Margin Analysis Schedule
Third Quarter Operating Margin Analysis
The year-over-year quarter comparison was negatively impacted by the following:
| Incentive Accrual* | | 240 | | basis points |
| Professional Fees* | | 70 | | basis points |
| Currency | | 30 | | basis points |
| Reclassified Out of Pocket* | | 10 | | basis points |
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| *Constant Currency Basis |
Year-to-Date Operating Margin Analysis
The year-over-year year-to-date comparison was negatively impacted by the following:
| Incentive Accrual* | | 90 | | basis points |
| Professional Fees* | | 90 | | basis points |
| Currency | | 30 | | basis points |
| Reclassified Out of Pocket* | | 20 | | basis points |
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| *Constant Currency Basis |
| Reconciliation of Operating Margin Analysis |
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| | | Third Quarter | | September 30 YTD |
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| Revenue and Revenue Adjustments | | 2004 | | | | 2003 | | 2004 | | | | 2003 |
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| Reported revenue | | $ 1,508.8 | | $ | | 1,418.9 | | $ 4,448.0 | | $ | | 4,234.0 |
| Impact of currency translation on revenue | | | | | | 56.0 | | | | | | 147.0 |
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| Revenue on a constant currency basis | | $ 1,508.8 | | $ | | 1,474.9 | | $ 4,448.0 | | $ | | 4,381.0 |
| Incremental out of pocket on a constant currency basis | | 34.6 | | | | | | 103.8 | | | | |
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| Revenue adjusted for currency and incremental out of pocket | | $ 1,474.2 | | $ | | 1,474.9 | | $ 4,344.2 | | $ | | 4,381.0 |
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| Operating Income* and Operating Income Adjustments | | 2004 | | | | 2003 | | 2004 | | | | 2003 |
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| Operating Income | | $ 65.1 | | $ | | 108.7 | | $ 276.7 | | $ | | 297.9 |
| Impact of currency translation on Operating Income | | | | | | 0.3 | | | | | | (4.0) |
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| Operating Income on a constant currency basis | | $ 65.1 | | $ | | 109.0 | | $ 276.7 | | $ | | 293.9 |
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| Incremental professional fees on a constant currency basis | | $ 10.6 | | | | | | $ 40.9 | | | | |
| Incremental incentive compensation on a constant currency basis | | $ 35.1 | | | | | | $ 40.6 | | | | |
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| Currency: Year-over-Year Margin Impact | | | | | | 2003 | | | | | | 2003 |
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| Reported revenue | | | | $ | | 1,418.9 | | | | $ | | 4,234.0 |
| Operating Income | | | | $ | | 108.7 | | | | $ | | 297.9 |
| Operating Margin | | | | | | 7.7% | | | | | | 7.0% |
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| Revenue on a constant currency basis | | | | $ | | 1,474.9 | | | | $ | | 4,381.0 |
| Operating Income on a constant currency basis | | | | $ | | 109.0 | | | | $ | | 293.9 |
| Operating Margin on a constant currency basis | | | | | | 7.4% | | | | | | 6.7% |
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| Operating Margin | | | | | | 7.7% | | | | | | 7.0% |
| Operating Margin on a constant currency basis | | | | | | 7.4% | | | | | | 6.7% |
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| Currency impact | | | | | | 0.3% | | | | | | 0.3% |
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| Out of Pocket: Year-over-Year Margin Impact | | 2004 | | | | | | 2004 | | | | |
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| Reported revenue | | $ 1,508.8 | | | | | | $ 4,448.0 | | | | |
| Operating Income | | $ 65.1 | | | | | | $ 276.7 | | | | |
| Operating Margin | | 4.3% | | | | | | 6.2% | | | | |
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| Revenue adjusted for incremental out of pocket | | $ 1,474.2 | | | | | | $ 4,344.2 | | | | |
| Operating Income | | $ 65.1 | | | | | | $ 276.7 | | | | |
| Operating Margin adjusted for incremental out of pocket | | 4.4% | | | | | | 6.4% | | | | |
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| Operating Margin | | 4.3% | | | | | | 6.2% | | | | |
| Operating Margin adjusted for incremental out of pocket | | 4.4% | | | | | | 6.4% | | | | |
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| Impact of incremental out of pocket | | 0.1% | | | | | | 0.2% | | | | |
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| Incremental professional fees: Year-over-Year Margin Impact | | 2004 | | | | | | 2004 | | | | |
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| Revenue adjusted for incremental out of pocket | | $ 1,474.2 | | | | | | $ 4,344.2 | | | | |
| Incremental professional fees on a constant currency basis | | $ 10.6 | | | | | | $ 40.9 | | | | |
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| Impact of incremental professional fees | | 0.7% | | | | | | 0.9% | | | | |
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| Incremental incentive: Year-over-Year Margin Impact | | 2004 | | | | | | 2004 | | | | |
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| Revenue adjusted for incremental out of pocket | | $ 1,474.2 | | | | | | $ 4,344.2 | | | | |
| Incremental incentive compensation on a constant currency basis | | $ 35.1 | | | | | | $ 40.6 | | | | |
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| Impact of incremental incentive | | 2.4% | | | | | | 0.9% | | | | |
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* References to operating income refer to operating income as reported excluding restructuring program charges, long-lived asset impairments, and the Motorsports contract termination charges.
| Reconciliation of Operating Margin |
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| | | | | Third Quarter | | September 30 YTD |
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| | | | | 2004 | | | | 2003 | | 2004 | | | | 2003 |
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| Revenue | | $ | | 1,508.8 | | $ | | 1,418.9 | | $ 4,448.0 | | $ | | 4,234.0 |
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| Operating Expenses | | | | | | | | | | | | | | |
| Salaries and related expenses | | $ | | 924.8 | | $ | | 810.9 | | $ 2,692.6 | | $ | | 2,544.0 |
| Office and general expenses | | | | 519.5 | | | | 508.4 | | 1,489.6 | | | | 1,401.2 |
| Restructuring charges | | | | 1.0 | | | | 48.0 | | 65.6 | | | | 142.4 |
| Long-lived asset impairment | | | | 450.1 | | | | 222.7 | | 458.7 | | | | 244.8 |
| Motorsports Contract Termination Costs | | | | 33.6 | | | | - | | 113.6 | | | | - |
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| Total Operating Expenses | | $ | | 1,929.0 | | $ | | 1,590.0 | | $ 4,820.1 | | $ | | 4,332.4 |
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| Operating Income - As Reported | | $ | | (420.2) | | $ | | (171.1) | | $ (372.1) | | $ | | (98.4) |
| Operating Margin - As Reported | | | | -27.8% | | | | -12.1% | | -8.4% | | | | -2.3% |
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| Add back: | | | | | | | | | | | | | | |
| Restructuring charges | | $ | | 1.0 | | $ | | 48.0 | | $ 65.6 | | $ | | 142.4 |
| Restructuring program charges in office & general expenses | | | | 0.6 | | | | 9.1 | | 10.9 | | | | 9.1 |
| Long-lived asset impairment | | | | 450.1 | | | | 222.7 | | 458.7 | | | | 244.8 |
| Motorsports Contract Termination | | | | 33.6 | | | | - | | 113.6 | | | | - |
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| Total restructuring program charges, LLA impairment | | | | | | | | | | | | | | |
| and Motorsports contract termination | | $ | | 485.3 | | $ | | 279.8 | | $ 648.8 | | $ | | 396.3 |
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| Excluding Restructuring Program Charges, LLA Impairment | | | | | | | | | | | | | | |
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| Operating Income | | $ | | 65.1 | | $ | | 108.7 | | $ 276.7 | | $ | | 297.9 |
| Operating Margin | | | | 4.3% | | | | 7.7% | | 6.2% | | | | 7.0% |
In comparing performance for 2004 with 2003, the company has excluded restructuring program charges, long-lived asset impairments, and the Motorsports contract termination charges because management believes the resulting comparison better reflects the company's ongoing operations. By excluding these charges, we can focus our comparison on the trends that have a continuing effect on the company's operations. The company expects to incur further charges relating to its restructuring program in 2004 and may incur future long-lived asset impairments and Motorsports contract termination charges as well.
