SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 19, 2002
The Interpublic Group of Companies, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-6686 13-1024020
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
1271 Avenue of the Americas, New York, New York 10020
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212-399-8000
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
The text of a press release dated November 19, 2002, issued by The
Interpublic Group of Companies, Inc. (the "Company"), is attached as Exhibit
99.1 hereto and is incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
99.1 Press Release issued by the Company, dated November 19, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
The Interpublic Group of Companies, Inc.
Date: November 20, 2002 By: /s/ Nicholas J. Camera
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Name: Nicholas J. Camera
Title: Senior Vice President,
General Counsel and Secretary
Exhibit 99.1
[GRAPHIC OMITTED] THE INTERPUBLIC GROUP OF COMPANIES, INC.
WORLDWIDE ADVERTISING AND MARKETING COMMUNICATIONS
1271 Avenue of the Americas, New York, N.Y. 10020
INTERPUBLIC REPORTS THIRD QUARTER EPS OF $.02
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EARNINGS RESTATEMENT FINAL AT $181.3 MILLION
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NET NEW BUSINESS CONTINUES STRONG AT $730.2 MILLION
FOR THIRD QUARTER
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NEW YORK, NY (November 19, 2002)--The Interpublic Group of Companies today
reported net income of $7.5 million or $.02 per share for the three months ended
September 30, compared to a net loss of $481.1 million or $1.30 per share in the
year ago quarter. Third quarter results were lower than previously forecast due
to unanticipated operating costs at McCann-Erickson. Results in both years
included restructuring charges and other unusual items, which are discussed in
detail in this release.
Revenue in the third quarter declined by 7.4% to $1.50 billion, compared to
$1.62 billion in 2001. Organic revenue declined 5.2%, compared to 9.1% for the
year to date. In constant dollars, revenue declined 6.1%.
The company also re-affirmed that it has finalized a $181.3 million restatement
($135.9 million net of tax) of previously issued quarterly and annual financial
statements dating back to 1997 and prior. A later section of this release is
devoted to a detailed discussion of the restatement.
"This has been a trying episode for our company. We have been diligent and
thorough in our review process and are confident that we are taking the
necessary steps to ensure the mistakes that led to the restatement do not
recur," said John J. Dooner, Jr., Chairman and Chief Executive Officer.
"As you would expect, with the restatement behind us, we can now focus all of
our energy where it belongs, on our clients and our people, as well as financial
imperatives such as margin improvement and strengthening our balance sheet,"
added Mr. Dooner. "We are especially encouraged by the improvement in organic
revenue in the third quarter, which we believe is a reflection of our strong new
business performance since the beginning of the year."
Third Quarter Results
Operating profit was $74.4 million, compared to $135.0 million in the 2001
quarter, excluding non-recurring items. Adjusting for the change in goodwill
amortization and restructuring and unusual items, the operating margin was 5.0%
in the quarter, compared to 10.9% in 2001.
The operating margin was primarily depressed by unanticipated operating costs at
McCann-Erickson, Interpublic's largest operating unit, and at Octagon Motor
Sports. In addition, lower revenue at Octagon Motor Sports contributed to a
second successive quarterly operating loss at that unit.
Sean F. Orr, Executive Vice President and Chief Financial Officer, said:
"Results for the third quarter are unacceptable. We are keenly focused on
aligning our cost structure with the current and prospective revenue
environment."
"It is worth noting, however, that in spite of our operating challenges, we
generated positive free cash flow and continued to reduce debt this past
quarter. Also, some of the costs incurred in the quarter are not reflective of
our ongoing run rates."
Revenue Analysis
Components of the revenue change are detailed below:
Components of Revenue Change
----------------------------
3Q02 2002YTD
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Revenue Change (7.4%) (10.3%)
Effect of:
Currency Translation (1.3%) 0.1%
Net Dispositions (0.3%) (0.5)
Merger-Related Losses (0.6%) (0.8%)
Organic Revenue Change (5.2%) (9.1%)
New Business
Interpublic's agencies posted strong new business results in the third quarter
of 2002, with $730.2 million of net new business won. The quarter saw two major
multi-discipline wins, at Burger King and the United States Postal Service.
Other major new account wins announced during the quarter included:
AmSouth Bank AXA Financial
Bally Total Fitness Bausch & Lomb
Fisher Price Friskies
Gillette Merck
Ontario Tourism Ortho Procrit
Qwest Communications Vodaphone
Wendy's Zenith Electronics
Interpublic noted that its strong new business performance continued into the
fourth quarter, with significant new or additional assignments from Bank of
America, Club Med, Levi Strauss, Merck, Novartis, Six Flags and Visa.
Revenue Mix
Domestic revenue, which constitutes 57% of the company's portfolio, declined
7.2% in the third quarter to $851.7 million. U.S. advertising and media revenue
declined 7.9%, while other marketing services declined 6.2%.
International revenue fell 7.6% to $650.5 million, reflecting softness in Japan
and certain Latin American markets and exacerbated by weaker foreign currencies.
On a constant currency basis, international revenue declined 4.6%.
Revenue by Discipline
Advertising and media services, which contribute 57.9% of the company's revenue,
fell 5.3% in the third quarter to $869.9 million.
Revenue from all other marketing activities declined 10.2% to $632.3 million.
Marketing Intelligence revenue grew 10.5%, demonstrating the unit's resilience
to difficult economic conditions. Marketing Communications revenue fell 16.2% to
$400.4 million, including an 18% decline in public relations. Marketing Services
revenue dropped 4%, principally reflecting continued difficulties at Octagon
Motor Sports where lower attendance reversed the profitability of this year's
British Grand Prix in July.
Octagon Motor Sports
Octagon Motor Sports consists of racing facilities in the United Kingdom and
Hong Kong, acquired in 1999 and 2000. Interpublic placed Octagon under the
management of its newly formed Sports and Entertainment Group this summer. Since
that time, the management team of Octagon Motor Sports has been replaced.
In the third quarter of 2002, declining revenue and higher costs produced a
pretax loss of $37.4 million at Octagon Motor Sports, or $.06 per share
(after-tax). Through nine months, the pretax loss at Octagon Motor Sports
totaled $58.4 million or $.10 per share (after-tax). The unit was profitable in
2001. Interpublic estimates that Octagon Motor Sports will lose $.15-.20 per
share in 2002. As a result, the company continues to assess its strategic
alternatives regarding its motor sports holdings.
Restructuring and Other Unusual Items
In the quarter, Interpublic recognized $12.1 million of expense to adjust
accruals related to the company's 2001 restructuring program. Additional costs
relate primarily to higher than estimated lease losses due to adverse real
estate conditions in certain locations that have resulted in lower than
anticipated sublease income.
In 2001, Interpublic undertook a restructuring program for a total cost of
$645.6 million. Simultaneously, the company recognized a total of $303.1 million
of charges related to impairment of goodwill and $35.4 million of miscellaneous
operating assets that were no longer considered realizable. Together, these
items reduced earnings by $532.1 million after taxes, or $1.44 per share in the
third quarter of 2001. In addition, amortization of goodwill, which was required
in 2001 but not 2002, reduced earnings by $35.2 million or $.09 per share.
Other Income and Expense
Interest expense declined to $36.7 million in the third quarter, from $46.9
million in the prior year, reflecting lower average debt balances and lower
average rates. Interest income declined to $5.9 million from $6.5 million a year
earlier. Interpublic also recorded non-operating income of $4.7 million in the
third quarter, primarily related to a gain on the sale of an unconsolidated
affiliate in the U. S. In the year-earlier quarter, a non-operating loss of $.6
million was recorded.
Income Taxes
The company estimates that its full year 2002 tax rate will be 41%, up from
38.9% as a result of reduced estimated annual earnings, primarily outside the
U.S.
Balance Sheet
On September 30, 2002, Interpublic's total debt was $2.9 billion as compared to
$3.1 billion in the prior year third quarter, representing a significant
improvement in debt-to-capital ratio, from 64% to 57%.
The company's committed liquidity totaled approximately $1.4 billion at
September 30th comprised of $800 million of available borrowing capacity and
cash of $615 million.
As a result of the restatement and lower levels of profitability, the company
has received waivers and amendments to be in compliance with its credit
agreements.
Restatement of Prior Year Earnings
During the second and third quarters of 2002, the company identified a total of
$181.3 million ($135.9 million, net of tax) in charges that related to prior
periods. The total amount of charges has been recorded through a restatement of
previously reported amounts.
As a result of a review undertaken surrounding the process of internally
allocating certain overhead costs and reimbursable charges to operating units
throughout the world the company identified and recorded $101.0 million of
intracompany charges at McCann-Erickson WorldGroup. The charges were principally
in Europe and had been included in accounts receivable and work-in-progress
rather than being expensed.
In addition to the intracompany charges, the company identified an additional
$36.3 million principally related to estimates of insurance proceeds not yet
realized, specific write-offs of receivables and other costs that had been
capitalized rather than being expensed. An additional $44.0 million at
subsidiaries other than McCann was identified, the majority of which the company
has concluded are related to understated liabilities dating to 1996 and prior at
a subsidiary currently within The Partnership.
The company is in the process of terminating certain employees, implementing
other personnel changes and strengthening certain control processes related to
this matter.
As previously stated, the activity that led to the restatement had no impact on
client funds, and the restatement does not affect the company's current cash
position.
A table summarizing the impact of restating the financial statements for the
periods January 1, 1997 through June 30, 2002 is provided in Appendix #3 to this
release.
The company has been informed by the Securities and Exchange Commission staff
that it is conducting an informal inquiry into the matter. The company is
cooperating fully with the inquiry.
Outlook and Guidance
Due to its poor third quarter performance, an uncertain revenue outlook, and
previously mentioned operating costs at McCann-Erickson, the company no longer
expects to meet its earlier earnings guidance of $.85-.90 per share for the
year. The company nonetheless expects to generate positive free cash flow, and
projects that it will further reduce its debt level by year-end.
Interpublic has not completed its budgeting and forecasting process for 2003,
but the company indicated that its primary financial goals are to achieve
additional debt reduction and a return to its historical profit margins.
Conference Call
Management will discuss third quarter results on a conference call beginning at
5 PM (EST) today. The call and a discussion outline can be accessed at the
financial section of the company's website, www.interpublic.com. An audio
archive of the discussion will remain available at the site for 30 days.
About Interpublic
The Interpublic Group is among the world's largest advertising and marketing
organizations. Its five global operating groups are the McCann-Erickson
WorldGroup, the Partnership, FCB Group, Interpublic Sports and Entertainment
Group and Advanced Marketing Services. Major brands include Draft Worldwide,
Foote Cone & Belding Worldwide, Golin/Harris, NFO WorldGroup, Initiative Media,
Lowe & Partners Worldwide, McCann-Erickson, Octagon, Universal McCann and Weber
Shandwick.
# # #
Contact Information
Press: Investors:
Philippe Krakowsky Susan Watson
(212) 399-8088 (212) 399-8208
Cautionary Statement
This document contains forward-looking statements. Interpublic's representatives
may also make forward-looking statements orally from time to time. Statements in
this document that are not historical facts, including statements about
Interpublic's beliefs and expectations, particularly regarding recent business
and economic trends, the impact of litigation, the integration of acquisitions
and restructuring costs, constitute forward-looking statements. These statements
are based on current plans, estimates and projections, and therefore undue
reliance should not be placed on them. Forward-looking statements speak only as
of the date they are made, and Interpublic undertakes no obligation to update
publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. Such factors include, but are not
limited to, those associated with the effects of national and regional economic
conditions, Interpublic's ability to attract new clients and retain existing
clients, the financial success of Interpublic's clients, developments from
changes in the regulatory and legal environment for advertising and marketing
and communications services companies around the world and the successful
completion and integration of acquisitions which complement and expand
Interpublic's business capabilities.
Interpublic's liquidity could be adversely affected if Interpublic is unable to
access the capital markets or to negotiate successfully further amendments to
its Revolving Credit Facilities or the Prudential Agreements by January 15,
2003. In addition, Interpublic could be adversely affected by developments in
connection with the purported class actions and derivative suits that it is
defending or the SEC informal inquiry relating to the restatement.
At any given time Interpublic may be engaged in a number of preliminary
discussions that may result in one or more substantial acquisitions. These
acquisition opportunities require confidentiality and from time to time give
rise to bidding scenarios that require quick responses by Interpublic. Although
there is uncertainty that any of these discussions will result in definitive
agreements or the completion of any transactions, the announcement of any such
transaction may lead to increased volatility in the trading price of
Interpublic's securities.
The success of recent or contemplated future acquisitions will depend on the
effective integration of newly acquired businesses into Interpublic's current
operations. Important factors for integration include realization of anticipated
synergies and cost savings and the ability to retain and attract new personnel
and clients.
In addition, Interpublic's representatives may from time to time refer to "pro
forma" financial information. Because "pro forma" financial information by its
very nature departs from traditional accounting conventions, this information
should not be viewed as a substitute for the information prepared by Interpublic
in accordance with GAAP, including the balance sheets and statements of income
and cash flow contained in Interpublic's quarterly and annual reports filed with
the SEC on Forms 10-Q and 10-K.
Investors should evaluate any statements made by Interpublic in light of these
important factors.
Appendix 1
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2002 AND 2001 (UNAUDITED)
(Amounts in Millions Except per Share Data)
Three Months Ended September 30,
------------------------------------------------
Excluding Non-
Actual Reported Recurring Items Excluding Non-
2001 2001 Recurring Items
2002 (Restated) 2002 (Restated) % Variance
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Revenue
United States $ 851.7 $ 918.0 $ 851.7 $ 918.0 (7.2)
International 650.5 704.0 650.5 704.0 (7.6)
-------- -------- -------- -------- ------
Total Revenue 1,502.2 1,622.0 1,502.2 1,622.0 (7.4)
Operating Costs 1,426.1 1,479.6 1,426.1 1,444.2 1.3
Amortization of Intangible Assets 1.7 42.8 1.7 42.8 96.0
Restructuring and Other Merger Related Costs 12.1 592.8 -- -- --
Goodwill Impairment & Other Charges -- 81.7 -- -- --
-------- -------- -------- -------- ------
Operating Income 62.3 (574.9) 74.4 135.0 (44.9)
-------- -------- -------- -------- ------
Other Income (Expense)
Interest Expense (36.7) (46.9) (36.7) (46.9) 21.7
Interest Income 5.9 6.5 5.9 6.5 (9.2)
Other Income (Loss) 4.7 (0.6) 4.7 (0.6) 883.3
Investment Impairment (4.9) (48.2) (4.9) -- --
-------- -------- -------- -------- ------
Total Other Income (Expense) (31.0) (89.2) (31.0) (41.0) (24.4)
-------- -------- -------- -------- ------
Income (Loss) before Provision for Income Taxes 31.3 (664.1) 43.4 94.0 (53.8)
Provision for Income Taxes 20.5 (185.9) 25.4 40.1 36.7
Net Equity Interests (a) (3.3) (2.9) (3.3) (2.9) (13.8)
-------- -------- -------- -------- ------
Net Income (Loss) $ 7.5 $ (481.1) $ 14.7 $ 51.0 (71.2)
======== ======== ======== ======== ======
Per Share Data:
Basic EPS $ 0.02 $ (1.30) $ 0.04 $ 0.14 (71.4)
Diluted EPS $ 0.02 $ (1.30) $ 0.04 $ 0.14 (71.4)
Dividend per share - Interpublic $ 0.095 $ 0.095 $ 0.095 $ 0.095 --
Weighted Average Shares:
Basic 377.28 369.61 377.28 369.61
Diluted 381.08 369.61 381.08 375.74
(a) Net equity interests is the net of equity in income of unconsolidated
affiliates less net income attributable to minority interests of
consolidated subsidiaries.
Note: Prior period amounts have been restated as discussed in the attached
earnings release.
Appendix 2
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2002 AND 2001 (UNAUDITED)
(Amounts in Millions Except per Share Data)
Nine Months Ended September 30,
-------------------------------------------------
Excluding Non-
Actual Reported Recurring Items Excluding Non-
(Restated) (Restated) Recurring Items
2002 2001 2002 2001 % Variance
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Revenue
United States $2,550.7 $2,943.5 $2,550.7 $2,943.5 (13.3)
International 1,984.2 2,113.1 1,984.2 2,113.1 (6.1)
-------- -------- -------- -------- ------
Total Revenue 4,534.9 5,056.6 4,534.9 5,056.6 (10.3)
Operating Costs 4,094.6 4,440.0 4,094.6 4,404.6 7.0
Amortization of Intangible Assets 5.5 126.9 5.5 126.9 95.7
Restructuring and Other Merger Related Costs 12.1 645.6 -- -- --
Goodwill Impairment & Other Charges -- 303.1 -- -- --
-------- -------- -------- -------- ------
Operating Income 422.7 (459.0) 434.8 525.1 (17.2)
-------- -------- -------- -------- ------
Other Income (Expense)
Interest Expense (108.9) (125.8) (108.9) (125.8) 13.4
Interest Income 20.9 29.1 20.9 29.1 (28.2)
Other Income (Loss) 15.3 11.3 15.3 11.3 35.4
Investment Impairment (21.1) (208.3) (21.1) -- --
-------- -------- -------- -------- ------
Total Other Income (Expense) (93.8) (293.7) (93.8) (85.4) (9.8)
-------- -------- -------- -------- ------
Income (Loss) before Provision for Income Taxes 328.9 (752.7) 341.0 439.7 (22.4)
Provision for Income Taxes 134.9 (141.8) 139.8 186.0 24.8
Net Equity Interests (a) (13.5) (16.9) (13.5) (16.9) 20.1
-------- -------- -------- -------- ------
Net Income (Loss) $ 180.5 $ (627.8) $ 187.7 $ 236.8 (20.7)
======== ======== ======== ======== =======
Per Share Data:
Basic EPS $ 0.48 $ (1.70) $ 0.50 $ 0.64 (21.9)
Diluted EPS $ 0.47 $ (1.70) $ 0.49 $ 0.63 (22.2)
Dividend per share - Interpublic $ 0.285 $ 0.285 $ 0.285 $ 0.285 --
Weighted Average Shares:
Basic 375.31 368.22 375.31 368.22
Diluted 381.08 368.22 381.08 376.38
(a) Net equity interests is the net of equity in income of unconsolidated
affiliates less net income attributable to minority interests of
consolidated subsidiaries.
Note: Prior period amounts have been restated as discussed in the attached
earnings release.
Appendix 3
The Interpublic Group of Companies, Inc. and Subsidiaries
Restatement Summary
(Amounts in Millions Except Per Share Data)
A. Years 2001 2000 1999 1998 1997
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Net income (loss) - as reported $(505.3) $420.3 $359.4 $374.2 $168.7
Adjustments (22.1) (23.2) (19.2) (12.4) (16.7)
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Net income (loss) - as restated (527.4) 397.1 340.2 361.8 (152.0)
======= ====== ====== ====== ======
Earnings (loss) per share - as reported $ (1.37) $ 1.14 $ 0.99 $ 1.04 $ 0.49
Earnings (loss) per share - as restated $ (1.43) $ 1.07 $ 0.94 $ 1.01 $ 0.44
2001 2002
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B. Quarters Q1 Q2 Q3 Q1 Q2
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Net income (loss) - as reported $ (28.8) $(110.2) $(477.5) $ 66.7 $117.0
Adjustments (1.6) (6.2) (3.6) (5.0) (5.7)
------- ------- ------- ------- ------
Net income (loss) - as restated (30.4) (116.3) (481.1) 61.7 111.3
======= ======= ======= ======= ======
Earnings (loss) per share - as reported $ (0.08) $ (0.30) $ (1.29) $ 0.18 $ 0.31
Earnings (loss) per share - as restated $ (0.08) $ (0.32) $ (1.30) $ 0.16 $ 0.29