METHODOLOGY FOR AGENCY REPORT

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There are four major rankings in the Advertising Age Agency Report: World's Top 50 Advertising Organizations, leading U.S. agency "brands"; top U.S.-based agencies on a consolidated basis; and international rankings within 86 other countries.

Each ranking is based on gross income and equity. Gross income is revenue and includes the sum of commissions on media billings, markup on materials and services (usually 17.65%) and fee income.

For various reasons, some agencies report only billings, which AA converts to gross income by multiplying by 12.5% and identifying the resulting number as an AA estimate. This multiplier differs from the time-bound 15% conversion that treats gross income as an automatic 15% commission on media billings. Such a commission rate has undergone considerable erosion the last few years. At Y&R brand shops, for example, the ratio of gross income to total volume is 9.8%.

All returns from agencies or holding companies are treated on an equity basis, which permits an agency to claim returns equal to the percentage it currently owns of another. That current percentage also is applied to prior-year results to obtain a year-to-year comparison. Acquisitions or divestitures are treated pro forma, as if returns for such operations were on or off the books for two consecutive years.

World's Top 50 ad organizations: The evolving corporate restructuring blurring the distinction between agencies and holding companies led AA three years ago to create its first ranking of the World's Top 50 Advertising Organizations (see chart on Page 12).

An ad organization qualifies for a Top 50 ranking if it owns 50%-plus of itself. It's then ranked on 100% of its equity gross income. The portion not owned can be claimed by another organization on the Top 50 chart. One exception is No. 21 Dentsu, Y&R Partnerships. It's a 50/50 joint venture between Dentsu and Y&R, each of which claims 50% equity.

U.S. agency brands: The ranking of 617 U.S. agencies (beginning on Page 16) is by agency "brand," where subsidiaries are unbundled from parent totals to get at the core agency. The procedure, enabling both agency and subsidiary to be charted without duplication, in effect ranks agencies purely by advertising. Among megamerger agencies, this means gross income stripped of contributions from specialty units such as direct response, PR, research, medical, sales promotion or Yellow Pages. These can be in the form of subsidiaries or specialty units within the megamerger shops. Among direct-response agencies, internal operations are eliminated for branding purposes.

To identify which ad agencies and/or specialty shops were omitted to arrive at a core shop for the larger agencies, see the footnote at the bottom of U.S.-based consolidated agencies chart (Page 48). The units listed as part of an agency's consolidated total in this chart were eliminated from the parent in the brand chart. The concept of branding remains controversial especially among multitiered agencies trying to become "seamless."

AA also carried the agency brand concept into the international arena (see chart on Page 8).

Consolidated U.S. agencies: The ranking of the top U.S.-based agencies on a consolidated basis (Page 48), allows the multitiered agencies to include all their subsidiaries and specialty units, except PR.

Rankings in 86 countries: This issue carries nearly 1,200 non-U.S. agencies. Each is ranked in its respective country by 100% of its returns. Rankings are by gross income in U.S. dollars. (Rankings run continuously from Non-U.S. shops owned by agencies within the Top 50 ad organizations are shown by those same totals in the geographic breakouts of international networks within the Top 50 profiles.

Dollar equivalents are derived from exchange rates, based on a 12-month average compiled by AA, Ruesch International Monetary Services, Chicago, and Thomas Cook Currency Services, Chicago. Returns are treated historically (each year has its own rate).

Conversion rates for 1993 and 1992 and their percentage difference are part of the headline identifying rankings by country. AA adjusted several agency returns from Brazil, which devalued its currency in mid-1993. The adjustments aligned dollar returns with rates published by the Brazil Central Bank. The Central Bank's rates were different from those AA provided the agencies.

Agencies were allowed to report consolidated operations by country, but in such cases they couldn't rank separately any unit in the composite number. Such consolidations are noted in footnotes.

More than 90% of the non-U.S. agencies are connected to network agencies owned by the World's Top 50 ad organizations. The ownership status of the parent agency for each non-U.S. shop is displayed next to the agency's name by any of the following symbols: NA, not applicable, meaning independently owned; MJ, majority owned by a Top 50 agency; JV, joint venture (50/50); MN, minority owned by a Top 50 unit; NE, no equity but considered a Top 50 affiliate.

U.S. media rankings: The Top 10 agencies in 14 major U.S. media categories are ranked by their media volume at the U.S. brand level (see chart on Page 54).

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