10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
|
|
(Mark One) |
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended June 30, 2005 |
|
or |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file no. 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware |
|
13-1024020 |
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.) |
1114 Avenue of the Americas, New York, New York 10036
(Address of Principal Executive Offices) (Zip Code)
(212) 704-1200
(Registrants Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to the filing requirements for at least the past
90 days. Yes o No þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
The number of shares of the registrants common stock
outstanding as of August 31, 2005 was 427,268,023.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
INDEX
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This report contains forward-looking statements. We may also
make forward-looking statements orally from time to time.
Statements in this report that are not historical facts,
including statements about managements beliefs and
expectations, particularly regarding recent business and
economic trends, our internal control over financial reporting,
impairment charges, the Securities and Exchange Commission
(SEC) investigation, credit ratings, regulatory and
legal developments, acquisitions and dispositions, constitute
forward-looking statements. These statements are based on
current plans, estimates and projections, and are subject to
change based on a number of factors, including those outlined in
our 2004 Annual Report on Form 10-K under Item 1,
Business Risk Factors, and our other SEC filings.
Forward-looking statements speak only as of the date they are
made, and we undertake 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 risk factors include, but are
not limited to, the following:
|
|
|
|
|
risks arising from material weaknesses in our internal control
over financial reporting, including material weaknesses in the
control environment; |
|
|
|
potential adverse effects to our financial condition, results of
operations or prospects as a result of our restatement of prior
period financial statements; |
|
|
|
risks associated with our inability to satisfy covenants under
our syndicated credit facilities; |
|
|
|
our ability to satisfy certain reporting covenants under our
indentures; |
|
|
|
our ability to attract new clients and retain existing clients; |
|
|
|
our ability to retain and attract key employees; |
|
|
|
potential adverse effects if we are required to recognize
additional impairment charges or other adverse
accounting-related developments; |
|
|
|
potential adverse developments in connection with the ongoing
SEC investigation; |
|
|
|
potential downgrades in the credit ratings of our securities; |
|
|
|
risks associated with the effects of global, national and
regional economic and political conditions, including with
respect to fluctuations in interest rates and currency exchange
rates; |
|
|
|
developments from changes in the regulatory and legal
environment for advertising and marketing and communications
services companies around the world; and |
Investors should carefully consider these risk factors and the
additional risk factors outlined in more detail in Item 1,
Business Risk Factors, in our 2004 Annual Report on
Form 10-K.
AVAILABLE INFORMATION
Information regarding our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to these reports, will be made
available, free of charge, at our website at
http://www.interpublic.com, as soon as reasonably practicable
after we electronically file such reports with, or furnish them
to, the SEC. Any document that we file with the SEC may also be
read and copied at the SECs Public Reference Room located
at Room 1580, 100 F Street, N.E., Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on
the public reference room. Our filings are also available to the
public from the SECs website at http://www.sec.gov, and at
the offices of the New York Stock Exchange. For further
information on obtaining copies of our public filings at the New
York Stock Exchange, please call (212) 656-5060.
Our Corporate Governance Guidelines, Code of Conduct and each of
the charters for the Audit Committee, Compensation Committee and
the Corporate Governance Committee are available free of charge
on our website at http://www.interpublic.com, or by writing to
The Interpublic Group of Companies, Inc., 1114 Avenue of the
Americas, New York, NY 10036, Attention: Secretary.
1
EXPLANATORY NOTE
The filing of this report was delayed because of the extensive
additional work necessary to compensate for our material
weaknesses in our internal control over financial reporting and
to complete the restatement of our previously published
Consolidated Financial Statements. The restatement is set forth
in our 2004 Annual Report on Form 10-K, and includes a
restatement of the Consolidated Statements of Operations for the
quarters ended March 31, 2004 and June 30, 2004 and
Consolidated Statements of Cash Flows for the six months ended
June 30, 2004. Our Consolidated Statements of Operations
and Comprehensive Loss for the three and six months ended
June 30, 2004 and the Consolidated Statements of Cash Flows
for the six months ended June 30, 2004 in this report are
presented as restated. For information on the restatement and
the impact of the restatement on our financial statements for
the periods ended June 30, 2004, we refer you to
Item 8, Financial Statements and Supplementary Data,
Note 2, Restatement of Previously Filed Financial
Statements, and Note 20, Results by Quarter, in our 2004
Annual Report on Form 10-K.
2
Part I FINANCIAL INFORMATION
|
|
Item 1. |
Financial Statements |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Restated) | |
REVENUE
|
|
$ |
1,616.2 |
|
|
$ |
1,512.8 |
|
|
|
|
|
|
|
|
OPERATING (INCOME) EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
|
955.4 |
|
|
|
898.5 |
|
|
Office and general expenses
|
|
|
537.9 |
|
|
|
552.8 |
|
|
Restructuring charges (reversals)
|
|
|
(1.9 |
) |
|
|
3.9 |
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
3.1 |
|
|
Motorsports contract termination costs
|
|
|
|
|
|
|
80.0 |
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,491.4 |
|
|
|
1,538.3 |
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
124.8 |
|
|
|
(25.5 |
) |
|
|
|
|
|
|
|
EXPENSE AND OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(42.7 |
) |
|
|
(42.0 |
) |
|
Interest income
|
|
|
16.5 |
|
|
|
10.4 |
|
|
Investment impairments
|
|
|
(3.6 |
) |
|
|
|
|
|
Other income
|
|
|
4.6 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
Total expense and other income
|
|
|
(25.2 |
) |
|
|
(29.4 |
) |
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
99.6 |
|
|
|
(54.9 |
) |
|
Provision for income taxes
|
|
|
83.8 |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
Income (loss) of consolidated companies
|
|
|
15.8 |
|
|
|
(85.5 |
) |
|
Income applicable to minority interests (net of tax)
|
|
|
(3.7 |
) |
|
|
(4.2 |
) |
|
Equity in net income of unconsolidated affiliates (net of tax)
|
|
|
2.3 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
14.4 |
|
|
|
(88.4 |
) |
Dividends on preferred stock
|
|
|
5.0 |
|
|
|
5.0 |
|
Allocation to participating securities
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
|
|
$ |
7.7 |
|
|
$ |
(93.4 |
) |
|
|
|
|
|
|
|
Income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
Basic:
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
Diluted:
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
424.8 |
|
|
|
414.6 |
|
|
Diluted
|
|
|
429.6 |
|
|
|
414.6 |
|
Cash dividends per common share
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these financial
statements.
3
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Restated) | |
REVENUE
|
|
$ |
2,946.5 |
|
|
$ |
2,902.2 |
|
|
|
|
|
|
|
|
OPERATING (INCOME) EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
|
1,929.2 |
|
|
|
1,785.2 |
|
|
Office and general expenses
|
|
|
1,065.7 |
|
|
|
1,063.5 |
|
|
Restructuring charges (reversals)
|
|
|
(8.8 |
) |
|
|
65.5 |
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
8.8 |
|
|
Motorsports contract termination costs
|
|
|
|
|
|
|
80.0 |
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,986.1 |
|
|
|
3,003.0 |
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(39.6 |
) |
|
|
(100.8 |
) |
|
|
|
|
|
|
|
EXPENSE AND OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(89.9 |
) |
|
|
(85.9 |
) |
|
Interest income
|
|
|
31.4 |
|
|
|
20.2 |
|
|
Investment impairments
|
|
|
(3.6 |
) |
|
|
(3.2 |
) |
|
Other income
|
|
|
19.1 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
Total expense and other income
|
|
|
(43.0 |
) |
|
|
(65.4 |
) |
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(82.6 |
) |
|
|
(166.2 |
) |
|
Provision for income taxes
|
|
|
44.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
Loss of consolidated companies
|
|
|
(127.3 |
) |
|
|
(167.8 |
) |
|
Income applicable to minority interests (net of tax)
|
|
|
(4.9 |
) |
|
|
(6.8 |
) |
|
Equity in net income of unconsolidated affiliates (net of tax)
|
|
|
2.8 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
Net loss from operations
|
|
|
(129.4 |
) |
|
|
(172.2 |
) |
Dividends on preferred stock
|
|
|
10.0 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
|
|
$ |
(139.4 |
) |
|
$ |
(182.0 |
) |
|
|
|
|
|
|
|
Loss per share of common stock:
|
|
|
|
|
|
|
|
|
Basic:
|
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
Diluted:
|
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
424.3 |
|
|
|
413.9 |
|
|
Diluted
|
|
|
424.3 |
|
|
|
413.9 |
|
Cash dividends per common share
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these financial
statements.
4
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS: |
Cash and cash equivalents
|
|
$ |
1,582.0 |
|
|
$ |
1,550.4 |
|
Short-term marketable securities
|
|
|
1.3 |
|
|
|
420.0 |
|
Accounts receivable, net allowance of $120.4 and $136.1
|
|
|
4,920.7 |
|
|
|
4,907.5 |
|
Expenditures billable to clients
|
|
|
445.4 |
|
|
|
345.2 |
|
Deferred income taxes
|
|
|
268.8 |
|
|
|
261.0 |
|
Prepaid expenses and other current assets
|
|
|
142.6 |
|
|
|
152.6 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,360.8 |
|
|
|
7,636.7 |
|
Land, buildings and equipment, net
|
|
|
682.5 |
|
|
|
722.9 |
|
Deferred income taxes
|
|
|
245.4 |
|
|
|
274.2 |
|
Investments
|
|
|
175.5 |
|
|
|
168.7 |
|
Goodwill
|
|
|
3,145.7 |
|
|
|
3,141.6 |
|
Other intangible assets, net
|
|
|
35.1 |
|
|
|
37.6 |
|
Other assets
|
|
|
284.7 |
|
|
|
290.6 |
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$ |
11,929.7 |
|
|
$ |
12,272.3 |
|
|
|
|
|
|
|
|
LIABILITIES: |
Accounts payable
|
|
$ |
6,198.9 |
|
|
$ |
6,128.7 |
|
Accrued liabilities
|
|
|
871.6 |
|
|
|
1,108.6 |
|
Short-term debt
|
|
|
332.6 |
|
|
|
325.9 |
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,403.1 |
|
|
|
7,563.2 |
|
Long-term debt
|
|
|
1,933.5 |
|
|
|
1,936.0 |
|
Deferred compensation and employee benefits
|
|
|
575.9 |
|
|
|
590.7 |
|
Other non-current liabilities
|
|
|
404.1 |
|
|
|
408.9 |
|
Minority interests in consolidated subsidiaries
|
|
|
45.5 |
|
|
|
55.2 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
10,362.1 |
|
|
|
10,554.0 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY: |
Preferred stock, no par value
|
|
|
373.7 |
|
|
|
373.7 |
|
Common stock, $0.10 par value
|
|
|
42.7 |
|
|
|
42.5 |
|
Additional paid-in capital
|
|
|
2,226.3 |
|
|
|
2,208.9 |
|
Accumulated deficit
|
|
|
(707.6 |
) |
|
|
(578.2 |
) |
Accumulated other comprehensive loss, net of tax
|
|
|
(290.8 |
) |
|
|
(248.6 |
) |
|
|
|
|
|
|
|
|
|
|
1,644.3 |
|
|
|
1,798.3 |
|
Less:
|
|
|
|
|
|
|
|
|
Treasury stock, at cost
|
|
|
(14.0 |
) |
|
|
(14.0 |
) |
Unamortized deferred compensation
|
|
|
(62.7 |
) |
|
|
(66.0 |
) |
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
1,567.6 |
|
|
|
1,718.3 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$ |
11,929.7 |
|
|
$ |
12,272.3 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
5
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(Restated) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss from operations
|
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
Adjustments to reconcile net loss to cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets and intangible
assets
|
|
|
81.2 |
|
|
|
93.6 |
|
|
Provision for bad debt
|
|
|
10.3 |
|
|
|
19.6 |
|
|
Amortization of restricted stock awards and other non-cash
compensation
|
|
|
17.8 |
|
|
|
16.8 |
|
|
Amortization of bond discounts and deferred financing costs
|
|
|
5.0 |
|
|
|
11.7 |
|
|
Deferred income tax provision
|
|
|
23.9 |
|
|
|
(66.0 |
) |
|
Equity in net loss of unconsolidated affiliates
|
|
|
(2.8 |
) |
|
|
(2.4 |
) |
|
Income applicable to minority interests
|
|
|
4.9 |
|
|
|
6.8 |
|
|
Restructuring charges non-cash
|
|
|
|
|
|
|
6.7 |
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
8.8 |
|
|
Investment impairments
|
|
|
3.6 |
|
|
|
3.2 |
|
|
Gain on sale of investments
|
|
|
(13.3 |
) |
|
|
(2.1 |
) |
|
Loss on interest rate swaps
|
|
|
2.1 |
|
|
|
|
|
|
Other
|
|
|
(8.2 |
) |
|
|
(8.7 |
) |
Change in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(225.0 |
) |
|
|
(366.6 |
) |
|
Expenditures billable to clients
|
|
|
(108.7 |
) |
|
|
(81.9 |
) |
|
Prepaid expenses and other current assets
|
|
|
(0.7 |
) |
|
|
17.1 |
|
|
Accounts payable and accrued expenses
|
|
|
112.5 |
|
|
|
440.1 |
|
|
Other non-current assets and liabilities
|
|
|
(14.0 |
) |
|
|
(25.8 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(240.8 |
) |
|
|
(101.3 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisitions, including deferred payments, net of cash acquired
|
|
|
(55.5 |
) |
|
|
(136.3 |
) |
|
Capital expenditures
|
|
|
(65.5 |
) |
|
|
(77.5 |
) |
|
Proceeds from sales of businesses and fixed assets
|
|
|
7.9 |
|
|
|
29.2 |
|
|
Proceeds from sales of investments
|
|
|
40.4 |
|
|
|
10.6 |
|
|
Purchases of investments
|
|
|
(18.4 |
) |
|
|
(10.2 |
) |
|
Maturities of short-term marketable securities
|
|
|
1,108.1 |
|
|
|
575.8 |
|
|
Purchases of short-term marketable securities
|
|
|
(688.8 |
) |
|
|
(912.9 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
328.2 |
|
|
|
(521.3 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term bank borrowings
|
|
|
(12.1 |
) |
|
|
23.4 |
|
|
Payments of long-term debt
|
|
|
(0.6 |
) |
|
|
(244.7 |
) |
|
Proceeds from long-term debt
|
|
|
2.0 |
|
|
|
0.5 |
|
|
Debt issuance costs and consent fees
|
|
|
(9.7 |
) |
|
|
(2.3 |
) |
|
Issuance of common stock, net of issuance costs
|
|
|
13.7 |
|
|
|
0.1 |
|
|
Distributions to minority interests, net
|
|
|
(10.9 |
) |
|
|
(10.9 |
) |
|
Dividends from unconsolidated affiliates
|
|
|
3.0 |
|
|
|
6.1 |
|
|
Preferred stock dividends
|
|
|
(10.0 |
) |
|
|
(9.8 |
) |
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(24.6 |
) |
|
|
(237.6 |
) |
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(31.2 |
) |
|
|
(12.7 |
) |
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
31.6 |
|
|
|
(872.9 |
) |
Cash and cash equivalents at beginning of year
|
|
|
1,550.4 |
|
|
|
1,871.9 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
1,582.0 |
|
|
$ |
999.0 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
6
THE INTERPUBLIC GROUP OF COMPANIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months | |
|
For the Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Net income/(loss)
|
|
$ |
14.4 |
|
|
$ |
(88.4 |
) |
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
Foreign currency translation adjustment
|
|
|
(28.4 |
) |
|
|
(16.4 |
) |
|
|
(59.7 |
) |
|
|
(41.8 |
) |
Net unrealized holdings gain/loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holdings gain arising in the current period
|
|
|
1.8 |
|
|
|
|
|
|
|
17.7 |
|
|
|
1.6 |
|
|
Unrealized holdings loss arising in the current period
|
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
(0.7 |
) |
|
Reclassification of gain to net earnings
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
Reclassification of loss to net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holdings gain/loss on securities
|
|
|
1.7 |
|
|
|
(0.6 |
) |
|
|
17.5 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$ |
(12.3 |
) |
|
$ |
(105.4 |
) |
|
$ |
(171.6 |
) |
|
$ |
(209.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
7
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 1: |
Basis of Presentation |
Restatement. In our 2004 Annual Report on Form 10-K,
we restated certain of our prior period financial statements,
including financial statements for the three and six months
ended June 30, 2004. The Consolidated Statement of
Operations and Comprehensive Loss for the three and six months
ended June 30, 2004, and the Consolidated Statements of
Cash Flow for the six months ended June 30, 2004 in this
report have been presented as restated. For information on the
restatement and the impact of the restatement on our financial
statements for the period ended June 30, 2004, we refer you
to Item 8, Financial Statements and Supplementary Data,
Note 2, Restatement of Previously Issued Financial
Statements, and Note 20, Results by Quarter, in our 2004
Annual Report on Form 10-K.
Basis of Presentation. The accompanying unaudited
consolidated financial statements have been prepared by The
Interpublic Group of Companies, Inc. pursuant to the rules and
regulations of the Securities and Exchange Commission
(SEC) and, in the opinion of management, include all
adjustments of a normal and recurring nature necessary for a
fair statement of the consolidated results of operations,
financial position and cash flows for each period presented. The
consolidated results for interim periods are not necessarily
indicative of results for the full year. These financial results
should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2004.
|
|
Note 2: |
Earnings (Loss) Per Share |
The following sets forth the computation of basic and diluted
earnings (loss) per common share for income available to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months | |
|
For the Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
14.4 |
|
|
$ |
(88.4 |
) |
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
Less: preferred stock dividends
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
10.0 |
|
|
|
9.8 |
|
Less: allocation to participating securities(a)
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$ |
7.7 |
|
|
$ |
(93.4 |
) |
|
$ |
(139.4 |
) |
|
$ |
(182.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
outstanding basic
|
|
|
424.8 |
|
|
|
414.6 |
|
|
|
424.3 |
|
|
|
413.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
14.4 |
|
|
$ |
(88.4 |
) |
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
Less: preferred stock dividends
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
10.0 |
|
|
|
9.8 |
|
Less: allocation to participating securities(a)
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$ |
7.7 |
|
|
$ |
(93.4 |
) |
|
$ |
(139.4 |
) |
|
$ |
(182.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months | |
|
For the Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Weighted-average number of common shares outstanding
basic
|
|
|
424.8 |
|
|
|
414.6 |
|
|
|
424.3 |
|
|
|
413.9 |
|
Dilutive effect of restricted stock and stock options
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
outstanding diluted
|
|
|
429.6 |
|
|
|
414.6 |
|
|
|
424.3 |
|
|
|
413.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Basic and diluted earnings per share have been adjusted using
the two-class method pursuant to Emerging Issue Task Force
(EITF) 03-6, Participating Securities and
the Two Class Method Under FASB Statement
No. 128 for the three months ended June 30, 2005.
The two-class method is an earnings allocation formula that
attributes earnings to participating securities and common stock
according to dividends declared and participation rights in
undistributed earnings. Participating securities consist of our
4.50% Convertible Notes and our Series A Mandatory
Convertible Preferred Stock. |
|
|
There was no impact on the basic and diluted loss per share
computations for the three months ended June 30, 2004 and
the six months ended June 30, 2005 and 2004, as the holders
of the relevant securities do not participate in our net loss. |
|
(b) |
In accordance with EITF 04-8, The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share, the
impact of the assumed conversion of our 4.50% contingently
convertible notes was and would be included in the computations
of diluted earnings (loss) per share if dilutive, regardless of
whether the market price conversion trigger was met, for the
three months ended June 30, 2005 and for the three months
ended June 30, 2004 and the six months ended June 30,
2005 and 2004, respectively. The weighted-average number of
incremental shares for each of the following have been excluded
from the computations of diluted earnings (loss) per share as
they were anti-dilutive: |
For the three months ended June 30, 2005 and 2004:
|
|
|
|
|
conversion of the Series A Mandatory Convertible Preferred
Stock; |
|
|
|
conversion of the 4.50% Convertible Notes; |
For the three months ended June 30, 2004 only:
|
|
|
|
|
conversion of the 1.87% Convertible Notes; |
|
|
|
exercise of employee stock options and conversion of both
non-vested restricted stock awards and restricted stock units; |
For the six months ended June 30, 2005 and 2004:
|
|
|
|
|
conversion of the 4.50% Convertible Notes; |
|
|
|
conversion of the Series A Mandatory Convertible Preferred
Stock; |
|
|
|
exercise of employee stock options and conversion of both
non-vested restricted stock awards and restricted stock
units; and |
9
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
For the six months ended June 30, 2004 only:
|
|
|
|
|
conversion of the 1.80% and 1.87% Convertible Notes. |
|
|
|
The following table presents the weighted-average number of
incremental anti-dilutive shares excluded from the computations
of diluted earnings (loss) per share for the three and six
months ended June 30, 2005 and 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Restated | |
|
|
|
Restated | |
Stock options, restricted stock and restricted stock units
|
|
|
|
|
|
|
4.2 |
|
|
|
4.6 |
|
|
|
4.5 |
|
Convertible Notes
|
|
|
64.4 |
|
|
|
70.8 |
|
|
|
64.4 |
|
|
|
71.5 |
|
Series A Mandatory Convertible Preferred Stock
|
|
|
27.7 |
|
|
|
26.2 |
|
|
|
27.7 |
|
|
|
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
92.1 |
|
|
|
101.2 |
|
|
|
96.7 |
|
|
|
100.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3: |
Stock-Based Compensation |
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation, we have accounted for our various stock-based
compensation plans under the intrinsic value recognition and
measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees.
Generally, the exercise price of stock options granted equals
the market price of the underlying shares on the date of the
grant and, therefore, no compensation expense is recorded. The
intrinsic value of restricted stock grants and certain other
stock-based compensation issued to employees and Board Members
as of the date of grant is amortized to compensation expense
over the vesting period. Certain stock options and restricted
stock units are subject to variable accounting.
10
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
If compensation expense for our stock option plans and Employee
Stock Purchase Plan (ESPP) had been determined based
on the fair value at the grant dates as defined by
SFAS No. 123 and amended by SFAS No. 148,
Accounting for Stock-Based Compensation
Transition and Disclosure An Amendment of FASB
No. 123, our pro forma income (loss) from operations
and income (loss) from operations would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
|
|
| |
|
|
|
| |
As reported, net income (loss)
|
|
$ |
14.4 |
|
|
$ |
(88.4 |
) |
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based employee compensation expense included in net income
(loss), net of tax
|
|
|
9.1 |
|
|
|
6.1 |
|
|
|
16.1 |
|
|
|
11.4 |
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of stock-based employee compensation expense,
net of tax
|
|
|
(14.4 |
) |
|
|
(13.9 |
) |
|
|
(27.0 |
) |
|
|
(27.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
9.1 |
|
|
$ |
(96.2 |
) |
|
$ |
(140.3 |
) |
|
$ |
(187.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
|
Pro forma
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.45 |
) |
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.44 |
) |
|
Pro forma
|
|
$ |
0.02 |
|
|
$ |
(0.23 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.45 |
) |
For purposes of this pro forma information, the weighted-average
fair value of the 15% discount received by employees on the date
that stock was purchased under the ESPP was $2.19 for the three
months ended June 30, 2004 and $1.97 and $1.19 for the six
months ended June 30, 2005 and 2004, respectively, and is
included in the total fair value of stock-based employee
compensation expense. No stock was purchased under the ESPP in
the three months ended June 30, 2005.
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Expected option lives
|
|
|
6 years |
|
|
|
6 years |
|
|
|
6 years |
|
|
|
6 years |
|
Risk free interest rate
|
|
|
3.8 |
% |
|
|
4.3 |
% |
|
|
3.8 |
% |
|
|
4.1 |
% |
Expected volatility
|
|
|
44.4 |
% |
|
|
44.7 |
% |
|
|
44.4 |
% |
|
|
44.7 |
% |
Dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Weighted-average option grant price
|
|
$ |
12.29 |
|
|
$ |
14.22 |
|
|
$ |
12.75 |
|
|
$ |
14.66 |
|
Weighted-average fair value of options granted
|
|
$ |
5.91 |
|
|
$ |
6.99 |
|
|
$ |
6.13 |
|
|
$ |
7.14 |
|
11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 4: |
Acquisitions and Dispositions |
Acquisitions
We did not make any acquisitions during the three and six months
ended June 30, 2005. We acquired one company during the six
months ended June 30, 2004 for $6.5 in cash. The results of
operations of this acquired company was included in our
consolidated results from its respective acquisition date.
During the three months ended June 30, 2005 and 2004, we
made stock payments related to acquisitions in prior years of
$9.9 and $15.8. We also made stock payments related to
acquisitions initiated in prior years of $11.7 and $15.8 during
the six months ended June 30, 2005 and 2004, respectively.
Details of cash paid for new and prior acquisitions are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended | |
|
Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Cash paid for current year acquisitions
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
6.5 |
|
Cash paid for prior acquisitions
|
|
|
38.9 |
|
|
|
97.3 |
|
|
|
55.5 |
|
|
|
129.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$ |
38.9 |
|
|
$ |
97.3 |
|
|
$ |
55.5 |
|
|
$ |
136.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
On January 12, 2004, we completed the sale of a business
comprising the four Motorsports circuits, including Brands
Hatch, Oulton Park, Cadwell Park and Snetterton, owned by our
Brands Hatch subsidiaries, to MotorSport Vision Limited. The
consideration for the sale was approximately $26.0. An
additional contingent amount of approximately $4.0 may be paid
to us depending upon the future financial results of the
operations sold.
On April 19, 2004, we reached an agreement with the Formula
One Administration Limited (FOA) to terminate and
release our respective guarantee and promoter obligations
relating to the British Grand Prix held at the Silverstone
racetrack in the United Kingdom (UK). Under this
agreement, we were released from our obligations following the
British Grand Prix in July 2004. In exchange for the early
termination of the obligations and liabilities, we paid a total
of $93.0 to the FOA in two installments of $46.5 each on
April 19, 2004 and May 24, 2004. A pre-tax charge of
$80.0 was recorded in Motorsports contract termination costs
related to this transaction during the second quarter of 2004,
net of approximately $13.0 in existing reserves related to the
termination of this agreement.
|
|
Note 5: |
Restructuring Charges (Reversals) |
During the three months ended June 30, 2005 and 2004, we
recorded net (income) and expense related to lease termination
and other exit costs and severance and termination costs for the
2003 and 2001 restructuring programs of ($1.9) and $3.9,
respectively, which included the impact of adjustments resulting
from changes in managements estimates as described below.
For the six months ended June 30, 2005 and 2004, we
recorded net (income) and expense of ($8.8) and $65.5,
respectively. The 2003 program was initiated in response to
softness in demand for advertising and marketing services. The
2001 program was initiated following the acquisition of True
North Communications Inc. and was designed to integrate the
acquisition and improve productivity. Total inception to date
net expense for the 2001 and 2003 programs
12
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
were $638.6 and $225.1, respectively. Substantially all
activities under the 2001 and 2003 programs have been completed.
A summary of the net (income) and expense by segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
|
|
| |
|
|
|
|
Lease Termination and | |
|
Severance and | |
|
|
|
|
Other Exit Costs | |
|
Termination Costs | |
|
|
|
|
| |
|
| |
|
|
|
|
2003 | |
|
2001 | |
|
|
|
2003 | |
|
2001 | |
|
|
|
|
|
|
Program | |
|
Program | |
|
Total | |
|
Program | |
|
Program | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
(0.2 |
) |
|
$ |
|
|
|
$ |
(0.2 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.2 |
) |
CMG
|
|
|
(0.9 |
) |
|
|
(0.1 |
) |
|
|
(1.0 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
(1.1 |
) |
Corporate
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(1.2 |
) |
|
$ |
(0.6 |
) |
|
$ |
(1.8 |
) |
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Net (Income) Expense (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
(2.6 |
) |
|
$ |
(4.9 |
) |
|
$ |
(7.5 |
) |
|
$ |
(0.7 |
) |
|
$ |
(4.3 |
) |
|
$ |
(5.0 |
) |
|
$ |
(12.5 |
) |
CMG
|
|
|
5.2 |
|
|
|
8.0 |
|
|
|
13.2 |
|
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(1.2 |
) |
|
|
12.0 |
|
Corporate
|
|
|
4.3 |
|
|
|
|
|
|
|
4.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6.9 |
|
|
$ |
3.1 |
|
|
$ |
10.0 |
|
|
$ |
(1.1 |
) |
|
$ |
(5.0 |
) |
|
$ |
(6.1 |
) |
|
$ |
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
|
|
| |
|
|
|
|
Lease Termination and | |
|
Severance and | |
|
|
|
|
Other Exit Costs | |
|
Termination Costs | |
|
|
|
|
| |
|
| |
|
|
|
|
2003 | |
|
2001 | |
|
|
|
2003 | |
|
2001 | |
|
|
|
|
|
|
Program | |
|
Program | |
|
Total | |
|
Program | |
|
Program | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
(4.4 |
) |
|
$ |
(0.7 |
) |
|
$ |
(5.1 |
) |
|
$ |
(0.2 |
) |
|
$ |
|
|
|
$ |
(0.2 |
) |
|
$ |
(5.3 |
) |
CMG
|
|
|
(1.0 |
) |
|
|
(1.7 |
) |
|
|
(2.7 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
(2.9 |
) |
Corporate
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(5.5 |
) |
|
$ |
(2.9 |
) |
|
$ |
(8.4 |
) |
|
$ |
(0.4 |
) |
|
$ |
|
|
|
$ |
(0.4 |
) |
|
$ |
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Net (Income)Expense (Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
28.6 |
|
|
$ |
(6.5 |
) |
|
$ |
22.1 |
|
|
$ |
15.1 |
|
|
$ |
(4.3 |
) |
|
$ |
10.8 |
|
|
$ |
32.9 |
|
CMG
|
|
|
16.2 |
|
|
|
7.1 |
|
|
|
23.3 |
|
|
|
5.5 |
|
|
|
(0.7 |
) |
|
|
4.8 |
|
|
|
28.1 |
|
Corporate
|
|
|
4.3 |
|
|
|
|
|
|
|
4.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.2 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
49.1 |
|
|
$ |
0.6 |
|
|
$ |
49.7 |
|
|
$ |
20.8 |
|
|
$ |
(5.0 |
) |
|
$ |
15.8 |
|
|
$ |
65.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Termination and Other
Exit Costs
2003 Program
Net (income) and expense related to lease termination and other
exit costs recorded for the three months ended June 30,
2005 and 2004 was ($1.2) and $6.9, respectively, comprised of
charges of $0.6 and $17.0, offset by adjustments to management
estimates of $1.8 and $10.1, respectively. For the six months
ended June 30, 2005 and 2004, net (income) and expense was
($5.5) and $49.1, respectively, comprised of charges of $1.8 and
$60.5, offset by similar adjustments of $7.3 and $11.4,
respectively. Charges were recorded at net present value and
were net of estimated sublease rental income. The discount
related to lease terminations is being amortized over the
expected remaining term of the related lease. In addition,
13
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
for the three and six months ended June 30, 2004, charges
were recorded for the vacating of 11 and 36 offices,
respectively, located primarily in the US and Europe. Given the
remaining life of the vacated leased properties, cash payments
are expected to be made through 2015.
In addition to amounts recorded as restructuring charges, we
recorded charges of $2.7 and $10.3 during the three and six
months ended June 30, 2004, respectively, related to the
accelerated amortization of leasehold improvements on properties
included in the 2003 program. These charges were included in
office and general expenses on the Consolidated Statements of
Operations.
2001 Program
Net (income) and expense related to lease termination and other
exit costs of ($0.6) and $3.1 recorded for the three months
ended June 30, 2005 and 2004, respectively, resulted
exclusively from the impact of adjustments to management
estimates. We recorded net (income) and expense of ($2.9) and
$0.6 for the six months ended June 30, 2005 and 2004,
respectively. Given the remaining life of the vacated
properties, cash payments are expected to be made through 2024.
Adjustments to
Estimates
Lease termination and other exit costs for the 2003 and 2001
restructuring programs included the net impact of adjustments
for changes in management estimates, which decreased the
restructuring reserves by $2.4 and $7.0 for the three months
ended June 30, 2005 and 2004, respectively. The net
decrease to the restructuring reserves was $10.2 and $10.8 for
the six months ended June 30, 2005 and 2004, respectively.
Adjustments to management estimates of net lease obligations
included both increases and decreases to the restructuring
reserve balance as a result of several factors. The significant
factors were our negotiation of terms upon the exit of leased
properties, changes in sublease rental income and utilization of
previously vacated properties by certain of our agencies due to
improved economic conditions in certain markets, all of which
occurred during the period recorded.
Severance and Termination
Costs
2003 Program
Net income related to severance and termination costs of $0.1
for the three months ended June 30, 2005, resulted
exclusively from the impact of adjustments to managements
estimates. Net income for the three months ended June 30,
2004 was $1.1, comprised of charges of $0.4, partially offset by
adjustments to management estimates of $1.5. Net income related
to severance and termination costs of $0.4 for the six months
ended June 30, 2005, resulted exclusively from the impact
of adjustments to managements estimates. Net expense for
the six months ended June 30, 2004 was $20.8, comprised of
charges of $24.5, partially offset by adjustments to management
estimates of $3.7. Charges related to a worldwide workforce
reduction of approximately 400 employees for the six months
ended June 30, 2004. The restructuring program affected
employee groups across all levels and functions, including
executive, regional and account management and administrative,
creative and media production personnel. The majority of the
severance charges related to the US and Europe, with the
remainder in Asia and Latin America.
2001 Program
Net income related to severance and termination costs of $5.0
recorded for the three and six months ended June 30, 2004,
resulted exclusively from the impact of adjustments to
management estimates.
14
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Adjustments to
Estimates
Severance and termination costs associated with the 2003 and
2001 restructuring programs included the net impact of
adjustments for changes in management estimates, which decreased
the restructuring reserves by $0.1 and $6.5 for the three months
ended June 30, 2005 and 2004, respectively. The net
decrease to the restructuring reserves was $0.4 and $8.7 for the
six months ended June 30, 2005 and 2004, respectively.
Adjustments to management estimates of severance and termination
obligations included both increases and decreases to the
restructuring reserve balance as a result of several factors.
The significant factors were the decrease in the number of
terminated employees, change in amounts paid to terminated
employees and change in estimates of taxes and restricted stock
payments related to terminated employees, all of which occurred
during the period recorded.
A summary of the remaining liability for the 2003 and 2001
restructuring programs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at | |
|
|
|
|
|
|
|
|
|
Liability at | |
|
|
12/31/04 | |
|
Charges | |
|
Payments | |
|
Adjustments(1) | |
|
Other(2) | |
|
6/30/05 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2003 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination and other exit costs
|
|
$ |
51.0 |
|
|
$ |
1.8 |
|
|
$ |
(12.8 |
) |
|
$ |
(7.3 |
) |
|
$ |
(1.9 |
) |
|
$ |
30.8 |
|
Severance and termination costs
|
|
|
7.2 |
|
|
|
|
|
|
|
(2.7 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
58.2 |
|
|
$ |
1.8 |
|
|
$ |
(15.5 |
) |
|
$ |
(7.7 |
) |
|
$ |
(2.3 |
) |
|
$ |
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination and other exit costs
|
|
$ |
37.2 |
|
|
$ |
|
|
|
$ |
(9.0 |
) |
|
$ |
(2.9 |
) |
|
$ |
|
|
|
$ |
25.3 |
|
Severance and termination costs
|
|
|
1.6 |
|
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
38.8 |
|
|
$ |
|
|
|
$ |
(9.7 |
) |
|
$ |
(2.9 |
) |
|
$ |
|
|
|
$ |
26.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts represent adjustments to management estimates, as
discussed above. |
|
(2) |
Amounts represent adjustments to the liability for changes in
foreign currency exchange rates as well as liabilities that were
previously maintained on the Consolidated Balance Sheet in other
balance sheet accounts. |
Severance amounts incurred outside the parameters of our
restructuring programs are recorded in the financial statements
when they become both probable and estimable. With the exception
of medical and dental benefits paid to employees who are on
long-term disability, we do not establish liabilities associated
with ongoing post-employment benefits that may vest or
accumulate as the employee provides service as we cannot
reasonably predict what our future experience will be. We have
recorded a liability of $6.7 and $6.1 as of June 30, 2005
and December 31, 2004, respectively, related to medical and
dental benefits for employees who are on long-term disability.
15
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 6: |
Land, Building and Equipment |
The following table provides a summary of the components of
land, buildings and equipment:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Land and buildings
|
|
$ |
100.7 |
|
|
$ |
111.1 |
|
Furniture and equipment
|
|
|
1,024.6 |
|
|
|
1,038.6 |
|
Leasehold improvements
|
|
|
561.9 |
|
|
|
571.3 |
|
|
|
|
|
|
|
|
|
|
|
1,687.2 |
|
|
|
1,721.0 |
|
Less: accumulated depreciation
|
|
|
(1,004.7 |
) |
|
|
(998.1 |
) |
|
|
|
|
|
|
|
Land, buildings and equipment, net
|
|
$ |
682.5 |
|
|
$ |
722.9 |
|
|
|
|
|
|
|
|
|
|
Note 7: |
Long-Lived Asset Impairment and Other Charges |
There were no impairment charges recorded during the six months
ended June 30, 2005.
During the three months and six months ended June 30, 2004,
we recorded $3.1 and $8.8 of long-lived asset impairment
charges, respectively. These amounts included $2.0 and $6.0,
respectively, primarily related to the impairment of long-lived
assets of businesses sold and $0.7 and $2.3, respectively,
related to capital expenditure outlays in our Motorsports
business which were expensed as incurred.
|
|
Note 8: |
Expense and Other Income |
We recorded investment impairment charges of $3.6 for the three
months ended June 30, 2005 to reduce an investment to its
appropriate fair value. During the six months ended
June 30, 2005 and 2004, we recorded $3.6 and $3.2,
respectively, in investment impairment charges related to a
decline in value of certain available-for-sale investments that
was determined to be other than temporary.
The following table sets forth the components of other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
Months Ended | |
|
For the Six Months | |
|
|
June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
|
|
| |
|
|
|
| |
Gains on sales of businesses
|
|
$ |
4.4 |
|
|
$ |
0.8 |
|
|
$ |
14.0 |
|
|
$ |
0.7 |
|
Gains on sales of available-for-sale securities and
miscellaneous investment income
|
|
|
0.2 |
|
|
|
1.4 |
|
|
|
5.1 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$ |
4.6 |
|
|
$ |
2.2 |
|
|
$ |
19.1 |
|
|
$ |
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2005, we sold our
remaining ownership interest in Delaney Lund Knox
Warren & Partners, an agency within Foote,
Cone & Belding Worldwide, for a gain of approximately
$8.5.
16
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 9: |
Recent Accounting Standards |
In May 2005, SFAS No. 154, Accounting Changes and
Error Corrections, was issued, which replaces APB Opinion
No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. Among other changes,
SFAS No. 154 requires retrospective application of a
voluntary change in accounting principle to prior period
financial statements presented on the new accounting principle,
unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change.
SFAS No. 154 also requires accounting for a change in
method of depreciating or amortizing a long-lived nonfinancial
asset as a change in accounting estimate
(prospectively) affected by a change in accounting
principle. Further, the Statement requires that corrections of
errors in previously issued financial statements be termed a
restatement. The new standard is effective for
accounting changes and error corrections made in fiscal years
beginning after December 15, 2005. We do not expect the
adoption of SFAS No. 154 to have a material impact on
our Consolidated Balance Sheet or Statement of Operations.
In March 2005, FASB Interpretation (FIN)
No. 47, Accounting for Conditional Asset Retirement
Obligations, was issued, an interpretation of
SFAS No. 143, Accounting for Asset Retirement
Obligations. FIN No. 47 clarifies the timing of
liability recognition for legal obligations associated with the
retirement of a tangible long-lived asset when the timing and/or
method of settlement are conditional on a future event. The
provisions of FIN No. 47 are effective no later than
December 31, 2005. We do not expect the adoption of
FIN No. 47 to have a material impact on our
Consolidated Balance Sheet or Statement of Operations.
In December 2004, SFAS No. 123R (revised 2004),
Share-Based Payment, was issued, which replaces
SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options and the
shares issued under our employee stock purchase plan to be
recognized in the financial statements based on their fair
values, as of the beginning of the first fiscal year that starts
after June 15, 2005. We are required to adopt
SFAS No. 123R effective January 1, 2006. The pro
forma disclosures previously permitted under
SFAS No. 123 will no longer be an alternative to
financial statement recognition. In March 2005, Staff Accounting
Bulletin (SAB) No. 107, Share-Based
Payment, was issued regarding the SECs interpretation
of SFAS No. 123R and the valuation of share-based
payments for public companies. We are evaluating the
requirements of SFAS No. 123R and
SAB No. 107. The adoption of SFAS No. 123R
may have a material impact on our Consolidated Financial
Statements and EPS. At adoption, we plan to use the modified
prospective method which requires expense recognition for all
unvested and outstanding awards and any awards granted
thereafter.
In December 2004, FASB Staff Position (FSP)
No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004, was issued which provides guidance
under SFAS No. 109, Accounting for Income
Taxes, with respect to recording the potential impact of the
repatriation provisions of the American Jobs Creation Act of
2004 (the Jobs Act) on enterprises income tax
expense and deferred tax liability. We have reviewed the
provisions and, at this time, we have determined not to
repatriate undistributed earnings of our foreign subsidiaries to
the U.S. under this provision. Accordingly, we will not
adjust our tax expense or deferred tax liability to reflect
these provisions. However, we will continue to monitor our
circumstances and if there is a change which will make the use
of this provision advantageous, we will be able to adopt it
prior to December 31, 2005.
17
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
In December 2004, SFAS No. 153, Exchanges of
Nonmonetary Assets, was issued, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions.
SFAS No. 153 is based on the principle that exchanges
of nonmonetary assets should be recorded and measured at the
fair value of the assets exchanged. APB Opinion No. 29
provided an exception to its basic measurement principle (fair
value) for exchanges of similar productive assets. Under APB
Opinion No. 29, an exchange of a productive asset for a
similar productive asset was based on the recorded amount of the
asset relinquished. SFAS No. 153 eliminates this
exception and replaces it with exceptions for exchanges of
nonmonetary assets that do not have reasonably determinable fair
values or commercial substance. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in reporting
periods beginning after June 15, 2005. We are required to
adopt SFAS No. 153 effective July 1, 2005. We do
not expect the adoption of SFAS No. 153 to have a
material impact on our Consolidated Balance Sheet or Statement
of Operations.
|
|
Note 10: |
Effective Income Tax Rate |
We recorded an income tax provision of $44.7 and $1.6 on pretax
losses of $82.6 and $166.2 for the six months ended
June 30, 2005 and 2004, respectively. Our effective tax
rate was 54.1% and 1.0% for the six months ended June 30,
2005 and 2004, respectively. The difference between the
effective tax rate and statuatory rate of 35% is due to state
and local taxes and the effect of non-US operations. The most
significant item negatively impacting the effective tax rate was
operating losses in a number of non-US jurisdictions taht
receive little or no tax benefit.
As required by SFAS 109, Accounting for Income Taxes
(SFAS 109), the Company evaluates the
realizability of its deferred tax assets on a quarterly basis.
SFAS 109 requires a valuation allowance be established when
it is more likely than not that all or a portion of
deferred tax assets will not be realized. In circumstances where
there is sufficient negative evidence, establishment
of a valuation allowance must be considered. A cumulative loss
in the most recent three-year period represents sufficient
negative evidence to consider a valuation allowance under the
provisions of SFAS 109. As a result, the Company determined
that certain of its deferred tax assets required the
establishment of a valuation allowance. The deferred tax assets
for which an allowance has been established relate primarily to
foreign net operating loss, US capital loss, and foreign tax
credit carryforwards.
The realization of the Companys remaining deferred tax
assets is primarily dependent on future earnings. Any reduction
in estimated forecasted results, including but not limited to
any future restructuring activities may require that the Company
record additional valuation allowances against the
Companys deferred tax assets on which a valuation
allowance has not previously been established. The valuation
allowance that has been established will be maintained until
there is sufficient positive evidence to conclude that it is
more likely than not that such assets will be
realized. An ongoing pattern of profitability will generally be
considered as sufficient positive evidence. The Companys
income tax expense recorded in the future will be reduced to the
extent of offsetting decreases in the valuation allowance. The
establishment and reversal of valuation allowances has had and
could have a significant negative or positive impact on the
future earnings of the Company.
18
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
7.875% Senior Unsecured Notes due 2005
|
|
$ |
252.0 |
|
|
$ |
255.0 |
|
7.25% Senior Unsecured Notes due 2011
|
|
|
499.1 |
|
|
|
500.0 |
|
5.40% Senior Unsecured Notes, due 2009 (less unamortized
discount of $0.3)
|
|
|
249.7 |
|
|
|
249.7 |
|
6.25% Senior Unsecured Notes, due 2014 (less unamortized
discount of $1.0)
|
|
|
350.3 |
|
|
|
347.3 |
|
4.50% Convertible Senior Notes due 2023
|
|
|
800.0 |
|
|
|
800.0 |
|
Other notes payable and capitalized leases
|
|
|
39.9 |
|
|
|
42.1 |
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,191.0 |
|
|
|
2,194.1 |
|
Less: current portion
|
|
|
257.5 |
|
|
|
258.1 |
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
$ |
1,933.5 |
|
|
$ |
1,936.0 |
|
|
|
|
|
|
|
|
Long-term debt has a fair value of approximately $2,292.8 and
$2,447.0 at June 30, 2005 and December 31, 2004,
respectively.
|
|
|
Redemption and Repurchase of Long-Term Debt |
In August 2005, we redeemed the remainder of the outstanding
7.875% Senior Unsecured Notes with an aggregate principal
amount of $250.0 at maturity at an aggregate price of
approximately $258.6, which included the principal amount of the
Notes plus accrued interest to the redemption date. To redeem
these Notes we used the proceeds from the sale and issuance in
July 2005 of $250.0 Floating Rate Notes due in July 2008.
In March 2005, we completed a consent solicitation to amend the
indentures governing five series of our outstanding public debt
to provide, among other things, that our failure to file with
the trustee our SEC reports, including our 2004 Annual Report on
Form 10-K and Quarterly Reports for the first and second
quarter of 2005 on Form 10-Q, would not constitute a
default under the indentures until September 30, 2005.
The indenture governing our 4.50% Convertible Senior Notes was
also amended to provide for: (1) an extension from
March 15, 2005 to September 15, 2009 of the date on or
after which we may redeem the 4.50% Notes and (2) an additional
make-whole adjustment to the conversion rate in the
event of a change of control meeting specified conditions.
The 4.50% Convertible Senior Notes
(4.50% Notes) are convertible to common stock
at a conversion price of $12.42 per share, subject to
adjustment in specified circumstances. They are convertible at
any time if the average price of our common stock for 20 trading
days immediately preceding the conversion date is greater than
or equal to a specified percentage, beginning at 120% in 2003
and declining 0.5% each year until it reaches 110% at maturity,
of the conversion price. They are also
19
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
convertible, regardless of the price of our common stock, if:
(i) we call the 4.50% Notes for redemption;
(ii) we make specified distributions to shareholders;
(iii) we become a party to a consolidation, merger or
binding share exchange pursuant to which our common stock would
be converted into cash or property (other than securities) or
(iv) the credit ratings assigned to the 4.50% Notes by
any two of Moodys Investors Service, Standard &
Poors and Fitch Ratings are lower than Ba2, BB and BB,
respectively, or the 4.50% Notes are no longer rated by at
least two of these ratings services. Because of our current
credit ratings, the 4.50% Notes are currently convertible
into approximately 64.4 shares of our common stock.
We, at the investors option, may be required to redeem the
4.50% Notes for cash on March 15, 2008 and may also be
required to redeem the 4.50% Notes at the investors option
on March 15, 2013 and March 15, 2018, for cash or
common stock or a combination of both, at our election.
Additionally, investors may require us to redeem the 4.50% Notes
in the event of certain change of control events that occur
prior to March 15, 2008, for cash or common stock or a
combination of both, at our election. If at any time on or after
March 13, 2003 we pay cash dividends on our common stock,
we will pay contingent interest in an amount equal to 100% of
the per share cash dividend paid on the common stock multiplied
by the number of shares of common stock issuable upon conversion
of the 4.50% Notes. At our option, we may redeem the 4.50% Notes
on or after September 15, 2009 for cash. The redemption
price in each of these instances will be 100% of the principal
amount of the notes being redeemed, plus accrued and unpaid
interest, if any. The 4.50% Notes also provide for an additional
make-whole adjustment to the conversion rate in the
event of a change of control meeting specified conditions.
We have committed and uncommitted lines of credit with various
banks that permit borrowings at variable interest rates. At
June 30, 2005 and December 31, 2004, there were no
borrowings under our committed facilities, however, there were
borrowings under the uncommitted facilities made by several of
our international subsidiaries totaling $75.1 and $67.8,
respectively. We have guaranteed the repayment of some of these
borrowings by our subsidiaries.
Our primary bank credit agreements are two credit facilities, a
364-day revolving credit facility (364-Day Revolving
Credit Facility) and a three-year revolving credit
facility (Three-Year Revolving Credit Facility and,
together with the 364-Day Revolving Credit Facility, the
Revolving Credit Facilities). The 364-Day Revolving
Credit Facility will expire on September 30, 2005. These
facilities have been modified three times through waivers and
amendments executed as of September 29, 2004,
March 31, 2005 and June 22, 2005, and the Three-Year
Revolving Credit Facility was also amended as of
September 27, 2005. For a description of these waivers and
amendments, see Note 11 to the Consolidated Financial
Statements in our 2004 Annual Report on Form 10-K.
The current terms of our Three-Year Revolving Credit Facility do
not permit us: (i) to make cash acquisitions in excess of
$50.0 until October 2006, or thereafter in excess of $50.0 until
expiration of the agreement in May 2007, subject to increases
equal to the net cash proceeds received in the applicable period
from any disposition of assets; (ii) to make capital
expenditures in excess of $210.0 annually; (iii) to
repurchase or to declare or to pay dividends on our capital
stock (except for any convertible preferred stock, convertible
trust preferred instrument or similar security, which includes
our outstanding 5.40% Series A Mandatory Convertible
Preferred), except that we may repurchase our capital stock in
connection with the exercise of options by our employees or with
proceeds contemporaneously received from an issue of new shares
of our capital stock; and (iv) to incur new debt at our
subsidiaries, other than unsecured debt incurred in the ordinary
course of business, which may not exceed $10.0 in the aggregate
with respect to our US subsidiaries.
20
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Our Three-Year Revolving Credit Facility was amended and
restated as of September 27, 2005. The effectiveness of the
amended Three-Year Revolving Credit Facility is subject to
certain conditions as described below.
The amended Three-Year Revolving Credit Facility also sets forth
revised financial covenants. These require that, as of the
fiscal quarter ended September 30, 2005 and each fiscal
quarter thereafter, we maintain:
|
|
|
(i) an interest coverage ratio of not less than that set
forth opposite the corresponding quarter in the table below: |
|
|
|
Fiscal Quarter Ending |
|
Ratio |
|
|
|
September 30, 2005
|
|
2.15 to 1 |
December 31, 2005
|
|
1.75 to 1 |
March 31, 2006
|
|
1.85 to 1 |
June 30, 2006
|
|
1.45 to 1 |
September 30, 2006
|
|
1.75 to 1 |
December 31, 2006
|
|
2.15 to 1 |
March 31, 2007
|
|
2.50 to 1 |
|
|
|
(ii) a debt to EBITDA ratio of not greater than that set
forth opposite the corresponding quarter in the table below: |
|
|
|
Fiscal Quarter Ending |
|
Ratio |
|
|
|
September 30, 2005
|
|
5.20 to 1 |
December 31, 2005
|
|
6.30 to 1 |
March 31, 2006
|
|
5.65 to 1 |
June 30, 2006
|
|
6.65 to 1 |
September 30, 2006
|
|
5.15 to 1 |
December 31, 2006
|
|
4.15 to 1 |
March 31, 2007
|
|
3.90 to 1 |
|
|
|
(iii) minimum levels of EBITDA for the four fiscal quarters
ended of not less than that set forth opposite the corresponding
quarter in the table below: |
|
|
|
|
|
Four Fiscal Quarters Ending |
|
Amount | |
|
|
| |
September 30, 2005
|
|
$ |
435.0 |
|
December 31, 2005
|
|
$ |
360.0 |
|
March 31, 2006
|
|
$ |
400.0 |
|
June 30, 2006
|
|
$ |
340.0 |
|
September 30, 2006
|
|
$ |
440.0 |
|
December 31, 2006
|
|
$ |
545.0 |
|
March 31, 2007
|
|
$ |
585.0 |
|
The terms used in these ratios, including EBITDA, interest
coverage and debt, are subject to specific definitions set forth
in the agreement. Under the definition set forth in the
Three-Year Revolving Credit
21
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Facility, EBITDA is determined by adding to net income or loss
the following items: interest expense, income tax expense,
depreciation expense, amortization expense, and certain
specified cash payments and non-cash charges subject to
limitations on time and amount set forth in the agreement. Based
on our forecasts, we expect to be in compliance with all
covenants under our Three-Year Revolving Credit Facility, as
amended and restated, for the next twelve months.
Before agreeing to the amendments, the lenders reviewed
preliminary drafts of the Consolidated Financial Statements
included in our 2004 Annual Report and in our quarterly reports
on Form 10-Q for the first two quarters of 2005. One
condition to effectiveness of the amendments is that we have not
received, on or before October 4, 2005, notice from the
lenders that have a majority in amount of the revolving credit
commitments, that the Consolidated Financial Statements in our
2004 Annual Report and our quarterly reports, and the financial
data contained in the notes thereto, are not substantially
similar to the draft Consolidated Financial Statements we
provided to them. If we receive such a notice, the amended
agreement will not become effective. In that event, we will
continue to be subject to the financial covenants that were
previously applicable under the Three-Year Revolving Credit
Facility, as amended in June 2005 with respect to periods
through the second quarter of 2005. We were in compliance with
those covenants through June 30, 2005, but there can be no
assurance that we will continue to be in compliance for the
third quarter of 2005.
|
|
Note 12: |
Employee Benefits |
The components of net periodic cost for pension and retiree
medical plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic | |
|
Foreign | |
|
|
|
|
Pension | |
|
Pension | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
Benefits | |
|
|
| |
|
| |
|
| |
For the Three Months Ended June 30, |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Service cost for benefits earned
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
3.8 |
|
|
$ |
4.2 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest accrued on benefit obligation
|
|
|
2.2 |
|
|
|
2.2 |
|
|
|
4.8 |
|
|
|
4.4 |
|
|
|
0.9 |
|
|
|
1.0 |
|
Expected return on plan assets
|
|
|
(2.4 |
) |
|
|
(2.5 |
) |
|
|
(3.3 |
) |
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial losses
|
|
|
1.6 |
|
|
|
1.1 |
|
|
|
1.6 |
|
|
|
1.4 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$ |
1.5 |
|
|
$ |
0.9 |
|
|
$ |
7.0 |
|
|
$ |
7.3 |
|
|
$ |
1.2 |
|
|
$ |
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic | |
|
Foreign | |
|
|
|
|
Pension | |
|
Pension | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
Benefits | |
|
|
| |
|
| |
|
| |
For the Six Months Ended June 30, |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Service cost for benefits earned
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
|
$ |
8.0 |
|
|
$ |
8.2 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
Interest accrued on benefit obligation
|
|
|
4.3 |
|
|
|
4.4 |
|
|
|
9.9 |
|
|
|
8.9 |
|
|
|
1.8 |
|
|
|
2.0 |
|
Expected return on plan assets
|
|
|
(4.8 |
) |
|
|
(5.0 |
) |
|
|
(6.8 |
) |
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Prior service cost
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial losses
|
|
|
3.2 |
|
|
|
2.2 |
|
|
|
3.4 |
|
|
|
2.8 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$ |
3.0 |
|
|
$ |
1.8 |
|
|
$ |
14.6 |
|
|
$ |
14.3 |
|
|
$ |
2.5 |
|
|
$ |
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2005, we made
contributions of $0.3 and $4.0 to our domestic and foreign
pension plans, respectively. During the six months ended
June 30, 2005, we made contributions of $0.5 and $9.1 to
our domestic and foreign pension plans, respectively.
We anticipate making contributions of $0.9 and $24.3 to our
domestic and foreign pension plans, respectively.
|
|
Note 13: |
Derivative and Hedging Instruments |
In January 2005, we entered into an interest rate swap
which synthetically converted $150.0 of fixed rate debt to
floating rates. The interest rate swap effectively converted
$150.0 of the $500.0, 7.25% Senior Unsecured Notes due
August 2011 to floating rate debt and matures on the same
day the debt is due. Under the terms of the interest rate swap
agreement we pay a floating interest rate, based on one-month
LIBOR plus a spread of 297.0 basis points, and receive the
fixed interest rate of the underlying bond being hedged.
On May 25, 2005, we terminated our three long-term interest
rate swap agreements executed during the fourth quarter of 2004
covering the $350.0, 6.25% Senior Unsecured Notes due
November 2014 and our long-term interest rate swap
agreement covering the $150.0 of the $500.0, 7.25% Senior
Unsecured Notes due August 2011. In connection with the
termination, our net cash receipts were approximately $1.1,
which will be recorded as an offset to interest expense over the
remaining life of the related debt.
|
|
Note 14: |
Segment Information |
We are organized into five global operating divisions and a
group of leading stand-alone agencies. In accordance with
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, our operating divisions
are grouped into two reportable segments. The largest segment,
Integrated Agency Networks (IAN), is comprised of
McCann Worldgroup (McCann), The FCB Group
(FCB), The Lowe Group (Lowe), Draft
Worldwide (Draft) and our stand-alone agencies. The
stand-alone agencies include Deutsch, Campbell-Ewald and Hill
Holliday. IAN also includes our media agencies, Initiative Media
and Magna Global which are part of our leading stand-alone
agencies, and Universal McCann which is part of McCann. The
second segment, Constituent Management Group (CMG),
includes Weber Shandwick, DeVries, FutureBrand, GolinHarris,
Jack Morton and Octagon Worldwide. During the period ended
June 30, 2004, we had a third reportable segment comprised
of the Motorsports operations, which was sold during 2004.
23
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Certain corporate and other charges are reported as a separate
line within total segment operating income and include corporate
office expenses and shared service center expenses, as well as
certain other centrally managed expenses which are not allocated
to operating divisions, as shown in the table below. Salaries
and related expenses include salaries, pension, bonus and
insurance expenses, including medical and dental, for corporate
office employees. Professional fees include costs related to
internal control compliance and remediation, cost of restatement
efforts, financial statement audits, legal, information
technology and other consulting fees, which are engaged and
managed through the corporate office. Professional fees also
include the cost of temporary financial professionals associated
with work on our restatement activities during 2005. Rent and
depreciation includes rental expense and depreciation of
leasehold improvements for properties occupied by corporate
office employees. Corporate insurance expense includes the cost
for fire, liability and automobile premiums. Bank fees relates
to debt and credit facilities managed by the corporate office.
The amounts allocated to operating divisions are calculated
monthly based on a formula that uses the weighted average net
revenues of the operating unit. The majority of the corporate
cost, including most of the costs associated with internal
control compliance and remediation, are not allocated back to
operating segments. The following expenses are included in
Corporate and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Salaries and related expenses
|
|
$ |
42.9 |
|
|
$ |
37.7 |
|
|
$ |
91.8 |
|
|
$ |
73.0 |
|
Professional fees
|
|
|
30.2 |
|
|
|
42.9 |
|
|
|
82.6 |
|
|
|
59.0 |
|
Rent and depreciation
|
|
|
10.8 |
|
|
|
7.3 |
|
|
|
22.3 |
|
|
|
19.0 |
|
Corporate insurance
|
|
|
6.5 |
|
|
|
8.0 |
|
|
|
13.6 |
|
|
|
15.4 |
|
Bank fees
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
1.7 |
|
Other
|
|
|
(1.9 |
) |
|
|
5.2 |
|
|
|
3.1 |
|
|
|
3.5 |
|
Amounts allocated to operating divisions
|
|
|
(41.8 |
) |
|
|
(34.6 |
) |
|
|
(76.8 |
) |
|
|
(63.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate and other
|
|
$ |
47.3 |
|
|
$ |
67.4 |
|
|
$ |
137.7 |
|
|
$ |
108.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Summarized financial information concerning our reportable
segments is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
For the | |
|
|
Three Months | |
|
Six Months | |
|
|
Ended June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Revenue:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
1,391.0 |
|
|
$ |
1,276.3 |
|
|
$ |
2,507.6 |
|
|
$ |
2,442.7 |
|
CMG
|
|
|
224.8 |
|
|
|
229.0 |
|
|
|
437.3 |
|
|
|
448.9 |
|
Motorsports
|
|
|
0.4 |
|
|
|
7.5 |
|
|
|
1.6 |
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue
|
|
$ |
1,616.2 |
|
|
$ |
1,512.8 |
|
|
$ |
2,946.5 |
|
|
$ |
2,902.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
161.4 |
|
|
$ |
113.9 |
|
|
$ |
78.7 |
|
|
$ |
146.5 |
|
CMG
|
|
|
8.6 |
|
|
|
19.2 |
|
|
|
9.4 |
|
|
|
28.3 |
|
Motorsports
|
|
|
0.2 |
|
|
|
(4.2 |
) |
|
|
1.2 |
|
|
|
(12.7 |
) |
Corporate and other
|
|
|
(47.3 |
) |
|
|
(67.4 |
) |
|
|
(137.7 |
) |
|
|
(108.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income (loss)
|
|
$ |
122.9 |
|
|
$ |
61.5 |
|
|
$ |
(48.4 |
) |
|
$ |
53.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to income (loss) before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$ |
1.9 |
|
|
$ |
(3.9 |
) |
|
$ |
8.8 |
|
|
$ |
(65.5 |
) |
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
(83.1 |
) |
|
|
|
|
|
|
(88.8 |
) |
Interest expense
|
|
|
(42.7 |
) |
|
|
(42.0 |
) |
|
|
(89.9 |
) |
|
|
(85.9 |
) |
Interest income
|
|
|
16.5 |
|
|
|
10.4 |
|
|
|
31.4 |
|
|
|
20.2 |
|
Investment impairments
|
|
|
(3.6 |
) |
|
|
|
|
|
|
(3.6 |
) |
|
|
(3.2 |
) |
Other income (expense)
|
|
|
4.6 |
|
|
|
2.2 |
|
|
|
19.1 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$ |
99.6 |
|
|
$ |
(54.9 |
) |
|
$ |
(82.6 |
) |
|
$ |
(166.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
31.3 |
|
|
$ |
36.0 |
|
|
$ |
60.8 |
|
|
$ |
71.0 |
|
CMG
|
|
|
4.8 |
|
|
|
5.3 |
|
|
|
11.4 |
|
|
|
13.4 |
|
Corporate and other
|
|
|
4.6 |
|
|
|
2.7 |
|
|
|
9.0 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$ |
40.7 |
|
|
$ |
44.0 |
|
|
$ |
81.2 |
|
|
$ |
93.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Total Assets:
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
9,797.2 |
|
|
$ |
9,901.0 |
|
CMG
|
|
|
924.8 |
|
|
|
928.6 |
|
Corporate and other
|
|
|
1,207.7 |
|
|
|
1,442.7 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
11,929.7 |
|
|
$ |
12,272.3 |
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts disclosed as revenue from unaffiliated customers include
immaterial amounts of intersegment revenues. |
25
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 15: |
Commitments and Contingencies |
|
|
|
Shares Deliverable Under Securities Class Actions |
In the fourth quarter of 2004, we settled thirteen federal
securities class actions against us and certain of our present
and former directors and officers. Under the terms of the
settlement, we have agreed to pay $115.0, of which $20.0 will be
paid in cash and $95.0 in shares of our common stock at a value
of $14.50 per share. On November 4, 2004, the court
entered an order granting final approval of the settlement. The
term of appeal for the settlement expired during the fourth
quarter of 2004. During the fourth quarter of 2004, the $20.0
cash portion of the settlement was paid into escrow and 0.8 of
the settlement shares were issued to the plaintiffs
counsel as payment of their fee.
In 2003, we recorded litigation charges of $115.0 related to the
settlement of the shareholder suits discussed above. During the
fourth quarter of 2004, the settlement was approved and the
litigation charges were reduced by $20.0 due to insurance
proceeds received as reimbursement for the cash component of the
settlement from our Directors and Officers insurance policies
and by $12.5 relating to a decrease in the share price between
the tentative settlement date and the final settlement date.
In January 2003, the SEC issued a formal order of
investigation related to our restatements of earnings for
periods dating back to 1997. On April 20, 2005, we received
a subpoena from the SEC under authority of the order of
investigation requiring production of additional documents
relating to the potential restatement we announced in March
2005. The SEC is investigating the restatement detailed in
Note 2 to the Consolidated Financial Statements in our 2004
Annual Report on Form 10-K. We are cooperating fully with
the investigation.
We are involved in other legal and administrative proceedings of
various types. While any litigation contains an element of
uncertainty, we have no reason to believe that the outcome of
such proceedings or claims will have a material adverse effect
on our financial condition, results of operations, or our cash
flows.
26
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) is intended to help you understand The
Interpublic Group of Companies, Inc. and subsidiaries (the
Company, we, us or
our). MD&A is provided as a supplement to and
should be read in conjunction with our financial statements and
the accompanying notes. Our MD&A includes the following
sections:
|
|
|
OVERVIEW provides an analysis of our performance, and a
description of the significant events impacting three and six
months ended June 30, 2005. |
|
|
RESULTS OF OPERATIONS provides an analysis of the consolidated
and segment results of operations for the three and six month
periods ended June 30, 2005 compared to 2004. |
|
|
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash
flows, financing and derivatives and hedging activities. |
|
|
INTERNAL CONTROL OVER FINANCIAL REPORTING provides a description
of the status of our compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 and related rules. |
|
|
RESTATEMENT provides an overview of our recent restatements on
previously published financial statements. |
|
|
CRITICAL ACCOUNTING POLICIES, by reference to our 2004 Annual
Report on Form 10-K, provides a discussion of our
accounting policies that require critical judgment, assumptions
and estimates. |
|
|
OTHER MATTERS provides a discussion of our significant
non-operational items which impact our financial statements,
such as the SEC investigation. |
RECENT ACCOUNTING STANDARDS by reference to Note 9 to the
Consolidated Financial Statements provides a description of
accounting standards which we have not yet been required to
implement and may be applicable to our operations, as well as
those significant accounting statements which were adopted
during 2005.
OVERVIEW
As part of our restatement process, we issued accounting
guidelines to our agencies to strengthen adherence to Staff
Accounting Bulletin 104, Revenue Recognition. Our
policies are further explained in our revenue recognition policy
discussion in both MD&A and the footnotes to our
Consolidated Financial Statements. This accounting guidance
governs the timing of when revenue is recognized. Accordingly,
if work is being performed in a given quarter but there is
insufficient evidence of an arrangement, the related revenue
would be deferred to a future quarter when the evidence is
obtained. However, our costs of services are primarily expensed
as incurred, except that incremental direct costs may be
deferred under a significant long term contract until it is
complete. As revenue is deferred until completion of the
contract in these circumstances and cash collection is assured
and costs are primarily expensed as incurred, this will have a
negative impact on our operating margin until the period in
which the revenue can be recognized. While this will not affect
cash flow, it will affect organic revenue growth and margins and
this effect is likely to be greater in comparing quarters than
in comparing full years.
In addition, the Company also issued guidelines to our business
units to strengthen adherence to EITF 99-19, Reporting
Revenue Gross as a Principal Versus Net as an Agent. This
accounting guidance
27
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
governs when revenues should be recorded net of external media
or production cost and when it should be recorded gross. This
accounting is very contract specific and can vary period to
period and agency by agency. Accordingly, while this accounting
will not affect cash flow and profitability, it could affect
organic changes in revenue.
|
|
|
Three and Six Months Ended June 30, 2005
Performance |
We have developed a number of financial priorities and targets
that we use to measure our performance. The following are the
performance priorities and analyses of our performance:
|
|
|
|
|
We seek to accelerate organic revenue growth by
strengthening collaboration among our agencies and increasing
the number of marketing services used by each client. We have
established a supplemental incentive plan, expanded internal
tools and resources, and heightened internal communications
aimed at encouraging collaboration. We analyze our performance
by calculating the percentage increase in revenue related to
organic growth between comparable periods. |
|
|
|
We seek to improve operating margin by increasing revenue
and by controlling salaries and related expenses, as well as
office and general expenses. We analyze our performance by
comparing revenue to prior periods and measuring salaries and
related expenses, as well as office and general expenses, as a
percentage of revenue. We define operating margin as operating
income divided by reported revenue. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
For the Six | |
|
|
Months Ended | |
|
Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Organic revenue growth % (vs. prior year)
|
|
|
7.2 |
% |
|
|
(2.3 |
)% |
|
|
1.3 |
% |
|
|
(0.2 |
)% |
Operating margin %
|
|
|
7.7 |
% |
|
|
(1.7 |
)% |
|
|
1.3 |
% |
|
|
3.5 |
% |
Salaries and related expenses as a % of revenue
|
|
|
59.1 |
% |
|
|
59.4 |
% |
|
|
65.5 |
% |
|
|
61.5 |
% |
Office and general expenses as a % revenue
|
|
|
33.3 |
% |
|
|
36.5 |
% |
|
|
36.2 |
% |
|
|
36.6 |
% |
Organic revenue growth has improved over the prior year.
For the six months ended June 30, 2005, domestic organic
revenue growth was 1.0% while our international organic revenue
growth was 1.8%. For the three months ended June 30, 2005,
domestic organic revenue growth was 8.9% while our international
revenue growth was 5.2%.
Operating margin for the six months ended June 30,
2004 was impacted by asset impairments and other charges of
$8.8, restructuring charges of $65.5 and contract termination
charges related to the Motorsports business of $80.0. The
increase in 2005 operating margin was impacted by increased
revenues of $44.3 and decrease of restructuring charges, long
lived asset impairment and other charges and Motorsports
contract termination costs of $163.1. These increases were
offset by increased salaries and related expenses of $144.0,
driven by increased staffing drive to support revenue growth,
improve the accounting and control environment and develop
shared services and increased office and general expense of $2.2
driven by increased professional fees of $41.0.
Operating margin for the three months ended June 30, 2004
was impacted by asset impairments and other charges of $3.1,
restructuring charges of $3.9 and contract termination charges
related to the Motorsports business of $80.0. The increase in
2005 operating margin was impacted by increased revenues of
$103.4 and decreased office and general expense of $14.9,
partially offset by increased salaries and related expenses of
$56.9, driven by increased staffing drive to support revenue
growth, improve the accounting and control environment and
develop shared services.
28
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
Significant Second Quarter 2005 Activity and Subsequent
Events |
|
|
|
|
|
Restructuring reversals of $1.9 and $8.8, respectively, were
recorded for the three and six months ended June 30, 2005,
respectively, related to severance and termination costs and
lease termination and other exit costs under the 2003 and 2001
restructuring programs, net of $2.5 and $10.6, respectively, of
reserve reversals for the three and six months ended
June 30, 2005, respectively, due to changes in our original
estimates. |
|
|
|
|
|
We entered into waivers and amendments to our 364-Day and
Three-year Revolving Credit Facilities, to waive any breach or
default related to not complying in a timely manner with our
reporting requirements. In addition, financial covenants with
respect to our interest coverage ratio, debt to EBITDA ratio and
minimum EBITDA for certain fiscal quarters were amended. |
|
|
|
Subsequent to June 30, 2005 |
|
|
|
|
|
In July 2005, we completed the issuance and sale of $250.0
Floating Rate Notes maturing 2008. We used the proceeds to
redeem the 7.875% Senior Unsecured Notes maturing October
2005 with an aggregate principal amount of $250.0. |
|
|
|
Our Three-Year Revolving Credit Facility was amended and
restated as of September 27, 2005. The effectiveness of the
amended Three-Year Revolving Credit Facility is subject to
certain conditions. The amendment revises certain of the
negative and financial covenants under our existing Three-Year
Revolving Credit Facility. |
|
|
|
In September 2005, we restated our previously filed
financial statements and filed our delayed Annual Report on
Form 10-K and our delayed Quarterly Reports on Form 10-Q
for the first and second quarters of 2005. |
RESULTS OF OPERATIONS
The components of the change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
1,512.8 |
|
|
|
|
|
|
$ |
856.5 |
|
|
|
|
|
|
|
56.6 |
% |
|
$ |
656.3 |
|
|
|
|
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
14.5 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
14.5 |
|
|
|
2.2 |
% |
|
|
|
|
Net acquisitions/ divestitures
|
|
|
(20.3 |
) |
|
|
(1.3 |
)% |
|
|
(4.5 |
) |
|
|
(0.5 |
)% |
|
|
|
|
|
|
(15.8 |
) |
|
|
(2.4 |
)% |
|
|
|
|
Organic
|
|
|
109.2 |
|
|
|
7.2 |
% |
|
|
75.3 |
|
|
|
8.8 |
% |
|
|
|
|
|
|
33.9 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
103.4 |
|
|
|
6.8 |
% |
|
|
70.8 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
32.6 |
|
|
|
5.0 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
1,616.2 |
|
|
|
|
|
|
$ |
927.3 |
|
|
|
|
|
|
|
57.4 |
% |
|
$ |
688.9 |
|
|
|
|
|
|
|
42.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
For the three months ended June 30, 2005, consolidated
revenues increased $103.4, or 6.8%, as compared to 2004, which
was attributable to foreign currency exchange rate changes of
$14.5 and organic revenue growth of $109.2, partially offset by
the effect of net acquisitions and divestitures of $20.3.
The increase due to foreign currency changes was primarily
attributable to the strengthening of the Brazilian Real in
relation to the US Dollar, which mainly affected our IAN
segment. Net effect of acquisitions and divestitures resulted
largely from a 2004 acquisition at McCann and the sale of the
Motorsports business and Transworld Marketing during 2004.
During 2005, organic revenue change of $109.2, or 7.2% was
driven by an increase at IAN and a decrease at CMG. The increase
at IAN was a result of client wins and additional spending by
existing clients primarily in our US and European agencies, as
well as an increase related to the timing of revenue recognition
which was previously deferred due to lack of persuasive evidence
of arrangements with our customers. At CMG, the organic revenue
decreased domestically due to declines in the events business.
These declines were offset slightly by growth in our public
relations and sports marketing businesses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
2,902.2 |
|
|
|
|
|
|
$ |
1,659.9 |
|
|
|
|
|
|
|
57.2 |
% |
|
$ |
1,242.3 |
|
|
|
|
|
|
|
42.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
39.7 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.7 |
|
|
|
3.2 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(34.0 |
) |
|
|
(1.2 |
)% |
|
|
(8.9 |
) |
|
|
(0.5 |
)% |
|
|
|
|
|
|
(25.1 |
) |
|
|
(2.0 |
)% |
|
|
|
|
Organic
|
|
|
38.6 |
|
|
|
1.3 |
% |
|
|
15.9 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
22.7 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
44.3 |
|
|
|
1.5 |
% |
|
|
7.0 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
37.3 |
|
|
|
3.0 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
2,946.5 |
|
|
|
|
|
|
$ |
1,666.9 |
|
|
|
|
|
|
|
56.6 |
% |
|
$ |
1,279.6 |
|
|
|
|
|
|
|
43.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2005, consolidated
revenues increased $44.3, or 1.5% as compared to 2004, which was
attributed to foreign currency exchange rate effects of $39.7
and organic revenue growth of $38.6, partially offset by the
effect of net acquisitions and divestitures of $34.0.
The increase due to foreign currency changes were primarily
attributable to the strengthening of the Brazilian Real in
relation to the US Dollar, which affected both our IAN and
CMG segments. The net effect of acquisitions and divestitures
resulted largely from a 2004 acquisition at McCann and the sale
of the Motorsports business and Transworld Marketing in 2004.
During 2005, organic revenue change of $38.6, or 1.3%, was
driven by an increase at IAN and decrease at CMG. The increase
at IAN was a result of client wins and additional spending by
existing clients primarily in our US and European agencies. At
CMG, the organic revenue decreased domestically due to declines
in the branding and events businesses. These declines were
offset slightly by growth in our sports marketing and public
relations businesses.
30
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
|
|
|
Six Months Ended June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
$ | |
|
% | |
|
|
|
% of | |
|
|
|
% of | |
|
$ | |
|
% | |
|
|
$ | |
|
Revenue | |
|
$ | |
|
Revenue | |
|
Change | |
|
Change | |
|
$ | |
|
Revenue | |
|
$ | |
|
Revenue | |
|
Change | |
|
Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Salaries and related expenses
|
|
$ |
955.4 |
|
|
|
59.1% |
|
|
$ |
898.5 |
|
|
|
59.4% |
|
|
$ |
56.9 |
|
|
|
6.3 |
% |
|
$ |
1,929.2 |
|
|
|
65.5% |
|
|
$ |
1,785.2 |
|
|
|
61.5% |
|
|
$ |
144.0 |
|
|
|
8.1 |
% |
Office and general expenses
|
|
|
537.9 |
|
|
|
33.3% |
|
|
|
552.8 |
|
|
|
36.5% |
|
|
|
(14.9 |
) |
|
|
(2.7 |
)% |
|
|
1,065.7 |
|
|
|
36.2% |
|
|
|
1,063.5 |
|
|
|
36.6% |
|
|
|
2.2 |
|
|
|
0.2 |
% |
Restructuring charges
|
|
|
(1.9 |
) |
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
(5.8 |
) |
|
|
(148.7 |
)% |
|
|
(8.8 |
) |
|
|
|
|
|
|
65.5 |
|
|
|
|
|
|
|
(74.3 |
) |
|
|
(113.4 |
)% |
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
(3.1 |
) |
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
8.8 |
|
|
|
|
|
|
|
(8.8 |
) |
|
|
(100.0 |
)% |
Motorsports contract termination costs
|
|
|
|
|
|
|
|
|
|
|
80.0 |
|
|
|
|
|
|
|
(80.0 |
) |
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
80.0 |
|
|
|
|
|
|
|
(80.0 |
) |
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$ |
1,491.4 |
|
|
|
|
|
|
$ |
1,538.3 |
|
|
|
|
|
|
$ |
(46.9 |
) |
|
|
(3.0 |
)% |
|
$ |
2,986.1 |
|
|
|
|
|
|
$ |
3,003.0 |
|
|
|
|
|
|
$ |
(16.9 |
) |
|
|
(0.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Related Expenses
Salaries and related expenses are the largest component of
operating expenses and consist primarily of salaries, related
benefits, and performance incentives. During the three months
ended June 30, 2005, salaries and related expenses
decreased to 59.1% of revenue, compared to 59.4% in the prior
year. During the six months ended June 30, 2005, salaries
and related expenses increased to 65.5% of revenues, compared to
61.5% in the prior year. The components of the change were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
| |
|
| |
|
|
Total | |
|
|
|
Total | |
|
|
|
|
| |
|
% of | |
|
| |
|
% of | |
|
|
$ | |
|
% Change | |
|
Revenue | |
|
$ | |
|
% Change | |
|
Revenue | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
898.5 |
|
|
|
|
|
|
|
59.4 |
% |
|
$ |
1,785.2 |
|
|
|
|
|
|
|
61.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
6.3 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
22.3 |
|
|
|
1.2 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(9.3 |
) |
|
|
(1.0 |
)% |
|
|
|
|
|
|
(18.9 |
) |
|
|
(1.1 |
)% |
|
|
|
|
Organic
|
|
|
59.9 |
|
|
|
6.7 |
% |
|
|
|
|
|
|
140.6 |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
56.9 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
144.0 |
|
|
|
8.1 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
955.4 |
|
|
|
|
|
|
|
59.1 |
% |
|
$ |
1,929.2 |
|
|
|
|
|
|
|
65.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, salaries and
related expenses increased $59.9, excluding the increase related
to foreign currency exchange rate changes of $6.3 and a decrease
related to net acquisitions and divestitures of $9.3.
Salaries and related expenses were impacted by changes in
foreign currency rates, attributable to the strengthening of the
Brazilian Real in relation to the US Dollar. The increase
due to foreign currency rate
31
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
changes was partially offset by impact of net acquisitions and
dispositions, primarily the sale of the Motorsports business and
Transworld Marketing during 2004.
The increase in salaries and related expenses excluding the
impact of foreign currency and net acquisitions and divestitures
was primarily the result of increased staffing to support
revenue growth, improve the accounting and control environment
and develop shared services. The increase was also driven by a
timing difference in the way incentive compensation is
recognized as a result of a change in compensation plans. Under
the new plan, incentive compensation is formula driven,
resulting in compensation expense being recorded more evenly
throughout the year versus the old plan whereby the expense was
recorded mostly in the last quarter of the year.
For the six months ended June 30, 2005, salaries and
related expenses increased $140.6, excluding the increase
related to foreign currency exchange rate changes of $22.3 and a
decrease related to net acquisitions and divestitures of $18.9.
Salaries and related expenses were impacted by changes in
foreign currency rates, attributable to the strengthening of the
Brazilian Real in relation to the US Dollar. The increase
due to foreign currency rate changes was partially offset by
impact of net acquisitions and dispositions, primarily the sale
of the Motorsports business and Transworld Marketing during 2004.
The increase in salaries and related expenses excluding the
impact of foreign currency and net acquisitions and divestitures
was primarily the result of increased staffing drive to support
revenue growth, improve the accounting and control environment,
and develop shared services. The increase was also driven by a
timing difference in the way incentive compensation is
recognized as a result of a third quarter 2004 change in
compensation plans. Under the new plan incentive compensation is
formula driven, resulting in compensation expense being recorded
based on the formula throughout the year, versus the old plan,
which was discretionary, which caused more of the expense to be
recorded in the fourth quarter of the year.
32
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
Office and General Expenses |
Office and general expenses primarily consists of rent, office
and equipment, depreciation, professional fees, other overhead
expenses and certain out-of-pocket expenses related to our
revenue. During the three months ended June 30, 2005,
office and general expenses decreased to 33.3% of revenue,
compared to 36.5% in the prior year. During the six months ended
June 30, 2005, office and general expenses decreased to
36.2% of revenue, as compared to 36.6% in the prior year. The
components of the change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Six Months Ended | |
|
|
| |
|
| |
|
|
Total | |
|
|
|
Total | |
|
|
|
|
| |
|
% of | |
|
| |
|
% of | |
|
|
$ | |
|
% Change | |
|
Revenue | |
|
$ | |
|
% Change | |
|
Revenue | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
552.8 |
|
|
|
|
|
|
|
36.5 |
% |
|
$ |
1,063.5 |
|
|
|
|
|
|
|
36.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
4.8 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
14.9 |
|
|
|
1.4 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(17.9 |
) |
|
|
(3.2 |
)% |
|
|
|
|
|
|
(33.6 |
) |
|
|
(3.2 |
)% |
|
|
|
|
Organic
|
|
|
(1.8 |
) |
|
|
(0.3 |
)% |
|
|
|
|
|
|
20.9 |
|
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
(14.9 |
) |
|
|
(2.7 |
)% |
|
|
|
|
|
|
2.2 |
|
|
|
0.2 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
537.9 |
|
|
|
|
|
|
|
33.3 |
% |
|
$ |
1,065.7 |
|
|
|
|
|
|
|
36.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, office and
general expenses decreased $1.8, excluding the increase related
to foreign currency exchange rate changes of $4.8 and a decrease
related to net acquisitions and divestitures of $17.9.
Office and general expenses were impacted by net acquisitions
and divestitures activity, primarily attributable to the sale of
the Motorsports business and Transworld Marketing during 2004.
The decrease due to the impact of net acquisitions and
divestitures activity was partially offset by the impact of
changes in foreign currency rates, attributable to the
strengthening of the Brazilian Real in relation to the
US Dollar.
The slight decrease in office and general expenses, excluding
the impact of foreign currency and net acquisition and
divestitures was primarily the result of a decrease in
professional fees from prior year due to significant costs in
prior year associated with our ongoing efforts in internal
control compliance and remediation and the development of
information technology systems and processes related to our
shared services initiatives.
For the six months ended June 30, 2005, office and general
expenses increased $20.9, excluding the increase related to
foreign currency exchange rate changes of $14.9 and a decrease
related to net acquisitions and divestitures of $33.6.
Office and general expenses were impacted by net acquisitions
and divestitures activity, primarily attributable to the sale of
the Motorsports business and Transworld Marketing during 2004.
The decrease due to the impact of net acquisitions and
divestitures activity was partially offset by the impact of
changes in foreign currency rates, attributable to the
strengthening of the Brazilian Real in relation to the
US Dollar.
33
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
The significant increase in office and general expenses,
excluding the impact of foreign currency and net acquisition and
divestitures was primarily the result of an increase of $41.0 or
43.2% over prior year in professional fees driven by our ongoing
efforts in internal control compliance and remediation,
increased costs associated with the restatement process,
increased audit fees, the development of information technology
systems and processes related to our shared services initiatives.
|
|
|
Restructuring Charges (Reversals) |
During the three months ended June 30, 2005 and 2004, we
recorded net (income) and expense related to both lease
termination and other exit costs and severance and termination
costs related to the 2003 and 2001 restructuring programs, of
($1.9) and $3.9, respectively, which included the impact of
adjustments resulting from changes in managements
estimates. For the six months ended June 30, 2005 and 2004,
we recorded net (income) and expense of ($8.8) and $65.5,
respectively. A summary of the net (income) and expense is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
|
|
|
| |
|
|
|
|
Lease Termination and | |
|
Severance and | |
|
|
|
|
Other Exit Costs | |
|
Termination Costs | |
|
|
|
|
| |
|
| |
|
|
|
|
2003 | |
|
2001 | |
|
|
|
2003 | |
|
2001 | |
|
|
|
|
|
|
Program | |
|
Program | |
|
Total | |
|
Program | |
|
Program | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 Net Income
|
|
$ |
(1.2 |
) |
|
$ |
(0.6 |
) |
|
$ |
(1.8 |
) |
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Net (Income) Expense (Restated)
|
|
$ |
6.9 |
|
|
$ |
3.1 |
|
|
$ |
10.0 |
|
|
$ |
(1.1 |
) |
|
$ |
(5.0 |
) |
|
$ |
(6.1 |
) |
|
$ |
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
|
|
|
| |
|
|
|
|
Lease Termination and | |
|
Severance and | |
|
|
|
|
Other Exit Costs | |
|
Termination Costs | |
|
|
|
|
| |
|
| |
|
|
|
|
2003 | |
|
2001 | |
|
|
|
2003 | |
|
2001 | |
|
|
|
|
|
|
Program | |
|
Program | |
|
Total | |
|
Program | |
|
Program | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2005 Net Income
|
|
$ |
(5.5 |
) |
|
$ |
(2.9 |
) |
|
$ |
(8.4 |
) |
|
$ |
(0.4 |
) |
|
$ |
|
|
|
$ |
(0.4 |
) |
|
$ |
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 Net (Income) Expense (Restated)
|
|
$ |
49.1 |
|
|
$ |
0.6 |
|
|
$ |
49.7 |
|
|
$ |
20.8 |
|
|
$ |
(5.0 |
) |
|
$ |
15.8 |
|
|
$ |
65.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Termination and Other Exit Costs |
Net income related to lease termination and other exit costs for
the three months ended June 30, 2005 was $1.8, comprised of
charges of $0.6, partially offset by adjustments to management
estimates of $2.4. For the three months ended June 30,
2004, these costs were $10.0, comprised of charges of $17.0,
offset by similar adjustments of $7.0. Charges were recorded at
net present value net of estimated sublease rental income. The
discount related to lease terminations is being amortized over
the expected remaining term of the related lease. In addition,
for the three months ended June 30, 2004, charges related
to the vacating of 11 offices, located primarily in the US and
Europe.
In addition to amounts recorded as restructuring charges, we
recorded charges of $2.7 during the three months ended
June 30, 2004 related to the accelerated amortization of
leasehold improvements on properties included in the 2003
program. These charges were included in office and general
expenses on the Consolidated Statements of Operations.
34
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
Net income related to lease termination and other exit costs for
the six months ended June 30, 2005 were $8.4, comprised of
charges of $1.8, offset by adjustments to management estimates
of $10.2. For the six months ended June 30, 2004, net
expense was $49.7, comprised of charges of $60.5 partially
offset by similar adjustments of $10.8. Charges were recorded at
net present value net of estimated sublease rental income. The
discount related to lease terminations is being amortized over
the expected remaining term of the related lease. In addition,
for the six months ended June 30, 2004, charges were
recorded for the vacating of 36 offices.
In addition to amounts recorded as restructuring charges, we
recorded charges of $10.3 during the six months ended
June 30, 2004, related to the accelerated amortization of
leasehold improvements on properties included in the 2003
program. These charges were included in office and general
expenses on the Consolidated Statements of Operations.
|
|
|
Severance and Termination Costs |
Net income related to severance and termination costs of $0.1
for the three months ended June 30, 2005, resulted
exclusively from the impact of adjustments to managements
estimates. Net income for the three months ended June 30,
2004 was $6.1, comprised of charges of $0.4, offset by
adjustments to management estimates of $6.5.
Net income related to severance and termination costs of $0.4
for the six months ended June 30, 2005, resulted
exclusively from the impact of adjustments to managements
estimates. Net expense for the six months ended June 30,
2004 was $15.8, comprised of charges of $24.5, partially offset
by adjustments to management estimates of $8.7
For additional information, see Note 5 to the Consolidated
Financial Statements.
|
|
|
Long-Lived Asset Impairment and Other Charges |
There were no impairment charges recorded during the six months
ended June 30, 2005.
During the three months and six months ended June 30, 2004,
we recorded $3.1 and $8.8 of impairment charges, respectively.
These amounts included $2.0 and $6.0, respectively, primarily
related to the impairment of long-lived assets of businesses
sold, and $0.7 and $2.3, respectively, related to capital
expenditure outlays in our Motorsports businesses which were
expensed as incurred.
|
|
|
Motorsports Contract Termination Costs |
As discussed in Note 4 to the Consolidated Financial
Statements, during the period ended June 30, 2004, we
recorded a pretax charge of $80.0 related to an agreement with
Formula One Administration Limited which releases us from
certain guarantees and lease obligations in the United Kingdom.
We have exited this business and do not anticipate any
additional material changes.
35
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
|
For the Six | |
|
|
|
|
|
|
Months Ended | |
|
|
|
|
|
Months Ended | |
|
|
|
|
|
|
June 30, | |
|
|
|
|
|
June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
Interest expense
|
|
$ |
(42.7 |
) |
|
$ |
(42.0 |
) |
|
$ |
(0.7 |
) |
|
|
1.7 |
% |
|
$ |
(89.9 |
) |
|
$ |
(85.9 |
) |
|
$ |
(4.0 |
) |
|
|
4.7 |
% |
Interest income
|
|
|
16.5 |
|
|
|
10.4 |
|
|
|
6.1 |
|
|
|
58.7 |
% |
|
|
31.4 |
|
|
|
20.2 |
|
|
|
11.2 |
|
|
|
55.4 |
% |
Investment impairments
|
|
|
(3.6 |
) |
|
|
|
|
|
|
(3.6 |
) |
|
|
|
|
|
|
(3.6 |
) |
|
|
(3.2 |
) |
|
|
(0.4 |
) |
|
|
12.5 |
% |
Other income
|
|
|
4.6 |
|
|
|
2.2 |
|
|
|
2.4 |
|
|
|
109.1 |
% |
|
|
19.1 |
|
|
|
3.5 |
|
|
|
15.6 |
|
|
|
445.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(25.2 |
) |
|
$ |
(29.4 |
) |
|
$ |
4.2 |
|
|
|
(14.3 |
)% |
|
$ |
(43.0 |
) |
|
$ |
(65.4 |
) |
|
$ |
22.4 |
|
|
|
(34.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense of $4.0 during the six months
ended June 30, 2005 was primarily due to waiver and consent
fees incurred for the amendment of our existing debt agreements
in 2005, offset by net interest expense savings from the
redemption of our $250.0 1.80% Convertible Subordinated
Notes in January 2004 and the redemption of our $361.0
1.87% Convertible Subordinated Notes in December 2004.
The increase in interest income of $11.2 during the six months
ended June 30, 2005 was primarily due to an increase in
interest rates when compared to the prior year.
During the six months ended June 30, 2005, we recorded $3.6
in investment impairment charges to reduce an investment to its
appropriate fair value. During the six months ended
June 30, 2004, we recorded $3.2 in investment impairment
charges related to a decline in value of certain
available-for-sale investments that were determined to be other
than temporary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
Months Ended | |
|
For the Six Months | |
|
|
June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Gains on sales of businesses
|
|
$ |
4.4 |
|
|
$ |
0.8 |
|
|
$ |
14.0 |
|
|
$ |
0.7 |
|
Gains on sales of available for-sale securities and
miscellaneous investment income
|
|
|
0.2 |
|
|
|
1.4 |
|
|
|
5.1 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$ |
4.6 |
|
|
$ |
2.2 |
|
|
$ |
19.1 |
|
|
$ |
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2005, we sold our
remaining ownership interest in Delaney Lund Knox
Warren & Partners, an agency within Foote,
Cone & Belding Worldwide, for a gain of approximately
$8.5.
36
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
We recorded an income tax provision of $44.7 and $1.6 on pretax
losses of $82.6 and $166.2 for the six months ended
June 30, 2005 and 2004, respectively. Our effective tax
rate was 54.1% and 1.0% for the six months ended June 30,
2005 and 2004, respectively. The difference between the
effective tax rate and statutory rate of 35% is due to state and
local taxes and the effect of non-US operations. The most
significant item negatively impacting the effective tax rate was
operating losses in a number of non-US jurisdictions that
receive little or no tax benefit.
|
|
|
Minority Interest and Unconsolidated Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
Months Ended | |
|
For the Six Months | |
|
|
June 30, | |
|
Ended June 30, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Income applicable to minority interests
|
|
$ |
(3.7 |
) |
|
$ |
(4.2 |
) |
|
$ |
(4.9 |
) |
|
$ |
(6.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of unconsolidated affiliates
|
|
$ |
2.3 |
|
|
$ |
1.3 |
|
|
$ |
2.8 |
|
|
$ |
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in income applicable to minority interests during
the three and six months ended June 30, 2005, was primarily
due to lower operating results of majority-owned international
businesses, primarily in Europe, and the sale of majority-owned
businesses in Latin America.
The increase in equity in net income of unconsolidated
affiliates during the three and six months ended June 30,
2005 was primarily due to increased operating results, primarily
in the US and Latin America.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
|
|
|
|
|
|
|
|
Months Ended | |
|
|
|
|
|
For the Six Months | |
|
|
|
|
|
|
June 30, | |
|
|
|
|
|
Ended June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
Net income (loss)
|
|
$ |
14.4 |
|
|
$ |
(88.4 |
) |
|
$ |
102.8 |
|
|
|
116.2 |
% |
|
$ |
(129.4 |
) |
|
$ |
(172.2 |
) |
|
$ |
42.8 |
|
|
|
24.8 |
% |
Less: preferred stock dividends
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
10.0 |
|
|
|
9.8 |
|
|
|
0.2 |
|
|
|
2.0 |
% |
Less: allocation to participating securities
|
|
|
1.7 |
|
|
|
|
|
|
|
1.7 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$ |
7.7 |
|
|
$ |
(93.4 |
) |
|
$ |
101.1 |
|
|
|
108.2 |
% |
|
$ |
(139.4 |
) |
|
$ |
(182.0 |
) |
|
$ |
42.6 |
|
|
|
23.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
For the three months ended June 30, 2005, our net income
increased by $102.8, or 116.1%. For the six months ended
June 30, 2005, our net from operations decreased by $42.8,
or 24.8%. Increase for the three months ended June 30, 2005
largely resulted from increased revenue growth of $103.4 and a
decrease in operating expenses of $46.9. Increase for the six
months ended June 30, 2005 largely resulted from increased
revenue growth of $44.3 and a decrease in operating expenses of
$16.9.
Segment Results of Operations Three and Six
Months Ended June 30, 2005 Compared to Three and Six Months
Ended June 30, 2004
As discussed in Note 15 to the Consolidated Financial
Statements, we have two reportable segments, our operating
divisions, IAN and CMG, in addition to the Corporate group, at
June 30, 2005. The largest segment, Integrated Agency
Networks (IAN), is comprised of McCann Worldgroup
(McCann), The FCB Group (FCB), The Lowe
Group (Lowe), Draft Worldwide (Draft)
and our stand-alone agencies. Our stand alone agencies include
Deutsch, Campbell-Ewald and Hill Holiday. The second segment,
Constituent Management Group (CMG), is comprised of
Weber Shandwick, GolinHarris, Jack Morton and Octagon. During
the period ended June 30, 2004, we had a third reportable
segment comprised of the Motorsports operations, which was sold
during 2004. The following table summarizes revenue and
operating income by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months | |
|
|
|
|
|
For the Six Months | |
|
|
|
|
|
|
Ended June 30, | |
|
|
|
|
|
Ended June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
1,391.0 |
|
|
$ |
1,276.3 |
|
|
$ |
114.7 |
|
|
|
9.0 |
% |
|
$ |
2,507.6 |
|
|
$ |
2,442.7 |
|
|
$ |
64.9 |
|
|
|
2.7 |
% |
CMG
|
|
|
224.8 |
|
|
|
229.0 |
|
|
|
(4.2 |
) |
|
|
(1.8 |
)% |
|
|
437.3 |
|
|
|
448.9 |
|
|
|
(11.6 |
) |
|
|
(2.6 |
)% |
Motorsports
|
|
|
0.4 |
|
|
|
7.5 |
|
|
|
(7.1 |
) |
|
|
(94.7 |
)% |
|
|
1.6 |
|
|
|
10.6 |
|
|
|
(9.0 |
) |
|
|
(84.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue
|
|
$ |
1,616.2 |
|
|
$ |
1,512.8 |
|
|
$ |
103.4 |
|
|
|
6.8 |
% |
|
$ |
2,946.5 |
|
|
$ |
2,902.2 |
|
|
$ |
44.3 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$ |
161.4 |
|
|
$ |
113.9 |
|
|
$ |
47.5 |
|
|
|
41.7 |
% |
|
$ |
78.7 |
|
|
$ |
146.5 |
|
|
$ |
(67.8 |
) |
|
|
(46.3 |
)% |
CMG
|
|
|
8.6 |
|
|
|
19.2 |
|
|
|
(10.6 |
) |
|
|
(55.2 |
)% |
|
|
9.4 |
|
|
|
28.3 |
|
|
|
(18.9 |
) |
|
|
(66.8 |
)% |
Motorsports
|
|
|
0.2 |
|
|
|
(4.2 |
) |
|
|
4.4 |
|
|
|
(104.8 |
)% |
|
|
1.2 |
|
|
|
(12.7 |
) |
|
|
13.9 |
|
|
|
(109.4 |
)% |
Corporate and other
|
|
|
(47.3 |
) |
|
|
(67.4 |
) |
|
|
20.1 |
|
|
|
(29.8 |
)% |
|
|
(137.7 |
) |
|
|
(108.6 |
) |
|
|
(29.1 |
) |
|
|
26.8 |
% |
38
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 (Restated) | |
|
|
| |
|
| |
|
|
IAN | |
|
CMG | |
|
Motorsports | |
|
Corporate | |
|
Consolidated | |
|
IAN | |
|
CMG | |
|
Motorsports | |
|
Corporate | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss)
|
|
$ |
161.6 |
|
|
$ |
9.7 |
|
|
$ |
0.2 |
|
|
$ |
(46.7 |
) |
|
$ |
124.8 |
|
|
$ |
126.4 |
|
|
$ |
4.8 |
|
|
$ |
(84.9 |
) |
|
$ |
(71.8 |
) |
|
$ |
(25.5 |
) |
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
0.6 |
|
|
|
1.9 |
|
|
|
12.5 |
|
|
|
(12.0 |
) |
|
|
|
|
|
|
(4.4 |
) |
|
|
(3.9 |
) |
|
Long lived asset impairment and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
(80.7 |
) |
|
|
|
|
|
|
(83.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$ |
161.4 |
|
|
$ |
8.6 |
|
|
$ |
0.2 |
|
|
$ |
(47.3 |
) |
|
$ |
|
|
|
$ |
113.9 |
|
|
$ |
19.2 |
|
|
$ |
(4.2 |
) |
|
$ |
(67.4 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, | |
|
|
| |
|
|
2005 | |
|
2004 (Restated) | |
|
|
| |
|
| |
|
|
IAN | |
|
CMG | |
|
Motorsports | |
|
Corporate | |
|
Consolidated | |
|
IAN | |
|
CMG | |
|
Motorsports | |
|
Corporate | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Reconciliation to segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss)
|
|
$ |
84.0 |
|
|
$ |
12.3 |
|
|
$ |
1.2 |
|
|
$ |
(137.1 |
) |
|
$ |
(39.6 |
) |
|
$ |
113.6 |
|
|
$ |
(6.3 |
) |
|
$ |
(95.0 |
) |
|
$ |
(113.1 |
) |
|
$ |
(100.8 |
) |
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
5.3 |
|
|
|
2.9 |
|
|
|
|
|
|
|
0.6 |
|
|
|
8.8 |
|
|
|
(32.9 |
) |
|
|
(28.1 |
) |
|
|
|
|
|
|
(4.5 |
) |
|
|
(65.5 |
) |
|
Long lived asset impairment and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.5 |
) |
|
|
(82.3 |
) |
|
|
|
|
|
|
(88.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$ |
78.7 |
|
|
$ |
9.4 |
|
|
$ |
1.2 |
|
|
$ |
(137.7 |
) |
|
$ |
|
|
|
$ |
146.5 |
|
|
$ |
28.3 |
|
|
$ |
(12.7 |
) |
|
$ |
(108.6 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEGRATED AGENCY NETWORKS (IAN)
The components of the 2005 change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
1,276.3 |
|
|
|
|
|
|
$ |
705.5 |
|
|
|
|
|
|
|
55.3 |
% |
|
$ |
570.8 |
|
|
|
|
|
|
|
44.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
14.4 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.4 |
|
|
|
2.5 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(9.5 |
) |
|
|
(0.7 |
)% |
|
|
(2.4 |
) |
|
|
(0.3 |
)% |
|
|
|
|
|
|
(7.1 |
) |
|
|
(1.2 |
)% |
|
|
|
|
Organic
|
|
|
109.8 |
|
|
|
8.6 |
% |
|
|
82.1 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
27.7 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
114.7 |
|
|
|
9.0 |
% |
|
|
79.7 |
|
|
|
11.3 |
% |
|
|
|
|
|
|
35.0 |
|
|
|
6.1 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
1,391.0 |
|
|
|
|
|
|
$ |
785.2 |
|
|
|
|
|
|
|
56.4 |
% |
|
$ |
605.8 |
|
|
|
|
|
|
|
43.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
For the three months ended June 30, 2005, IAN experienced a
net increase in revenue as compared to 2004 of $114.7, or 9.0%,
which was comprised of organic revenue increases of $109.8 and
an increase in foreign currency exchange rate changes of $14.4,
partially offset by a decrease attributable to net acquisitions
and divestitures of $9.5. The increase due to foreign currency
was primarily attributable to the strengthening of the Brazilian
Real in relation to the US Dollar, which mainly affected
the results of McCann, FCB and Lowe. This increase was partially
offset by the net effect of acquisitions and divestitures,
primarily related to a 2004 acquisition at McCann and the
disposition of Motorsports and Transworld Marketing during 2004.
The organic revenue increase was primarily driven by increases
at McCann, FCB and Draft, partially offset by decreases at
Deutsch. At McCann, the organic revenue increase was as a result
of client wins and additional spending from existing clients
primarily in the US and, to a lesser extent, European agencies.
The increase also related to the timing of revenue recognition
which was previously deferred due to lack of persuasive
evidence. Draft experienced growth mainly in the US and UK due
to client wins and additional spending by existing clients. FCB
experienced growth due to client wins outpacing client losses
and increased business from continuing clients. Deutsch
experienced a decline in revenues primarily due to the loss of
several clients and decreased business for continuing clients.
The components of the 2005 change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
2,442.7 |
|
|
|
|
|
|
$ |
1,369.8 |
|
|
|
|
|
|
|
56.1 |
% |
|
$ |
1,072.9 |
|
|
|
|
|
|
|
43.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
36.7 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.7 |
|
|
|
3.4 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(16.5 |
) |
|
|
(0.7 |
) |
|
|
(1.7 |
) |
|
|
(0.1 |
)% |
|
|
|
|
|
|
(14.8 |
) |
|
|
(1.4 |
)% |
|
|
|
|
Organic
|
|
|
44.7 |
|
|
|
1.8 |
% |
|
|
32.1 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
12.6 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
64.9 |
|
|
|
2.7 |
% |
|
|
30.4 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
34.5 |
|
|
|
3.2 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
2,507.6 |
|
|
|
|
|
|
$ |
1,400.2 |
|
|
|
|
|
|
|
55.8 |
% |
|
$ |
1,107.4 |
|
|
|
|
|
|
|
44.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2005, IAN experienced a
net increase in revenue as compared to 2004 of $64.9, or 2.7%,
which was comprised of organic revenue increases of $44.7 and an
increase in foreign currency exchange rate changes of $36.7,
partially offset by a decrease attributable to net acquisitions
and divestitures of $(16.5). The increase due to foreign
currency rate changes was primarily attributable to the
strengthening of the Brazilian Real in relation to the
US Dollar, which mainly affected the results of McCann, FCB
and Lowe. The net effect of acquisitions and divestitures
resulted largely from a 2004 acquisition at McCann as well as
the disposition of Motorsports and Transworld Marketing during
2004.
The organic revenue increase was primarily driven by increases
at McCann and Draft, partially offset by decreases at Deutsch,
FCB and Lowe. At McCann, the organic revenues increase was as a
result of client wins and additional spending from existing
clients primarily in the US and, to a lesser extent, European
agencies. Draft experienced growth mainly in the US and UK due
to client wins and additional spending by existing clients. FCB
experienced a decline in revenues primarily due to lost clients,
offset
40
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
partially by new client wins and increased revenues for entities
that record revenue on a gross basis. Deutsch and Lowe both
experienced a decline in revenues primarily due to lost clients
and fee reductions, however, Deutsch was able to partially
offset their client losses with new client wins.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the | |
|
|
|
|
|
For the | |
|
|
|
|
|
|
Three Months Ended | |
|
|
|
|
|
Six Months Ended | |
|
|
|
|
|
|
June 30, | |
|
|
|
|
|
June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
Segment operating income
|
|
$ |
161.4 |
|
|
$ |
113.9 |
|
|
$ |
47.5 |
|
|
|
41.7 |
% |
|
$ |
78.7 |
|
|
$ |
146.5 |
|
|
$ |
(67.8 |
) |
|
|
(46.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
11.6 |
% |
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
3.1 |
% |
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, IAN operating
income increased by $47.5, or 41.7%, which was the result of an
increase in revenue of $114.7, offset by an increase in salaries
and related expenses of $43.1 and increased office and general
expenses of $24.0.
Segment operating income growth, excluding the impact of foreign
currency and net effects of acquisitions and divestitures, was
primarily driven by increases at McCann, partially offset by
decreases at FCB, Initiative Media and Deutsch. Increase in
operating income at McCann was driven by the revenue increases,
slightly offset by increased salary and related expenses.
Operating decrease at FCB was driven by increased salary and
related expenses and office expenses, partially offset by
increased revenues. Operating decrease at Deutsch was driven by
revenue declines, while operating income decrease at Initiative
Media was driven by revenue declines and increased operating
costs.
For the six months ended June 30, 2005, IAN operating
income decreased by $67.8, or 46.3%, which was the result of an
increase in revenue of $64.9, offset by an increase in salaries
and related expenses of $118.7 and increased office and general
expenses of $13.8.
The decrease in IANs operating income, excluding the
impact of foreign currency and net effects of acquisitions and
divestitures, was primarily driven by decreased operating income
at FCB, Deutsch, Lowe and McCann. Operating decrease at FCB was
driven by the increase in salary and related expenses and office
expenses. Operating decreases at Deutsch and Lowe were driven by
revenue declines. The operating decrease at McCann was driven by
increased salary and related expenses, partially offset by the
revenue increases.
41
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
CONSTITUENT MANAGEMENT GROUP (CMG)
The components of the 2005 change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
229.0 |
|
|
|
|
|
|
$ |
151.2 |
|
|
|
|
|
|
|
66.0 |
% |
|
$ |
77.8 |
|
|
|
|
|
|
|
34.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
0.3 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
0.4 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(3.6 |
) |
|
|
(1.6 |
)% |
|
|
(1.9 |
) |
|
|
(1.3 |
)% |
|
|
|
|
|
|
(1.7 |
) |
|
|
(2.2 |
)% |
|
|
|
|
Organic
|
|
|
(0.9 |
) |
|
|
(0.4 |
)% |
|
|
(7.2 |
) |
|
|
(4.8 |
)% |
|
|
|
|
|
|
6.3 |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
(4.2 |
) |
|
|
(1.8 |
)% |
|
|
(9.1 |
) |
|
|
(6.0 |
)% |
|
|
|
|
|
|
4.9 |
|
|
|
6.3 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
224.8 |
|
|
|
|
|
|
$ |
142.1 |
|
|
|
|
|
|
|
63.2 |
% |
|
$ |
82.7 |
|
|
|
|
|
|
|
36.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, CMG experienced a
net decrease in revenue as compared to 2004 of $4.2, or 1.8%,
which was comprised of organic revenue decreases of $0.9 and
decreases attributable to net acquisitions and divestitures of
$3.6, partially offset by positive foreign currency exchange
rate changes of $0.3. The net effect of acquisitions and
divestitures primarily related to the disposition of one small
business in 2005 and three small businesses in 2004.
The decline in organic revenue change was due to the events
business, offset slightly by improved conditions in our public
relations business and sports marketing business. The decreased
results were partially offset by organic revenue growth
attributable to the events business in the Asia Pacific region
and sports management business in Europe.
The components of the 2005 change were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
Domestic | |
|
International | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% Change | |
|
$ | |
|
% Change | |
|
% of Total | |
|
$ | |
|
% Change | |
|
% of Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
June 30, 2004 (Restated)
|
|
$ |
448.9 |
|
|
|
|
|
|
$ |
289.9 |
|
|
|
|
|
|
|
64.6 |
% |
|
$ |
159.0 |
|
|
|
|
|
|
|
35.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency changes
|
|
|
3.0 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
1.9 |
% |
|
|
|
|
Net acquisitions/divestitures
|
|
|
(8.3 |
) |
|
|
(1.8 |
)% |
|
|
(5.0 |
) |
|
|
(1.7 |
)% |
|
|
|
|
|
|
(3.3 |
) |
|
|
(2.1 |
)% |
|
|
|
|
Organic operations
|
|
|
(6.3 |
) |
|
|
(1.4 |
)% |
|
|
(18.3 |
) |
|
|
(6.3 |
)% |
|
|
|
|
|
|
12.0 |
|
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
(11.6 |
) |
|
|
(2.6 |
)% |
|
|
(23.3 |
) |
|
|
(8.0 |
)% |
|
|
|
|
|
|
11.7 |
|
|
|
7.4 |
% |
|
|
|
|
June 30, 2005
|
|
$ |
437.3 |
|
|
|
|
|
|
$ |
266.6 |
|
|
|
|
|
|
|
61.0 |
% |
|
$ |
170.7 |
|
|
|
|
|
|
|
39.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2005, CMG experienced a
net decrease in revenue as compared to 2004 of $11.6, or 2.6%,
which was comprised of organic revenue decreases of $6.3 and
decreases attributable to net acquisitions and divestitures of
$8.3, partially offset by positive foreign currency exchange
rate changes of $3.0. The net effect of acquisitions and
divestitures primarily related to the disposition of small
businesses in 2004.
The decline in organic revenue change was due to the branding
and events businesses, offset slightly by improved conditions in
our public relations business.
42
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
|
|
|
|
|
|
|
|
Months Ended | |
|
|
|
|
|
For the Six Months | |
|
|
|
|
|
|
June 30, | |
|
|
|
|
|
Ended June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
(Restated) | |
|
|
Segment operating income
|
|
$ |
8.6 |
|
|
$ |
19.2 |
|
|
$ |
(10.6 |
) |
|
|
(55.2 |
)% |
|
$ |
9.4 |
|
|
$ |
28.3 |
|
|
$ |
(18.9 |
) |
|
|
(66.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
3.8 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
2.1 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2005, CMG operating
income decreased by $10.6, or 55.2%, which was the result of a
decrease in revenue of $4.2 and increased salaries and related
expenses of $11.3, offset by decreased office and general
expenses of $4.9.
The decrease in segment operating income, excluding the impact
of foreign currency and net effects of acquisitions and
divestitures, was primarily driven by decreased operating income
in the public relations business and events business. Operating
decrease in the branding and events business was driven by
revenue decrease and increased salary and related expenses.
Operating decrease at our public relations business was driven
by increased salary and related expenses.
For the six months ended June 30, 2005, CMG operating
income decreased by $18.9, or 66.8%, which was the result of a
decrease in revenue of $11.6 and increased salaries and related
expenses of $12.1, offset by decreased office and general
expenses of $4.7.
The decrease in segment operating income, excluding the impact
of foreign currency rate and net effects of acquisitions and
divestitures, was primarily driven by decreased operating income
at the branding and events businesses as well as decreased
operating income at the public relations business. Operating
decrease at the branding and events businesses was driven by
revenue decreases coupled with relatively flat operating
expenses.
43
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
CORPORATE AND OTHER
Certain corporate and other charges are reported as a separate
line within total segment operating income and include corporate
office expenses and shared service center expenses, as well as
certain other centrally managed expenses which are not allocated
to operating divisions, as shown in the table below. Salaries
and related expenses includes salaries, pension, and bonus and
insurance expenses, including medical and dental for corporate
office employees. Professional fees include costs related to
internal control compliance and remediation, cost of restatement
efforts, financial statement audits, legal, information
technology and other consulting fees, which are engaged and
managed through the corporate office. Rent and depreciation
includes rental expense and depreciation of leasehold
improvements for properties occupied by corporate office
employees. Corporate insurance expense includes the cost of
fire, liability and automobile premiums. Bank fees relate to
debt and credit facilities managed by the corporate office. The
amounts allocated to operating divisions are calculated monthly
based on a formula that uses the weighted average net revenues
of the operating unit. The majority of the corporate costs,
including most of the costs associated with internal control
compliance and remediation are not allocated back to operating
segments. The following expenses are included in
Corporate & Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
|
|
|
For the Six | |
|
|
|
|
|
|
Months Ended | |
|
|
|
|
|
Months Ended | |
|
|
|
|
|
|
June 30, | |
|
|
|
|
|
June 30, | |
|
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
2005 | |
|
2004 | |
|
$ Change | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
|
|
|
|
(Restated) | |
|
|
|
|
Salaries and related expenses
|
|
$ |
42.9 |
|
|
$ |
37.7 |
|
|
$ |
5.2 |
|
|
|
13.8 |
% |
|
$ |
91.8 |
|
|
$ |
73.0 |
|
|
$ |
18.8 |
|
|
|
25.8 |
% |
Professional fees
|
|
|
30.2 |
|
|
|
42.9 |
|
|
|
(12.7 |
) |
|
|
(29.6 |
)% |
|
|
82.6 |
|
|
|
59.0 |
|
|
|
23.6 |
|
|
|
40.0 |
% |
Rent and depreciation
|
|
|
10.8 |
|
|
|
7.3 |
|
|
|
3.5 |
|
|
|
47.9 |
% |
|
|
22.3 |
|
|
|
19.0 |
|
|
|
3.3 |
|
|
|
17.4 |
% |
Corporate insurance
|
|
|
6.5 |
|
|
|
8.0 |
|
|
|
(1.5 |
) |
|
|
(18.8 |
)% |
|
|
13.6 |
|
|
|
15.4 |
|
|
|
(1.8 |
) |
|
|
(11.7 |
)% |
Bank
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
(0.3 |
) |
|
|
(33.3 |
)% |
|
|
1.1 |
|
|
|
1.7 |
|
|
|
(0.6 |
) |
|
|
(35.3 |
)% |
Other
|
|
|
(1.9 |
) |
|
|
5.2 |
|
|
|
(7.1 |
) |
|
|
(136.5 |
)% |
|
|
3.1 |
|
|
|
3.5 |
|
|
|
(0.4 |
) |
|
|
(11.4 |
)% |
Amounts allocated to operating division
|
|
|
(41.8 |
) |
|
|
(34.6 |
) |
|
|
(7.2 |
) |
|
|
20.8 |
% |
|
|
(76.8 |
) |
|
|
(63.0 |
) |
|
|
(13.8 |
) |
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate and other
|
|
$ |
47.3 |
|
|
$ |
67.4 |
|
|
$ |
(20.1 |
) |
|
|
(29.8 |
)% |
|
$ |
137.7 |
|
|
$ |
108.6 |
|
|
$ |
29.1 |
|
|
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Our cash used by operating activities was $240.8 for the six
months ended June 30, 2005, compared to $101.3 for the six
months ended June 30, 2004. The increase in cash used by
operating activities for the six months ended June 30, 2005
was primarily attributable to the year-over-year changes in
receivables and liabilities.
We conduct media buying on behalf of clients, which affects our
working capital and operating cash flow. In most of our
businesses, we collect funds from our clients which we use, on
their behalf, to pay production costs and media costs. The
amounts involved substantially exceed our revenues, and the
current assets and current liabilities on our balance sheet
reflect these pass-through arrangements. Our assets include both
cash received and accounts receivable from customers for these
pass-through arrangements, while our liabilities include amounts
owed on behalf of customers to media and production suppliers.
Generally, we pay production and media charges after we have
received funds from our clients, and our risk from client
nonpayment has historically not been significant.
44
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
Our most significant funding requirements include:
non-cancelable operating lease obligations, capital
expenditures, payments in respect of past acquisitions, interest
payments, preferred stock dividends, and taxes. We have not paid
dividends on our common stock since 2002.
We have no scheduled maturities of long-term debt until 2008, as
a result of transactions undertaken in 2005. Our outstanding
debt is described below under Long-Term Debt. In July 2005 we
refinanced $250.0 of debt through July 2008 as described below
under Redemption and Repurchase of Long-Term Debt.
Our capital expenditures are primarily to upgrade computer and
telecommunications systems and to modernize offices. Our
principal bank credit facility limits the amounts we can spend
on capital expenditures in any calendar year to $210.0. Our
capital expenditures were $65.6 for the six months ended
June 30, 2005.
Certain media companies in various locations outside the
U.S. require advertising agencies to post a letter of
credit to support commitments to purchase media placements.
Primarily, we obtain these letters of credit from our principal
bank syndicate under the credit facilities described under
Credit Arrangements below. The outstanding amount of letters of
credit were $159.2 and $165.4 as of June 30, 2005 and
December 31, 2004, respectively. These letters of credit
have not been drawn upon in recent years.
At June 30, 2005 our total of cash and cash equivalents
plus short-term marketable securities was $1,583.3. The total
was $1,970.4 at December 31, 2004.
We have financed ourselves through access to the capital markets
by issuing debt securities, convertible preferred stock and
common stock. Our outstanding debt securities are described
under Long-Term Debt and Convertible Senior Notes below. As a
result of the disclaimer of opinion by PwC on Managements
Assessment on Internal Control over Financial Reporting, see
Item 9A, Controls and Procedures in our 2004 Annual Report
on Form 10-K, the SEC considers our SEC filings not to be
current for purposes of certain of the SECs rules. As a
result, we are unable to use short-form registration
(registration that allows us to incorporate by reference our
Form 10-K, Form 10-Q and other SEC reports into our
registration statements) or, for most purposes, shelf
registration, until twelve complete months have passed after we
file an annual report containing an audit report on internal
control over financial reporting that does not disclaim an
opinion.
In July 2005, we issued $250.0 of Floating Rate Notes due 2008
in a placement to refinance maturing debt, as described below.
We have committed and uncommitted credit lines, and the terms of
our revolving credit facilities are described below. We have not
drawn on our committed facilities during 2005 or 2004, although
we use them to issue letters of credit, as described above. Our
outstanding borrowings under uncommitted credit facilities were
$75.1 and $67.8 as of June 30, 2005 and December 31,
2004, respectively. We use uncommitted credit lines for working
capital needs at some of our operations outside the United
States. If we lose access to these credit lines, we may be
required to provide funding directly to some overseas
operations. We maintain our committed credit facilities
primarily as stand-by short-term liquidity.
45
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
A summary of our long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
7.875% Senior Unsecured Notes due 2005
|
|
$ |
252.0 |
|
|
$ |
255.0 |
|
7.25% Senior Unsecured Notes due 2011
|
|
|
499.1 |
|
|
|
500.0 |
|
5.40% Senior Unsecured Notes, due 2009 (less unamortized
discount of $0.3)
|
|
|
249.7 |
|
|
|
249.7 |
|
6.25% Senior Unsecured Notes, due 2014 (less unamortized
discount of $1.0)
|
|
|
350.3 |
|
|
|
347.3 |
|
4.50% Convertible Senior Notes due 2023
|
|
|
800.0 |
|
|
|
800.0 |
|
Other notes payable and capitalized leases
|
|
|
39.9 |
|
|
|
42.1 |
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
2,191.0 |
|
|
|
2,194.1 |
|
Less: current portion
|
|
|
257.5 |
|
|
|
258.1 |
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
$ |
1,933.5 |
|
|
$ |
1,936.0 |
|
|
|
|
|
|
|
|
|
|
|
Redemption and Repurchase of Long-Term Debt |
In August 2005, we redeemed the remainder of the outstanding
7.875% Senior Unsecured Notes with an aggregate principal
amount of $250.0 at maturity at an aggregate price of
approximately $258.6, which included the principal amount of the
Notes plus accrued interest to the redemption date. To redeem
these Notes we used the proceeds from the sale and issuance in
July 2005 of $250.0 Floating Rate Notes due in July 2008.
The 4.50% Convertible Senior Notes
(4.50% Notes) are convertible to common stock
at a conversion price of $12.42 per share, subject to
adjustment in specified circumstances. They are convertible at
any time if the average price of our common stock for 20 trading
days immediately preceding the conversion date is greater than
or equal to a specified percentage, beginning at 120% in 2003
and declining 0.5% each year until it reaches 110% at maturity,
of the conversion price. They are also convertible, regardless
of the price of our common stock, if: (i) we call the
4.50% Notes for redemption; (ii) we make specified
distributions to shareholders; (iii) we become a party to a
consolidation, merger or binding share exchange pursuant to
which our common stock would be converted into cash or property
(other than securities) or (iv) the credit ratings assigned
to the 4.50% Notes by any two of Moodys Investors
Service, Standard & Poors and Fitch Ratings are
lower than Ba2, BB and BB, respectively, or the 4.50% Notes
are no longer rated by at least two of these ratings services.
Because of our current credit ratings, the 4.50% Notes are
currently convertible into approximately 64.4 shares of our
common stock.
We, at the investors option, may be required to redeem the
4.50% Notes for cash on March 15, 2008 and may also be
required to redeem the 4.50% Notes at the investors option
on March 15, 2013 and March 15, 2018, for cash or
common stock or a combination of both, at our election.
Additionally, investors may require us to redeem the 4.50% Notes
in the event of certain change of control events that occur
prior to March 15, 2008, for cash or common stock or a
combination of both, at our election. If at
46
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
any time on or after March 13, 2003 we pay cash dividends
on our common stock, we will pay contingent interest in an
amount equal to 100% of the per share cash dividend paid on the
common stock multiplied by the number of shares of common stock
issuable upon conversion of the 4.50% Notes. At our option, we
may redeem the 4.50% Notes on or after September 15, 2009
for cash. The redemption price in each of these instances will
be 100% of the principal amount of the notes being redeemed,
plus accrued and unpaid interest, if any. The 4.50% Notes also
provide for an additional make-whole adjustment to
the conversion rate in the event of a change of control meeting
specified conditions.
We have committed and uncommitted lines of credit with various
banks that permit borrowings at variable interest rates. As of
June 30, 2005 and December 31, 2004, there were no
borrowings under our committed facilities, however, there were
borrowings under the uncommitted facilities made by several of
our international subsidiaries totaling $75.1 and $67.8,
respectively. We have guaranteed the repayment of some of these
borrowings by our subsidiaries.
Our primary bank credit agreements are two credit facilities, a
364-day revolving credit facility (364-Day Revolving
Credit Facility) and a three-year revolving credit
facility (Three-Year Revolving Credit Facility and,
together with the 364-Day Revolving Credit Facility, the
Revolving Credit Facilities). The 364-Day Revolving
Credit Facility will expire on September 30, 2005. These
facilities have been modified three times through waivers and
amendments executed as of September 29, 2004,
March 31, 2005 and June 22, 2005, and the Three-Year
Revolving Credit Facility was also amended as of
September 27, 2005, respectively. For a description of
these waivers and amendments, see Note 11 to the
Consolidated Financial Statements in our 2004 Annual Report on
Form 10-K.
The terms of our amended Three-Year Revolving Credit Facility do
not permit us: (i) to make cash acquisitions in excess of
$50.0 until October 2006, or thereafter in excess of $50.0 until
expiration of the agreement in May 2007, subject to increases
equal to the net cash proceeds received in the applicable period
from any disposition of assets; (ii) to make capital
expenditures in excess of $210.0 annually; (iii) to
repurchase or to declare or to pay dividends on our capital
stock (except for any convertible preferred stock, convertible
trust preferred instrument or similar security, which includes
our outstanding 5.40% Series A Mandatory Convertible
Preferred), except that we may repurchase our capital stock in
connection with the exercise of options by our employees or with
proceeds contemporaneously received from an issue of new shares
of our capital stock; and (iv) to incur new debt at our
subsidiaries, other than unsecured debt incurred in the ordinary
course of business, which may not exceed $10.0 in the aggregate
with respect to our US subsidiaries.
The Three-Year Revolving Credit Facility was amended and
restated as of September 27, 2005. The effectiveness of the
amended Three-Year Revolving Credit Facility is subject to
certain conditions as described below.
47
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
The amended Three-Year Revolving Credit Facility also sets forth
revised financial covenants. These require that, as of the
fiscal quarter ended September 30, 2005 and each fiscal
quarter thereafter, we maintain:
(i) an interest coverage ratio of not less than that set
forth opposite the corresponding quarter in the table below:
|
|
|
|
|
Fiscal Quarter Ending |
|
Ratio | |
|
|
| |
September 30, 2005
|
|
|
2.15 to 1 |
|
December 31, 2005
|
|
|
1.75 to 1 |
|
March 31, 2006
|
|
|
1.85 to 1 |
|
June 30, 2006
|
|
|
1.45 to 1 |
|
September 30, 2006
|
|
|
1.75 to 1 |
|
December 31, 2006
|
|
|
2.15 to 1 |
|
March 31, 2007
|
|
|
2.50 to 1 |
|
(ii) a debt to EBITDA ratio of not greater than that set
forth opposite the corresponding quarter in the table below:
|
|
|
|
|
Fiscal Quarter Ending |
|
Ratio | |
|
|
| |
September 30, 2005
|
|
|
5.20 to 1 |
|
December 31, 2005
|
|
|
6.30 to 1 |
|
March 31, 2006
|
|
|
5.65 to 1 |
|
June 30, 2006
|
|
|
6.65 to 1 |
|
September 30, 2006
|
|
|
5.15 to 1 |
|
December 31, 2006
|
|
|
4.15 to 1 |
|
March 31, 2007
|
|
|
3.90 to 1 |
|
and (iii) minimum levels of EBITDA for the four fiscal
quarters then ended of not less than that set forth opposite the
corresponding quarter in the table below:
|
|
|
|
|
Four Fiscal Quarters Ending |
|
Amount | |
|
|
| |
September 30, 2005
|
|
$ |
435.0 |
|
December 31, 2005
|
|
$ |
360.0 |
|
March 31, 2006
|
|
$ |
400.0 |
|
June 30, 2006
|
|
$ |
340.0 |
|
September 30, 2006
|
|
$ |
440.0 |
|
December 31, 2006
|
|
$ |
545.0 |
|
March 31, 2007
|
|
$ |
585.0 |
|
The terms used in these ratios, including EBITDA, interest
coverage and debt, are subject to specific definitions set forth
in the agreement. Under the definition set forth in the
Three-Year Revolving Credit Facility, EBITDA is determined by
adding to net income or loss the following items: interest
expense, income tax expense, depreciation expense, amortization
expense, and certain specified cash payments and non-cash
charges subject to limitations on time and amount set forth in
the agreement. Based on our
48
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
forecasts we expect to be in compliance with all covenants under
our Three-Year Revolving Credit Facility, as amended and
restated, for the next twelve months.
Before agreeing to the amendments, the lenders reviewed
preliminary drafts of the Consolidated Financial Statements
included in our preliminary 2004 Annual Report and in our
quarterly reports on Form 10-Q for the first two quarters
of 2005. One condition to effectiveness of the amendments is
that we have not received, on or before October 4, 2005,
notice from the lenders that have a majority in amount of the
revolving credit commitments that the Consolidated Financial
Statements in our 2004 Annual Report and our quarterly reports,
and the financial data contained in the notes thereto, are not
substantially similar to the draft Consolidated Financial
Statements we provided to them. If we receive such a notice, the
amended agreement will not become effective. In that event, we
will continue to be subject to the financial covenants that were
previously applicable under the Three-Year Revolving Credit
Facility, as amended in June 2005 with respect to periods
through the second quarter of 2005. We were in compliance with
those covenants through June 30, 2005, but there can be no
assurance that we will continue to be in compliance for the
third quarter of 2005.
DERIVATIVES AND HEDGING ACTIVITIES
In January 2005, we entered into an interest rate swap which
synthetically converted $150.0 of fixed rate debt to floating
rates. The interest rate swap effectively converted $150.0 of
the $500.0, 7.25% Senior Unsecured Notes due August 2011 to
floating rate debt and matures on the same day the debt is due.
Under the terms of the interest rate swap agreement we pay a
floating interest rate, based on one-month LIBOR plus a spread
of 297.0 basis points, and receive the fixed interest rate
of the underlying bond being hedged.
On May 25, 2005, we terminated our three long-term interest
rate swap agreements executed during the fourth quarter of 2004
covering the $350.0, 6.25% Senior Unsecured Notes due
November 2014 and our long-term interest rate swap agreement
covering the $150.0 of the $500.0, 7.25% Senior Unsecured
Notes due August 2011. In connection with the termination, our
net cash receipts were approximately $1.1, which will be
recorded as an offset to interest expense over the remaining
life of the related debt.
INTERNAL CONTROL OVER FINANCIAL REPORTING
We have identified numerous material weaknesses in our internal
control over financial reporting, as set forth in greater detail
in Managements Assessment of Internal Control Over
Financial Reporting, in Item 8, Consolidated Financial
Statements and Supplementary Data, to our 2004 Annual Report on
Form 10-K. Each of our material weaknesses results in more
than a remote likelihood that a material misstatement in our
annual or interim financial statements will not be prevented or
detected. As a result, we have concluded that our internal
control over financial reporting was not effective as of
December 31, 2004.
The report of PricewaterhouseCoopers LLP (PwC), our
independent registered public accounting firm, on our internal
control over financial reporting disclaims an opinion on
managements assessment and on the effectiveness of our
internal control over financial reporting as of
December 31, 2004. Until we file an annual report
containing an audit report on our internal control over
financial reporting that does not disclaim an opinion on our
assessment or on the effectiveness of our internal control over
financial reporting, we are subject to certain limitations under
the US federal securities laws as further described in
Item 1, Risk Factors, in our 2004 Annual Report on
Form 10-K.
49
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
We are in the process of developing and implementing remedial
measures to address the material weaknesses in our internal
control over financial reporting. However, because of our
decentralized structure and our many disparate accounting
systems of varying quality and sophistication, we have extensive
work remaining to remedy these material weaknesses. While we
have made considerable progress, we have yet to complete the
formal work plan for remedying the identified material
weaknesses. At present, there can be no assurance as to when the
remediation plan will be completed or when it will be
implemented. Until our remedial efforts are completed, we will
continue to incur the expenses and management burdens associated
with the manual procedures and additional resources required to
prepare our Consolidated Financial Statements. There will also
continue to be a substantial risk that we will be unable to make
future SEC filings on time. These developments, and the effect
on our actual or perceived liquidity and credit standing, could
have material adverse effects on our financial condition and
further adverse affects on our business or our liquidity that we
cannot predict. We discuss these risks under Item 1, Risk
Factors, in our 2004 Annual Report on Form 10-K.
RESTATEMENT
The filing of this report was delayed because of the extensive
additional work necessary to compensate for our material
weaknesses in our internal control over financial reporting.
These weaknesses resulted in a restatement of our previously
published consolidated financial statements in our 2004 Annual
Report on Form 10-K, including a restatement of the
Consolidated Statement of Operations for the quarter ended
June 30, 2004 and Consolidated Statement of Cash Flows for
the six months ended June 30, 2004. The Consolidated
Statements of Operations for the quarter and six months ended
June 30, 2004, and the Consolidated Statement of Cash Flows
and Comprehensive Loss for the six months ended June 30,
2004 in this report are presented as fully restated. The
restatement is a result of accounting errors related to the
following:
|
|
|
|
|
Revenue Recognition |
|
|
|
Accounting for Acquisitions |
|
|
|
Internal Investigations |
|
|
|
International Compensation Arrangements |
|
|
|
Accounting for Lease Related Expenses |
|
|
|
Goodwill and Investment Impairment |
|
|
|
Other |
For information on the restatement and the impact of the
restatement on our financial statements for the period ended
June 30, 2004, we refer you to Item 8, Financial
Statements and Supplementary Data, Note 2, Restatement of
Previously Filed Financial Statements, and Note 20, Results
by Quarter, in our 2004 Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1
to the Consolidated Financial Statements for the year ended
December 31, 2004 included in the 2004 Form 10-K.
Further, and as summarized in the Managements Discussion
and Analysis of Financial Condition and Results of Operations
section of our 2004 Form 10-K, we believe that certain of
these policies are critical because they are both important to
the presentation of our financial condition and results and they
require managements most difficult,
50
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
(Amounts in Millions, Except Per Share Amounts)
subjective or complex judgments, often as a result of the need
to estimate the effect of matters that are inherently uncertain.
We base our estimates on historical experience and on other
factors that we consider reasonable under the circumstances.
Estimation methodologies are applied consistently from year to
year and there have been no significant changes in the
application of critical accounting policies since
December 31, 2004. Actual results may differ from these
estimates under different assumptions or conditions.
OTHER MATTERS
In January 2003, the SEC issued a formal order of investigation
related to our restatements of earnings for periods dating back
to 1997. On April 20, 2005, we received a subpoena from the
SEC under authority of the order of investigation requiring
production of additional documents relating to the potential
restatement we announced in March 2005. The SEC is investigating
the restatement detailed in Note 2 to the Consolidated
Financial Statements in our 2004 Annual Report on Form 10-K
filed with the SEC. We are cooperating fully with the
investigation.
RECENT ACCOUNTING STANDARDS
Please refer to Note 9 to our Consolidated Financial
Statements for a complete description of recent accounting
pronouncements that have affected us or may affect us.
51
|
|
Item 3. |
Quantitative and Qualitative Disclosures about Market
Risk |
In the normal course of business, we are exposed to market risks
related to interest rates and foreign currency rates. From time
to time, we use derivatives, pursuant to established guidelines
and policies, to manage some portion of these risks. Derivative
instruments utilized in our hedging activities are viewed as
risk management tools, involve little complexity and are not
used for trading or speculative purposes. See Note 13 to
the Consolidated Financial Statements.
Interest Rates
Our exposure to market risk for changes in interest rates
relates primarily to our debt obligations. At June 30,
2005, a significant portion (96.5%) of our debt obligations bore
interest at fixed interest rates. Accordingly, assuming the
fixed-rate debt is not refinanced, there would be no impact on
interest expense or cash flow from either a 10% increase or
decrease in market rates of interest. The fair market value of
the debt obligations would decrease by approximately $24.7 if
market rates were to increase by 10% and would increase by
approximately $25.3 if market rates were to decrease by 10%. For
that portion of the debt that bore interest at variable rates,
based on outstanding amounts and rates at June 30, 2005,
interest expense and cash out-flow would increase or decrease by
approximately $0.4 if market rates were to increase or decrease
by 10%, respectively. From time to time we have used interest
rate swaps to manage the mix of our fixed and floating rate debt
obligations. In May 2005, we terminated all our existing
long-term interest rate swap agreements, and currently have none
outstanding.
Foreign Currencies
We face translation and transaction risks related to changes in
foreign currency exchange rates. Amounts invested in our foreign
operations are translated into US Dollars at the exchange
rates in effect at the balance sheet date. Our foreign
subsidiaries generally collect revenues and pay expenses in
currencies other than the US Dollar, mitigating transaction
risk. Since the functional currency of our foreign operations is
generally the local currency, foreign currency translation of
the balance sheet is reflected as a component of
stockholders equity and does not impact operating results.
Revenues and expenses in foreign currencies translate into
varying amounts of US Dollars depending upon whether the
US Dollar weakens or strengthens against other currencies.
Therefore, changes in exchange rates may either positively or
negatively affect our consolidated revenues and expenses (as
expressed in US Dollars) from foreign operations. Currency
transaction gains or losses arising from transactions in
currencies other than the functional currency are included in
results of operations and were not significant in the period
ended June 30, 2005. We have not entered into a material
amount of foreign currency forward exchange contracts or other
derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates.
|
|
Item 4. |
Controls and Procedures |
Disclosure controls and procedures
We have carried out an evaluation under the supervision of, and
with the participation of, our management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2005. Our evaluation
has disclosed numerous material weaknesses in our internal
control over financial reporting as noted in Managements
Assessment on Internal Control over Financial Reporting in
Item 8, Financial Statement and Supplementary Data, to our
2004 Annual Report on Form 10-K. Material weaknesses in
internal controls may also constitute deficiencies in our
disclosure controls. Based on an evaluation of these material
weaknesses, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and
procedures were not effective as of June 30, 2005. However,
based on significant work performed to date, management believes
that there are no material inaccuracies or omissions of material
fact in this report. Management, to the best of its knowledge,
believes that the financial statements contained in this report
are fairly presented in all material respects.
52
There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.
Changes in internal controls
In connection with the evaluation of our internal control over
financial reporting, we are in the process of developing a
remediation plan to address our deficiencies and expect that
this plan will extend into the 2006 fiscal year.
53
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings |
We are involved in legal and administrative proceedings of
various types. While any litigation contains an element of
uncertainty, we have no reason to believe that the outcome of
such proceedings or claims will have a material adverse effect
on our financial condition except as described below.
SEC Investigation
In January 2003, the SEC issued a formal order of investigation
related to our restatements of earnings for periods dating back
to 1997. On April 20, 2005, we received a subpoena from the
SEC under authority of the order of investigation requiring
production of additional documents relating to the potential
restatement we announced in March 2005. The SEC is investigating
the restatement detailed in Note 2 to the Consolidated
Financial Statements in our 2004 Annual Report on Form 10-K
filed with the SEC. We are cooperating fully with the
investigation.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
(a) The information provided below describes various
transactions occurring during the quarter in which we issued
shares of our common stock, par value $.10 per share, that
were not registered under the Securities Act of 1933, as
amended, (the Securities Act).
|
|
|
1. On April 1, 2005 we issued 201,786 shares of
our common stock, to nineteen shareholders of a company whose
assets we acquired through a subsidiary in the third quarter of
2000 as a deferred payment of the purchase price. The shares of
our common stock had a market value of $2,392,374 as of the date
of issuance and were issued without registration in reliance on
Section 4(2) under the Securities Act, based on the
sophistication of each of the nineteen shareholders. The
shareholders had access to all our SEC filings. |
|
|
2. On April 27, 2005, we issued 457,444 shares of
our common stock to one company, in connection with the sale of
substantially all of the assets of an affiliate of such company
to one of our subsidiaries in the fourth quarter of 2000 as a
deferred payment of the purchase price. The shares had a market
value of $5,965,070 as of the date of issuance and were issued
without registration in reliance on Section 4(2) under the
Securities Act, based on the status of the company as an
accredited investor. |
|
|
3. On May 12, 2005, we issued 115,312 shares of
our common stock to a former shareholder of a company that was
acquired by us in the fourth quarter of 2000 as a deferred
payment of the purchase price. The shares had a market value of
$1,498,821 as of the date of issuance and were issued without
registration in an offshore transaction and solely
to non-U.S. persons in reliance on
Rule 903(b)(3) of Regulation S under the Securities
Act. |
(c) The following table provides information regarding our
purchases of our equity securities during the period from
April 1, 2005 to June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or | |
|
|
|
|
|
|
Total Number of Shares | |
|
Approximate Dollar | |
|
|
|
|
|
|
(or Units) Purchased as | |
|
Value) of Shares (or Units) | |
|
|
Total Number of | |
|
Average Price | |
|
Part of Publicly | |
|
that May Yet Be | |
|
|
Shares (or Units) | |
|
Paid per Share | |
|
Announced Plans | |
|
Purchased Under the Plans | |
|
|
Purchased | |
|
(or Unit)(2) | |
|
or Programs | |
|
or Programs | |
|
|
| |
|
| |
|
| |
|
| |
April 1-30
|
|
|
77,951 shares |
|
|
$ |
12.56 |
|
|
|
|
|
|
|
|
|
May 1-31
|
|
|
45,803 shares |
|
|
$ |
12.59 |
|
|
|
|
|
|
|
|
|
June 1-30
|
|
|
27,310 shares |
|
|
$ |
12.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
151,064 shares |
|
|
$ |
12.55 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
Consists of restricted shares of our common stock withheld under
the terms of grants under employee stock compensation plans to
offset tax withholding obligations that occurred upon vesting
and release of restricted shares during each month of the first
quarter of 2005 (the Withheld Shares). |
54
|
|
(2) |
The average price per month of the Withheld Shares was
calculated by dividing the aggregate value of the tax
withholding obligations for each month, by the aggregate number
of shares of common stock withheld each month. |
(d) The terms of our revolving credit facilities (among
other things) place certain restrictions on the use of our
working capital and our ability to declare or pay dividends. Our
revolving credit facilities restricted our ability (i) to
make cash acquisitions in excess of $5.0 million annually
until July 12, 2005 (ii) to make capital expenditures
in excess of $225 million annually, provided that amounts
unused in any year up to $50 million could be rolled over
to the next year, and (iii) to repurchase and to declare or
pay dividends on our capital stock until July 12, 2005,
except that we could make repurchases of our capital stock in
connection with employees exercise of options and pay
$45.0 million as dividends on our convertible preferred
stock. On June 22, 2005, in return for certain waivers of
our financial and reporting covenants under our revolving credit
facilities, the terms of the facilities were amended to extend
until October 1, 2005 the above restrictions on our ability
to make cash acquisitions and to repurchase and to declare or
pay dividends on our capital stock; except that the amendments
increased the limit on our ability to make cash acquisitions to
$7.5 million.
Refer to Item 2, Managements Discussion and Analysis,
Liquidity and Capital Resources, for a description of the
current terms of our Three-Year Revolving Credit Facility,
which, as further amended and restated continue to place certain
restrictions on the use of our working capital and our ability
to declare and pay dividends.
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
4 |
(v)(A) |
|
Fifth Supplemental Indenture, dated as of July 25, 2005, to
the Indenture, dated as of November 12, 2004, between The
Interpublic Group of Companies (Interpublic) and
SunTrust Bank, with respect to the issuance of the Floating Rate
Notes due 2008, is incorporated by reference to Exhibit 4.1
to Interpublics Current Report on Form 8-K, filed
with the Securities and Exchange Commission (the
SEC) on July 26, 2005. |
|
4 |
(v)(B) |
|
Seventh Supplemental Indenture, dated as of August 11,
2005, to the Indenture, dated as of October 20, 2000,
between Interpublic and The Bank of New York, as modified by the
Third Supplemental Indenture, dated as of March 13, 2003
and the Sixth Supplemental Indenture, dated as of March 30,
2005, with respect to the 4.5% Senior Unsecured Notes due
2023, is incorporated by reference to Exhibit 4.1 to
Interpublics Current Report on Form 8-K, filed with
the SEC on August 15, 2005. |
|
10 |
(i)(A) |
|
Amendment No. 3, dated as of June 22, 2005, to the
364-Day Credit Agreement, dated as of May 10, 2004, among
Interpublic, the Initial Lenders Named Therein, and Citibank,
N.A., as Administrative Agent (Citibank), as amended
by Amendment No. 1, dated as of September 29, 2004,
and Amendment No. 2, dated as of March 31, 2005, is
incorporated by reference to Exhibit 10.1 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(B) |
|
Amendment No. 3, dated as of June 22, 2005, to the
3-Year Credit Agreement, dated as of May 10, 2004, among
Interpublic, the Initial Lenders Named Therein, and Citibank, as
amended by Amendment No. 1, dated as of September 29,
2004, and Amendment No. 2, dated as of March 31, 2005,
is incorporated by reference to Exhibit 10.2 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(C) |
|
Letter Agreement, dated as of June 22, 2005, between
Interpublic and the Lenders party to the 364-Day Credit
Agreement, waiving breaches of the 364-Day Credit Agreement, is
incorporated by reference to Exhibit 10.3 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(D) |
|
Letter Agreement, dated as of June 22, 2005, between
Interpublic, and the Lenders party to the 3-Year Credit
Agreement, waiving breaches of the 3-Year Credit Agreement, is
incorporated by reference to Exhibit 10.4 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
55
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
10 |
(i)(E) |
|
Amended and Restated 3-Year Credit Agreement, dated as of
May 10, 2004, amended and restated as of September 27,
2005, among Interpublic, the Initial Lenders Named Therein, and
Citibank, N.A., as Administrative Agent is incorporated by
reference to Exhibit 10(i)(G) to Interpublics Annual
Report on Form 10-K for the year ended December 31,
2004. |
|
10 |
(iii)(A)(1) |
|
Employment Agreement, made as of July 13, 2005, by and
between Interpublic and Frank Mergenthaler, is incorporated by
reference to Exhibit 10.1 of Interpublics Current
Report on Form 8-K, filed with the SEC on July 19,
2005. |
|
10 |
(iii)(A)(2) |
|
Executive Severance Agreement, dated as of August 1, 2005,
between Interpublic and Frank Mergenthaler, is incorporated by
reference to Exhibit 10.2 to Interpublics Current
Report on Form 8-K, filed with the SEC on July 19,
2005. |
|
31.1 |
|
|
Certification, dated as of September 30, 2005 and executed
by Michael I. Roth, under Section 302 of the Sarbanes-Oxley
Act of 2002 (S-Ox). |
|
31.2 |
|
|
Certification, dated as of September 30, 2005 and executed
by Frank Mergenthaler, under Section 302 of S-Ox. |
|
32 |
|
|
Certification, dated as of September 30, 2005 and executed
by Michael I. Roth and Frank Mergenthaler, furnished pursuant to
Section 906 of S-Ox. |
56
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 thereunto duly authorized.
|
|
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. |
|
|
|
|
|
Michael I. Roth |
|
Chairman and Chief Executive Officer |
Date: September 30, 2005
|
|
|
|
By |
/s/ Frank Mergenthaler |
|
|
|
|
|
Frank Mergenthaler |
|
Executive Vice President and |
|
Chief Financial Officer |
Date: September 30, 2005
57
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
4 |
(v)(A) |
|
Fifth Supplemental Indenture, dated as of July 25, 2005, to
the Indenture, dated as of November 12, 2004, between The
Interpublic Group of Companies (Interpublic) and
SunTrust Bank, with respect to the issuance of the Floating Rate
Notes due 2008, is incorporated by reference to Exhibit 4.1
to Interpublics Current Report on Form 8-K, filed
with the Securities and Exchange Commission (the
SEC) on July 26, 2005. |
|
4 |
(v)(B) |
|
Seventh Supplemental Indenture, dated as of August 11,
2005, to the Indenture, dated as of October 20, 2000,
between Interpublic and The Bank of New York, as modified by the
Third Supplemental Indenture, dated as of March 13, 2003
and the Sixth Supplemental Indenture, dated as of March 30,
2005, with respect to the 4.5% Senior Unsecured Notes due
2023, is incorporated by reference to Exhibit 4.1 to
Interpublics Current Report on Form 8-K, filed with
the SEC on August 15, 2005. |
|
10 |
(i)(A) |
|
Amendment No. 3, dated as of June 22, 2005, to the
364-Day Credit Agreement, dated as of May 10, 2004, among
Interpublic, the Initial Lenders Named Therein, and Citibank,
N.A., as Administrative Agent (Citibank), as amended
by Amendment No. 1, dated as of September 29, 2004,
and Amendment No. 2, dated as of March 31, 2005, is
incorporated by reference to Exhibit 10.1 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(B) |
|
Amendment No. 3, dated as of June 22, 2005, to the
3-Year Credit Agreement, dated as of May 10, 2004, among
Interpublic, the Initial Lenders Named Therein, and Citibank, as
amended by Amendment No. 1, dated as of September 29,
2004, and Amendment No. 2, dated as of March 31, 2005,
is incorporated by reference to Exhibit 10.2 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(C) |
|
Letter Agreement, dated as of June 22, 2005, between
Interpublic and the Lenders party to the 364-Day Credit
Agreement, waiving breaches of the 364-Day Credit Agreement, is
incorporated by reference to Exhibit 10.3 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(D) |
|
Letter Agreement, dated as of June 22, 2005, between
Interpublic, and the Lenders party to the 3-Year Credit
Agreement, waiving breaches of the 3-Year Credit Agreement, is
incorporated by reference to Exhibit 10.4 of
Interpublics Current Report on Form 8-K, filed with
the SEC on June 28, 2005. |
|
10 |
(i)(E) |
|
Amended and Restated 3-Year Credit Agreement, dated as of
May 10, 2004, amended and restated as of September 27,
2005, among Interpublic, the Initial Lenders Named Therein, and
Citibank, N.A., as Administrative Agent is incorporated by
reference to Exhibit 10(i)(G) to Interpublics Annual
Report on Form 10-K for the year ended December 31,
2004. |
|
10 |
(iii)(A)(1) |
|
Employment Agreement, made as of July 13, 2005, by and
between Interpublic and Frank Mergenthaler, is incorporated by
reference to Exhibit 10.1 of Interpublics Current
Report on Form 8-K, filed with the SEC on July 19,
2005. |
|
10 |
(iii)(A)(2) |
|
Executive Severance Agreement, dated as of August 1, 2005,
between Interpublic and Frank Mergenthaler, is incorporated by
reference to Exhibit 10.2 to Interpublics Current
Report on Form 8-K, filed with the SEC on July 19,
2005. |
|
31.1 |
|
|
Certification, dated as of September 30, 2005 and executed
by Michael I. Roth, under Section 302 of the Sarbanes-Oxley
Act of 2002 (S-Ox). |
|
31.2 |
|
|
Certification, dated as of September 30, 2005 and executed
by Frank Mergenthaler, under Section 302 of S-Ox. |
|
32 |
|
|
Certification, dated as of September 30, 2005 and executed
by Michael I. Roth and Frank Mergenthaler, furnished pursuant to
Section 906 of S-Ox. |
EX-31.1
EXHIBIT 31.1
CERTIFICATION
I, Michael I. Roth, certify that:
|
|
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of The
Interpublic Group of Companies, Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
|
4. |
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
|
|
5. |
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions): |
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
(b) |
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: September 30, 2005
|
|
|
/s/ Michael I. Roth |
|
|
|
Michael I. Roth |
|
Chairman and Chief Executive Officer |
EX-31.2
EXHIBIT 31.2
CERTIFICATION
I, Frank Mergenthaler, certify that:
|
|
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of The
Interpublic Group of Companies, Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report; |
|
|
4. |
The registrants other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have: |
|
|
|
|
(a) |
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and |
|
|
|
|
5. |
The registrants other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions): |
|
|
|
|
(a) |
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and |
|
|
(b) |
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting. |
Date: September 30, 2005
|
|
|
/s/ Frank Mergenthaler |
|
|
|
Frank Mergenthaler |
|
Executive Vice President and |
|
Chief Financial Officer |
EX-32
EXHIBIT 32
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code), each of
the undersigned officers of The Interpublic Group of Companies,
Inc. (the Company), does hereby certify, to such
officers knowledge, that:
The quarterly report on Form 10-Q for the quarter ended
March 31, 2005 of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and the information contained in the
quarterly report on Form 10-Q fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: September 30, 2005
|
|
|
/s/ Michael I. Roth |
|
|
|
Michael I. Roth |
|
Chairman and Chief Executive Officer |
Dated: September 30, 2005
|
|
|
/s/ Frank Mergenthaler |
|
|
|
Frank Mergenthaler |
|
Executive Vice President and |
|
Chief Financial Officer |