demonstrated strong performance on these metrics, which I'll cover in more detail later. The overall revenue result for the quarter exceeded our expectations with total year-over-year growth of just under 10%, bringing revenue for the quarter to $3.6 billion. EBITDA increased almost 11% to $460 million, resulting in an EBITDA margin of 12.8%. That was up about 10 basis points from last year. EBITDA for the full year was $1.53 billion, and our margin was in line with our expectations coming into the year at 12.2%, which was flat with last year. And our operating income, or EBIT, increased 10% to $439.6 million, also resulting in a margin improvement of about 10 basis points. Net interest expense for the quarter was $32.1 million, up $3.5 million from Q4 last year and up about $2.3 million from Q3 2010. The increase versus the third quarter was primarily reflective of this being the first full quarter of interest on the $1 billion of 10-year senior notes we issued midway through the third quarter and increased stock repurchases in Q4, partially offset by the positive effect of the interest rate swap we entered into in Q3 on our 2016 senior notes as well as lower borrowing under our revolving credit facilities and improvements in our working capital management efforts. On the tax front, our reported tax rate for the quarter was 34.2%, bringing the full year rate up to 34.1%, which was up slightly from last year. We do expect there to be some upward pressure on tax rates with law changes in several states and various international markets. As a result, we currently expect to see our reported tax rate increase 20 to 30 basis points in 2011. Net income for the quarter increased 7.4% to $246.5 million, and our diluted earnings per share increased 13.7% to $0.83 a share. The diluted share count for the quarter was 295.7 million shares. Looking into our revenue performance in more detail. With regards to FX, on a year-over-year basis, the dollar experienced mixed results versus our major currencies. Strengthening against the euro and the pound and weakening versus the yen, the real and the Canadian and Australian dollars, the net result was a negative FX impact for the quarter of $41.9 million, or about 1.3%. Looking ahead, the breaks stay where they are. We expect FX to be positive about 0.5% in Q1 and a little more than 1% for the full year. Revenue growth from acquisitions, net of dispositions, increased revenue by $37.5 million in the quarter, or about 1.1%. This was due primarily to the acquisition of a controlling interest in ImpactBBDO in the Middle East at the end of 2009. We did complete eight small acquisitions during the fourth quarter. And in January, we closed the acquisition of Communispace. Also, in early February, we completed the acquisition of additional 27% interest in our long-time affiliate in Australia and New Zealand, the Clemenger Group, bringing our ownership up to about 75%. As a result of this acquisition, under U.S. GAAP guidelines, we expect to record a remeasurement gain on our historic investment in Q1 of approximately $120 million. Also in Q4, we completed the sale of two small agencies in an ongoing strategic review of our businesses. We also expect to complete several additional divestitures and dispositions in 2011 beginning in the first quarter. The agencies that are currently under consideration for disposal have revenue of about $300 million, which is approximately equal to the revenue of our businesses that we've recently acquired. In addition to these strategic reviews, we've initiated a number of actions to gain further operating efficiencies, including the consolidation of agency operations in several smaller markets, the establishment of several shared service centers to increase the centralization of IT and other operating function and a number of real estate consolidation. As a result of these actions, we expect to record severance, real estate and other charges in Q1 of between $90 million and $110 million. With regard to organic growth, we had a very strong quarter. As we previously mentioned, we saw growth across every industry sector that we serve and improvements quarter-to-quarter in every geographic market. Driven by the combination of new business wins, the improving economic environment and an increase in year-end project revenue, organic revenue in the quarter grew by 10%, or $325 million. As we've noted over the last few quarters, the above gross figures include the effect of the loss of the Chrysler account in the first quarter of 2010. That loss had a negative impact on our global organic growth in the quarter of about 1.5% and our U.S. organic growth of approximately 3%. Turning to our mix of business. Brand advertising accounted for 47% of our revenue, and Marketing Services, 53%. As with their respective growth rates, brand advertising had organic growth of 10.9% and Marketing Services was up 9.2%. Within the Marketing Services category, CRM had 8.3% organic growth. Within the sector of our Field Marketing, Branding and Events businesses, all had outstanding performances, each with double-digit growth. Public Relations had organic growth of just over 7%, and Specialty Communications was up 15%, with almost every agency in the sector having solid growth. Our geographic mix of business in the quarter was 51% U.S. and 49% international. In the United States, revenue increased $206 million, or 12.6%. Acquisitions, net of dispositions, reduced revenue by about $1.2 million, or about 0.1%. And organic growth was exceptionally strong at 12.7%, or about $207 million. This was obviously a great quarter that benefited from strong new business wins, new initiatives in the digital area and some pent-up spending. International revenue increased $114.9 million, or about 7%. FX decreased revenue $41.9 million, or about 2.6%. Acquisitions, net of disposition, increased revenue by $38.7 million, and organic growth was 7.2%, or $118 million. Internationally, we had for strong performances in China, India, Singapore and Russia. In developed Asia, South Korea had another positive quarter, while Japan was negative. And with the exception of the Netherlands, Greece, Ireland and Spain, most markets across Western Europe performed well, while results in Eastern Europe continued to be mixed but generally improving. Looking at our revenue by industry, food and beverage continues to be our largest sector, representing 16% of our revenue in both 2010 and 2009. Our fastest-growing sectors for the quarter and for the year was technology, followed by financial services and then consumer products and pharma and healthcare. Although the percentage of revenue from the auto sector decreased 10% in 2010, excluding the effects of the loss of Chrysler, we experienced double-digit organic growth in the auto sector for the year. And reflective of the breadth of the recovery, all of our industry sectors experienced positive organic growth, both in the quarter and the full year. Turning to cash flow. For the year, our performance continued to be very strong. We generated approximately $1 billion of free cash flow after CapEx and excluding changes in working capital, which was also positive another $310 million. Our primary uses of cash during the year were dividends to our common shareholders, which totaled $229.7 million. Dividends paid to our non-controlling interest shareholders was $81 million. Acquisitions, including earnout payments and the purchase of additional interest in controlled subsidiaries, net of the proceeds of the sale of investments was approximately $172 million. And share repurchases net of the proceeds received from stock issuances under our share plans and the related tax benefits totaled approximately $1.13 billion. In total, between common dividends and net share repurchases, we returned approximately $1.4 billion to shareholders in 2010, bringing net use of cash excluding working capital of $587 million. The next chart, showing our current credit picture, including changes in working capital, shows that our net debt at year end was $900 million. That was a year-over-year increase of $237 million, which was largely driven by an increased share of repurchase activity during the year, offset by further improvements in working capital management. Our current liquidity continues to be very strong. We finished the quarter with cash and undrawn committed credit facilities totaling $4.3 billion, and we had additional uncommitted facilities available totaling $610 million. As you know, in December, we extended our credit facility for three years and reduced the capacity from $2.5 billion to $2 billion. Previously used the credit facility for both liquidity purposes and to backstop our convertible notes, which at their peaks were over $2 billion. Since we've reduced the balance of convertible notes to only $660 million, we didn't need the additional credit capacity. And finally, to sum up our financial performance for the year, we've included a schedule of our return on equity and return on invested capital. Overall, we think ROIC and ROE as performance measures collectively show the balance of all of our various metrics that we used to gauge our performance: revenue growth, operating margins, capital deployment, capital structure and tax structure. They also highlight the effectiveness of our long-term investment and operating strategies for shareholders. For the year, return on invested capital was 16.8%, close to our historic 10-year average of 17.1%. And our return on equity for the year increased to 21.3%, reapproaching our 10-year average of $0.225. Overall, we believe our agencies have done an excellent job of navigating through the economic turbulence that we've experienced over the past two years, at the same time maintaining their focus on the quality of their services, adapting to changes in technology, expanding their presence in the emerging markets and controlling their cost. And with that, I'm now going to ask our Operator to open the call for questions.

[Operator Instructions] And we have our first question from the line of Alexia Quadrani with JPMorgan. Alexia Quadrani - JP Morgan Chase & Co: I was hoping you could give us a little bit more color on the improvements that we saw in the European markets in the quarter. And more specifically, I guess did one country really stand out? And did you see sort of improved momentum in that region as the quarter progressed or into the first quarter of this year?

Yes, the larger markets other than Spain performed pretty well. And we basically started getting less negative results across all of the regions that had sort of been negative throughout the year. So over the course of the year, the regions improved organically each quarter. This quarter, I think the standouts was probably just less negative in the negative regions. The U.K., Germany, France have been fairly steady throughout the year, pretty strong in a decent single-digit organic growth. Alexia Quadrani - JP Morgan Chase & Co: And that improvement continued into early this year?

I don't really have any numbers for early this year. Alexia Quadrani - JP Morgan Chase & Co: But no sense that, that -- I mean, you've seen how the quarter has progressed, and there's no sense of any sort of choppiness or disruption? I mean it's sort of been a very steady improvement is what you're seeing?

Yes, I think that's right.

Yes. Alexia Quadrani - JP Morgan Chase & Co: And then on the Auto sector, am I right to assume that you circle the Chrysler loss sometime in February, and then, still staying on that sector, the Chevy business. Is it coming on board?

The Chevy business is coming on board. The Chrysler business, it ended sometime in March. There's a little -- I think the official contract date, you're correct, was the end of February, but there's always work to clean up. I think for the quarter, the headwind is about $50 million. Alexia Quadrani - JP Morgan Chase & Co: And then just last question, your acquisition activity picked up. You talked about it on the call with some other pieces in the first quarter. Do you find the pipeline a bit more robust? Or are you just prioritizing use of cash differently? I guess, should we expect this to continue?

Yes. We certainly have some companies and areas targeted, and we're having conversations with them. They're principally in two areas. They're in developing markets, the Colombias, the Turkeys of the world, in addition to a few additional specialty acquisitions in areas in China. So there's a few things that we've been in discussion -- companies we've been in discussion with for a long time that we're progressing those conversations as we speak.

We do have our next question from the line of Meggan Friedman with William Blair & Company. Meggan Friedman - William Blair & Company L.L.C.: Wanted to ask a question about margin expansion. Can you talk about some of the underlying assumptions for your 2012 margin target? For example, for revenue growth? And how important is selling assets or making dispositions in order to achieve that target?

In terms of our reorganization and disposition of some assets, that has more to do with our evaluation of those companies within our portfolio that we've determined aren't core and won't contribute to our growth 24, 36 months from now and beyond. So we've gone through the portfolio, and we're coming up with a strategy to reorganize and/or to dispose of those. None of them will be material from what we've planned at this point. In terms of the overall margins, we restored our incentive compensation levels, really in 2010, to what they've historically should be after coming through some two difficult years. And we'll make steady progress during the year in terms of margin improvement, getting, hopefully, to the levels we set by 2012. I wouldn't expect us to magically achieve that, because we are going through this evaluation process and getting leaner in the first half of this year. You want to add something, Randy?

There's a number of initiatives other than the strategic review of the portfolio companies that we're going through as well, some real estate consolidations, some back-office consolidations. I think all of those efficiencies will help us get there as well. Yes, I think that's probably about it. We're pretty confident that we're going to be able to get there by 2012. Meggan Friedman - William Blair & Company L.L.C.: And then a follow-up on the question on acquisitions. Can you share any financial parameters that you would require from a prospective target?

I'm not quite sure what you mean by financial parameters. I mean, we're looking for businesses that have solid management teams, businesses and management teams that we want to partner with on a long-term basis; companies that are dedicated to providing the quality and types of services that all of our companies are committed to; companies that want to work as part of the Omnicom family of companies in a coordinated fashion around our clients. And then strategically, we're looking, as John pointed out, to advance our footprint in some of the higher-growth emerging markets and to advance our technical capabilities around some of the new, I'll say, some of the new marketing technologies. Meggan Friedman - William Blair & Company L.L.C.: In terms of financial parameters, asking in terms of size of business, also to test the immediately accretive.

I think all of our acquisitions are accretive. Size parameters, we want companies that have the potential of being substantial businesses in their markets. Obviously, if you're looking at some of the smaller markets or emerging markets around the world, the size parameters today may be certainly smaller than the company is going to need to be to be an important player in, say, the United States.

I mean, I don't foresee acquisitions at the moment with revenues in excess of $100 million. If you wanted to book parameters, then it's probably a lot less than that given the markets that we're talking about.

And if you're looking at a company, say, in Vietnam, if it's a $5 million agency, it would be a very substantial agency. If you're looking at the United States, a $5 million agency is not necessarily a substantial agency.

We have our next question from the line of Dan Salmon with BMO Capital Markets.

Two questions. First, just a detailed one on CapEx, which is up a little bit in the quarter and trying to see if there were onetime elements there or if you expect to have a slightly elevated level from where you were in 2010. And then the second question, commodity prices are obviously moving up fairly consistently lately, and some of your larger clients are fairly sensitive there. At the same time in those businesses, there seems to be some pretty competitive share battles. And so just as a maybe a broad comment on what you're hearing from your clients as they look out and sort of read that tea leaves for 2011 with regards to that dynamic.

Certainly, commodity prices are affecting our clients. And we expect that that's a struggle that they'll face as we go through 2011. And we're empathetic to that. And you're correct. In many of the areas that are experiencing that, they're also facing fierce competition per share. So that's where we really come in.

As far as CapEx goes, the primary driver of CapEx for us is really office relocations and expansions. I certainly think in 2009, the numbers were low, with more consolidations and expansions and very few relocations. I think that was probably below a norm, so I think it'll increase from those levels. It did a little bit in 2010. It likely will increase a little bit in 2011. We're also constantly adjusting our mix of capital leases or operating leases and CapEx. That's really a matter of the financing markets. We're trying to get the best utilization of capital, and that mix moves back and forth a little bit year-to-year.

We do have our next question from the line of William Bird with Lazard.

John, I think you mentioned in your comments that you expected revenue growth to return to kind of a normalized plus-100 to -200 bps versus GDP. I just want to understand, is this based on what you're seeing in client plans, or is this more a function of history of the company where you think things will ultimately normalize?

I think it's the latter as opposed to any specific client bottom-up build. 2010 was a great year. We don't have a full analysis yet as to the strength in the fourth quarter as to whether some of it was due to comps or some of it was due to budget, clients with budgets and wanting to spend the money to maybe increase their market share or increase performance. So at this point, we think it's -- until we see evidence to the contrary, we really fully expect to go back to what we could expect normally from a historic point of view, which is really to outperform GDP by 100, 200 basis points.

And I think you also mentioned the buybacks took place later in the quarter. I was wondering what the diluted shares were at year end.

I think about 290, 291 million shares.

And just finally, I was wondering what you expect amortization to be in 2011.

Based upon the acquisitions done, I'll say to date, which includes Clemenger, I think it will be up about $20 million.

We have our next question from the line of Craig Huber with Access 342.

My first question, I think you said you had $2.1 billion in net new billings wins in the quarter. If that's true, can you elaborate, just some specifics behind that, please?

One of our major wins in the quarter was GSK.

GSK. Let's see. We had a major win in J&J with the baby products, Bristol-Myers Squibb, GSK, as Randy said; The Gap, BMW, Pfizer. Pardon?

Additional Chevy.

Yes, additional Chevy business, just to mention a few. But those were the bigger ones.

And that is generally about double the $1 billion general goal is each quarter. Was that a function of how your ad agencies perform in the quarter? Or is it also a function of just more step-up for review out there as there are more things you could potentially win?

Well, I think it's both. There were quite a number of accounts in review. We were successful in winning our good fair share of it. And the amount of business that's available to win is driven principally by the clients. They have to put their business into review for it to occur. So we're a victim of the marketplace. We continue to see new business activity at normal historic levels as we go into the first quarter. There's a couple of important accounts floating out there, and we expect more will be put into review as we go through the year.

With every quarter, keep in mind, there's a large number of sort of the three yards and a cloud of dust sort of wins. That gets us in that, hopefully in that $700 million, $800 million range. And then it's a matter of do you win a few big account that come up and, hopefully, not lose any big accounts that come up? If you're successful on the win side, you're going to get north of that $1 billion. If you get a couple of big wins, you can get high, like this quarter. Unfortunately, if you get a big loss, you're going to be slightly negative. This quarter was a good quarter.

And then also you mentioned, you're looking to potentially do about $300 million of revenues to divest here throughout 2011 is your current plan. I'm curious what's the margin differential between the divestitures you're planning here versus the acquisitions that you've announced so far? Just a rough number between the two?

I haven't sat and done that calculation.

Obviously, the companies that are in strategic review, let's put it that way, as opposed to planned divestitures, the companies that we're looking at and evaluating, they have lower margins. The companies that we've just completed the acquisitions of are very solid, very solid companies with margins at our, I'll say, at our average, maybe a little bit above our average. Above Omnicom's average. That could be a good gap between the two of them.

And then my last question, I totally understand why you're staying cautiously optimistic as you're looking out for your revenue growth here for 2011, given what's going on here in the economy on a global basis. However, as you know, you've dramatically stepped up your acquisition. I think you said you had eight of them and into the fourth quarter, you're doing some more small acquisitions here in the current quarter. You bought back roughly $550 million of stock on a net basis in the fourth quarter. I mean, that tells me that underlying, though, you must be seeing something that you're feeling pretty good about to spend that kind of money, capital right now. True?

We feel confident about our plans and our platform. The acquisitions we're making are, we believe, very logical, sensible extensions of our business in the areas and markets that our clients are growing in and we need to get better representation. And we're always looking to improve our skill set, doing a buy versus build analysis on most new things that are emerging. And in a few cases, we've made the determination that it's better to buy. But we're not on a spree, by any standard. What we're doing is expanding in the emerging, developing markets really the next '11 and also backing up some of the success we've had in the BRIC markets.

You also have to keep in mind acquisitions take time. They take time to identify, to do the due diligence, to integrate. Over the last couple of years, our management teams have been pretty busy, focused on their own businesses as well. It's also acquisitions don't come in sort of a smooth steady stream. They come when they come, and we do acquisitions when they're right to be done, when the due diligence has been completed and when people are confident about the integration. So we're always looking for quality companies. That's never really been any difference. It's been a matter of management time being able to dedicate to identifying and completing the due diligence and integrating those companies and the challenges that they've been faced in their own businesses and making sure that they've got their own cost structures and teams properly aligned.

Then lastly, Randy, can you just break out for us what the salary and service cost line was in the quarter?

This quarter, I did make sure that was included in the presentation.

I missed it.

So let's see. It was $2.6877 billion -- $2.687.7 billion.

Our next question is from the line of James Dix with Wedbush.

Just two questions. I guess, just following about something John said about incentive compensation returning to more normal levels in 2010. Just how much was that incentive compensation for the full year? And is your expectation that it will stay in that same range or at least the same percentage of revenue in 2011? Then following up on the comments that Randy made on the shutdown costs and other costs you're going to be incurring. Is it fair to expect that we'll see more margin expansion in the back half of 2011 than in the front half just because of the impact of those costs on your overall expense?

Year-over-year, I think discretionary incentives are up about $100 million in 2010 over the prior year.

I think that's right. And frankly, if I had my preference, I'd like to see our incentive compensation increase as a percentage of revenue and increase as a percentage of our salary, basically continuously change that mix. The more that's in incentive, the more flexibility that we have. Let's see. Your second question was margin over the course of the year. I think that's probably right. It's going to take time to get those cost structures right. I think in the first half, we may well see some noise. We're going to have -- it's going be hard to figure out quite the timing, but we're going to have these charges that's going to be in the first and the second quarter. I think hopefully, most of that is going to be able to be executed in the first quarter. But it hasn't been completed yet, so I'm not 100% sure of that.

Just so I understand on the incentive. So you're saying that was around $100 million higher for the year than, I guess, what, the roughly $380 million that it was last year? I may be remembering wrong, but I just want to make sure that I'm getting the right figure there.

I don't have that total off the top of my head. I do know that it was up about $100 million in 2010 versus 2009.

We'll take our final question from the line of Tim Nollen with Macquarie.

I have two quick questions. One is on China and emerging markets. One of your peers has reported thus far, and their China number was, I would say, good but not great. Do you have, in general terms, what your China revenue was? Going to be up double-digits, for example? And if so, because I know you've done well there this past year, would you say you're gaining share and you have good momentum in China? And would that apply in other emerging markets as well? That's the first question. The second question is looking at your cash flows again, it looks like you had a negative $587 million i.e., use of $587 million of cash after -- I'm saying this wrong. You used $587 million beyond the net free cash flow that you generate. Typically, that number would be about zero, I guess. You would use the free cash flow that you generate. Should we interpret this as meaning that you've spent roughly half, let's say, of the $1 billion bond that you raised? And if so, should we expect another $500 million or so of share buybacks to come in the next year?

Two things. The $587 million excludes working capital. With working capital, it was $237 million. So, one level, yes, we utilized some of the -- as we said before, we've de-levered the company in 2009. We said over time, we would likely put that leverage back between acquisitions and share repurchases, so we certainly did some of that in 2010. It was a very solid year from a cash perspective. I think our company has done an excellent job on working capital management, so I think it was pretty good. As far as your China question goes, we had an excellent year in China, up very strong double-digits. So north of 20%, north of 30% organic growth in China. So yes, we're very happy with our performance. That was for the year end. Frankly, the fourth quarter was equally strong for us. And our agencies, we've made a lot of progress in Asia, both from a growth perspective and quality perspective. John pointed out in some of his comments about awards, our Asian agencies pretty much dominated the creative awards and the media awards in Asia this year.

Back on the cash question, then. Is it maybe just fair to assume that you are still willing, if I could phrase it another way, still willing to spend beyond the net free cash flow that you generate on share buybacks?

That's ultimately a board decision. We meet with the board quite regularly about capital deployment. I certainly think through the first quarter, we've got approval to continue to buy in shares with the closing of the Clemenger acquisition and the repurchase program. By definition, that means we're going to spend more of our cash than we're going to generate in the first quarter. Obviously, that decision can be balanced quarter by quarter as we go through the year. But right now, I would expect that we will, between dividend, share repurchase and acquisitions, spend more than our free cash flow this year.

Thank you, and thank you all for taking the time to listen to our call. We'll talk to you soon. Bye-bye.

Thank you, and ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.