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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
|X| AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13 -1024020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1271 Avenue of the Americas, New York, New York 10020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 399 -8000
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 such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Executive Act Rule 12b-2) Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock outstanding at
April 30, 2003: 389,639,512 shares.
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EXPLANATORY NOTE
(Dollars in Millions)
The Interpublic Group of Companies ("Interpublic" or the "Company") is filing
this Form 10-Q/A to restate its consolidated statement of cash flows for the
three months ended March 31, 2003 for the presentation of $22.6 in debt issuance
costs. The cash flow related to such costs had been presented as investing
activities and has now been presented as financing activities. The net result of
the change was to reduce net cash used in investing activities for the three
months ended March 31, 2003, by $22.6 and reduce cash provided by financing
activities for the three months ended March 31, 2003, by $22.6. The restatement
of the consolidated statement of cash flows had no impact on net income (loss)
or earnings (loss) per share, or any balance sheet amounts.
The accompanying Form 10-Q/A amends the Form 10-Q filed by the Company on May
15, 2003 for the three months ended March 31, 2003 to correct only the
consolidated statement of cash flows for the three months ended March 31, 2003.
This Form 10-Q/A amends Item 1 of Part I of the Company's original Form 10-Q
filing only, and except for this item, no other information included in the
Company's original Quarterly Report on Form 10-Q is amended by this filing.
Except for the corrections described above, the Form 10-Q/A does not purport to
update any disclosures contained in the quarterly report, which speaks as of the
date of its original filing on May 15, 2003. For disclosures subsequent to May
15, 2003, please see the Company's reports filed with the Securities and
Exchange Commission after that date.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
I N D E X
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statement of Operations
Three months ended March 31, 2003
and 2002 (unaudited) 4
Consolidated Balance Sheet
March 31, 2003 and
December 31, 2002 (unaudited) 5
Consolidated Statement of Comprehensive Income
Three months ended March 31, 2003
and 2002 (unaudited) 7
Consolidated Statement of Cash Flows
Three months ended March 31, 2003 (restated)
and 2002 (unaudited) 8
Notes to consolidated financial statements (unaudited) 9
SIGNATURES 23
CERTIFICATIONS 24
PART I - FINANCIAL INFORMATION
ITEM 1.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2003 2002
--------------- ---------------
REVENUE $1,433.0 $1,420.0
--------------- ---------------
OPERATING EXPENSES:
Salaries and related expenses 908.2 868.8
Office and general expenses 484.4 419.8
Amortization of intangible assets 4.2 2.8
Long-lived asset impairment 11.1 --
--------------- ---------------
Total operating expenses 1,407.9 1,291.4
--------------- ---------------
OPERATING INCOME 25.1 128.6
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (38.8) (35.3)
Interest income 7.9 6.9
Other income (expense) (0.2) 0.3
Investment impairment (2.7) --
--------------- ---------------
(33.8) (28.1)
Total other income (expense)
--------------- ---------------
INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT OF) INCOME TAXES (8.7) 100.5
Provision for (benefit of) income taxes (3.8) 38.0
--------------- ---------------
INCOME (LOSS) OF CONSOLIDATED COMPANIES (4.9) 62.5
Income applicable to minority interests (0.8) (3.6)
Equity in net income (loss) of unconsolidated affiliates (2.9) 0.9
--------------- ---------------
NET INCOME (LOSS) $(8.6) $59.8
=============== ===============
Earnings (loss) per share:
Basic $(0.02) $0.16
Diluted $(0.02) $0.16
Weighted average shares:
Basic 381.8 373.0
Diluted 381.8 379.8
Cash dividends per share -- $0.095
The accompanying notes are an integral part of these
consolidated financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
ASSETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------------- --------------------
CURRENT ASSETS:
Cash and cash equivalents $1,188.2 $933.0
Account receivables (net of allowance for doubtful
accounts: 2003- $141.5; 2002-$139.8) 4,254.1 4,517.6
Expenditures billable to clients 390.4 407.6
Deferred taxes on income 58.4 37.0
Prepaid expenses and other current assets 413.6 427.1
Assets held for sale (Note 12) 414.6 --
--------------------- --------------------
6,719.3 6,322.3
Total current assets
--------------------- --------------------
FIXED ASSETS, AT COST:
Land and buildings 139.3 168.2
Furniture and equipment 1,048.9 1,125.1
Leasehold improvements 476.7 487.8
--------------------- --------------------
1,664.9 1,781.1
Less: accumulated depreciation (937.4) (955.4)
--------------------- --------------------
Total fixed assets 727.5 825.7
--------------------- --------------------
OTHER ASSETS:
Investment in less than majority-owned affiliates 388.8 357.3
Deferred taxes on income 508.5 509.9
Other assets 311.9 319.8
Intangible assets (net of accumulated
amortization: 2003- $992.6; 2002-$1,038.5) 3,307.1 3,458.7
--------------------- --------------------
4,516.3 4,645.7
Total other assets
--------------------- --------------------
TOTAL ASSETS $11,963.1 $11,793.7
===================== ====================
The accompanying notes are an integral part of these
consolidated financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------------- ----------------------
CURRENT LIABILITIES:
Accounts payable $4,677.4 $5,125.5
Accrued expenses 1,017.4 1,110.8
Accrued income taxes 3.4 33.2
Loans payable 80.1 239.3
Zero-coupon convertible senior notes 582.5 581.0
Liabilities held for sale (Note 12) 121.1 --
--------------------- ----------------------
Total current liabilities 6,481.9 7,089.8
--------------------- ----------------------
NON-CURRENT LIABILITIES:
Long-term debt 1,249.2 1,253.1
Convertible subordinated notes 568.8 564.6
Convertible senior notes 800.0 --
Deferred compensation 472.8 470.5
Accrued postretirement benefits 52.8 55.6
Other non-current liabilities 121.6 189.7
Minority interests in consolidated subsidiaries 64.5 70.4
--------------------- ----------------------
3,329.7 2,603.9
Total non-current liabilities
--------------------- ----------------------
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value,
shares authorized: 20.0, shares issued: none
Common stock, $0.10 par value,
shares authorized: 550.0,
shares issued: 2003- 389.6; 2002 - 389.3 39.0 38.9
Additional paid-in capital 1,765.7 1,797.0
Retained earnings 849.4 858.0
Accumulated other comprehensive loss, net of tax (347.2) (373.6)
--------------------- ----------------------
2,306.9 2,320.3
Less:
Treasury stock, at cost: 2003 - 1.6 shares; 2002 - 3.1 shares (65.0) (119.2)
Unamortized deferred compensation (90.4) (101.1)
--------------------- ----------------------
Total stockholders' equity 2,151.5 2,100.0
--------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,963.1 $11,793.7
===================== ======================
The accompanying notes are an integral part of these
consolidated financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31,
(AMOUNTS IN MILLIONS)
(UNAUDITED)
2003 2002
-------------- --------------
NET INCOME (LOSS) $(8.6) $59.8
-------------- --------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 29.6 (18.5)
-------------- --------------
ADJUSTMENT FOR MINIMUM PENSION LIABILITY
Adjustment for minimum pension liability (4.7) --
Tax benefit 2.0 --
-------------- --------------
(2.7) --
Adjustment for Minimum Pension Liability
-------------- --------------
UNREALIZED HOLDING GAINS (LOSSES) ON SECURITIES
Unrealized holding gains -- 0.9
Tax expense -- (0.4)
Unrealized holding losses (0.8) --
Tax benefit 0.3 --
-------------- --------------
(0.5) 0.5
Unrealized Holding Gains (Losses) on Securities
-------------- --------------
COMPREHENSIVE INCOME $17.8 $41.8
============== ==============
The accompanying notes are an integral part of these
consolidated financial statements
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(AMOUNTS IN MILLIONS)
(UNAUDITED)
2003
(Restated) 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(8.6) $59.8
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization of fixed assets 47.2 48.7
Amortization of intangible assets 4.2 2.8
Amortization of restricted stock awards and bond discounts 18.4 18.4
Provision for (benefit of) deferred income taxes (21.7) 42.3
Undistributed equity earnings 2.9 (0.9)
Income applicable to minority interests 0.8 3.6
Long-lived asset impairment 11.1 --
Investment impairment 2.7 --
Other (0.7) (0.1)
CHANGE IN ASSETS AND LIABILITIES, NET OF ACQUISITIONS:
Accounts receivable 233.6 160.4
Expenditures billable to clients (16.1) (68.5)
Prepaid expenses and other current assets (39.6) 0.3
Accounts payable, accrued expenses and other current liabilities (513.9) (417.8)
Accrued income taxes 12.7 (45.9)
Other non-current assets and liabilities (19.1) 2.4
--------------- ---------------
Net cash used in operating activities (286.1) (194.5)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (52.9) (65.3)
Capital expenditures (31.0) (34.8)
Proceeds from sales of businesses 1.0 0.2
Proceeds from sales of long-term investments 14.2 33.2
Purchases of long-term investments (3.9) (32.7)
Maturities of short-term marketable securities 11.2 11.2
Purchases of short-term marketable securities (18.7) (4.3)
Other investments and miscellaneous assets (9.1) (3.4)
--------------- ---------------
Net cash used in investing activities (89.2) (95.9)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank borrowings (165.9) 72.6
Proceeds from long-term debt 800.7 7.3
Payments of long-term debt (0.7) (124.0)
Debt issuance costs (22.6) --
Treasury stock acquired -- (2.2)
Issuance of common stock 2.9 26.0
Distributions to minority interests (0.2) (3.3)
Contributions from minority interests 1.0 --
Cash dividends -- (36.0)
--------------- ---------------
Net cash provided by (used in) financing activities 615.2 (59.6)
--------------- ---------------
Effect of exchange rates on cash and cash equivalents 15.3 (10.1)
--------------- ---------------
Increase (decrease) in cash and cash equivalents 255.2 (360.1)
Cash and cash equivalents at beginning of year 933.0 935.2
--------------- ---------------
$1,188.2 $575.1
Cash and cash equivalents at end of period
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the financial statements included herein
contain all adjustments (consisting of normal recurring accruals) necessary
to present fairly the financial position, results of operations and cash
flows at March 31, 2003 and for all periods presented. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in The Interpublic Group of
Companies, Inc.'s (the "Company" or "Interpublic") December 31, 2002 Annual
Report to Stockholders filed on Form 10-K. The operating results for the
first three months of the year are not necessarily indicative of the
results for the year or other interim periods.
Restatement
The Company identified a change to the presentation of debt issuance costs
in its consolidated statement of cash flows. The change has been reported
through a restatement of previously recorded amounts in the consolidated
statement of cash flows in this form 10-Q/A.
The net result of the change was to reduce net cash used in investing
activities for the three months ended March 31, 2003, by $22.6 and reduce
cash provided by financing activities for the three months ended March 31,
2003, by $22.6. The restatement of the consolidated statement of cash flows
had no impact on net income (loss) or earnings (loss) per share, or any
balance sheet amounts.
2. EARNINGS (LOSS) PER SHARE
The following sets forth the computation of earnings (loss) per share for
the three month periods ended March 31, 2003 and 2002:
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2003 2002
--------------------- ---------------------
BASIC
Net income (loss) $(8.6) $59.8
===================== =====================
Weighted average number of common shares outstanding 381.8 373.0
===================== =====================
Income (loss) per share $(0.02) $0.16
===================== =====================
DILUTED(a)
Net income (loss) - diluted $(8.6) $59.8
===================== =====================
Weighted average number of common shares outstanding 381.8 373.0
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options -- 6.8
--------------------- ---------------------
Weighted average number of common shares outstanding - diluted 381.8 379.8
===================== =====================
Income (loss) per share - diluted $(0.02) $0.16
===================== =====================
(a) The computation of diluted earnings per share for 2003 and 2002
excludes the assumed conversion of the 1.80% and 1.87% Convertible
Subordinated Notes because they were anti-dilutive. The computation of
diluted earnings per share for 2003 excludes the conversion of
restricted stock and assumed exercise of stock options because they
were anti-dilutive.
3. STOCK OPTION PLANS
The Company has various stock-based compensation plans. The stock-based
compensation plans are accounted for under the intrinsic value recognition
and measurement principles of APB Opinion 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES and related interpretations. Generally, all employee stock
options are issued with the exercise price equal to the market price of the
underlying shares at the grant date and therefore, no compensation expense
is recorded. The intrinsic value of restricted stock grants and certain
other stock-based compensation issued to employees as of the date of grant
is amortized to compensation expense over the vesting period.
If compensation cost for the Company's stock option plans and its Employee
Stock Purchase Plan ("ESPP") had been determined based on the fair value at
the grant dates as defined by SFAS 123, the Company's pro forma net income
(loss) and earnings (loss) per share would have been as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2003 2002
----------------------------------------
NET INCOME (LOSS)
As reported, net income (loss) $(8.6) $59.8
Add back:
Stock-based employee compensation expense included in
reported net income, net of tax 10.0 10.1
Deduct:
Total fair value of stock based employee
compensation expense, net of tax (18.3) (19.4)
----------------------------------------
$(16.9) $50.5
Pro forma
========================================
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share
As reported $(0.02) $0.16
Pro forma $(0.04) $0.14
Diluted earnings (loss) per share
As reported $(0.02) $0.16
Pro forma $(0.04) $0.13
For purposes of this pro forma information, the fair value of shares under
the ESPP was based on the 15% discount received by employees. The
weighted-average fair value (discount) on the date of purchase for stock
purchased under this plan was $1.57 and $4.44 in 2003, and 2002,
respectively.
The weighted-average fair value of options granted during the three months
ended March 31, 2003 and 2002 was $4.51 and $11.02, respectively. The fair
value of each option grant has been estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
THREE MONTHS ENDED MARCH 31,
----------------------------
2003 2002
----------------------------
Expected option lives 6 years 6 years
Risk free interest rate 3.38% 4.98%
Expected volatility 43.50% 34.28%
Dividend yield -- 1.29%
4. RESTRUCTURING AND OTHER MERGER RELATED COSTS
Following the completion of the True North acquisition in June 2001, the
Company executed a wide-ranging restructuring plan that included severance,
lease terminations and other actions. The total amount of the charges
incurred in 2001 in connection with the plan was $645.6. An additional
$12.1 was recorded in 2002 related primarily to additional projected lease
losses from premises vacated as part of the 2001 restructuring plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
A summary of the remaining liability for restructuring and other merger
related costs is as follows:
CASH PAID
LIABILITY AT THROUGH LIABILITY
DECEMBER MARCH AT MARCH
31, 2002 31, 2003 31, 2003
------------------------ ------------------------- -------------------------
TOTAL BY TYPE
Severance and termination costs $15.9 $5.3 $10.6
Lease termination and other exit costs 94.6 10.1 84.5
------------------------ ------------------------- -------------------------
Total $110.5 $15.4 $95.1
======================== ========================= =========================
5. LONG-LIVED ASSET IMPAIRMENT CHARGE
During the first quarter of 2003, the Company recorded an $11.1 charge
related to the impairment of long-lived assets at its Motorsports business.
This amount reflects $4.0 of capital expenditure outlays in the three
months ended March 31, 2003, contractually required to upgrade and maintain
certain of its existing racing facilities, as well as an impairment of
assets at other Motorsports entities.
6. NEW ACCOUNTING STANDARDS
In June 2001, Statement of Financial Accounting Standards 143, ACCOUNTING
FOR ASSET RETIREMENT OBLIGATIONS ("SFAS 143") was issued. SFAS 143
addresses financial accounting and reporting for legal obligations
associated with the retirement of tangible long-lived assets and the
associated retirement costs that result from the acquisition, construction,
or development and normal operation of a long-lived asset. Upon initial
recognition of a liability for an asset retirement obligation, SFAS 143
requires an increase in the carrying amount of the related long-lived
assets. The asset retirement cost is subsequently allocated to expense
using a systematic and rational method over the asset's useful life. SFAS
143 is effective for fiscal years beginning after June 15, 2002. The
adoption of this statement did not have an impact on the Company's
financial position or results of operations.
In June 2002, SFAS 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR
DISPOSAL ACTIVITIES ("SFAS 146") was issued. SFAS 146 changes the
measurement and timing of recognition for exit costs, including
restructuring charges, and is effective for any such activities initiated
after December 31, 2002. It has no effect on charges recorded for exit
activities begun prior to this date.
7. DERIVATIVE AND HEDGING INSTRUMENTS HEDGES OF NET INVESTMENTS
On December 12, 2002, the Company designated the Yen borrowings under its
$375.0 Revolving Credit Facility in the amount of $36.5 as a hedge of its
net investment in Japan.
FORWARD CONTRACTS
As of March 31, 2003, the Company had short-term contracts covering
approximately $38.9 of notional amount of currency. As of March 31, 2003,
the fair value of the forward contracts was a gain of $1.4.
OTHER
The Company has two embedded derivative instruments under the terms of each
of the Zero-Coupon Convertible Notes, and the 4.5% Convertible Senior Notes
issued in March 2003. At March 31, 2003, the fair value of these
derivatives was negligible.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
8. SEGMENT INFORMATION
The Company is organized into five global operating groups: a)
McCann-Erickson WorldGroup ("McCann"), b) the FCB Group ("FCB"), c) The
Partnership, d) Advanced Marketing Services ("AMS") and e) Interpublic
Sports and Entertainment Group ("SEG"). Each of the five groups has its own
management structure and reports to senior management of the Company on the
basis of the five groups. McCann, FCB and The Partnership provide a full
complement of global marketing services including advertising and media
management, marketing communications including direct marketing, public
relations, sales promotion, event marketing, on-line marketing and
healthcare marketing in addition to specialized marketing services. AMS
provides specialized and advanced marketing services and also includes NFO
WorldGroup (for marketing intelligence services). SEG includes Octagon (for
sports marketing), Motorsports (for its motorsports business), and Jack
Morton Worldwide (for specialized marketing services including corporate
events, meetings and training/learning).
Each of McCann, FCB, The Partnership, AMS and SEG operate with the same
business objective which is to provide clients with a wide variety of
services that contribute to the delivery of a message and to the
maintenance or creation of a brand. However, the Partnership and AMS
historically have had lower gross margins than the Company average. The
five global operating groups share numerous clients, have similar cost
structures, provide services in a similar fashion and draw their employee
base from the same sources. The annual margins of each of the five groups
may vary due to global economic conditions, client spending and specific
circumstances such as the Company's restructuring activities. However,
based on the respective future prospects of McCann, FCB, The Partnership
and AMS, the Company believes that the long-term average gross margin of
each of these four groups will converge over time and, given the similarity
of the operations, the four groups have been aggregated. SEG has different
margins than the remaining four groups and, given current projections, the
Company believes that the margins for this operating segment will not
converge with the remaining four groups.
SEG revenue is not material to the Company as a whole. However, due to the
recording of long-lived asset impairment charges, the operating
difficulties and resulting higher costs from its motorsports business, SEG
has incurred significant operating losses. Based on the fact that the book
value of long-lived assets relating to Motorsports and other substantial
contractual obligations may not be fully recoverable, the Company no longer
expects that margins of SEG will converge with those of the rest of IPG and
accordingly, reports SEG as a separate reportable segment. Other than the
impairment charges which are discussed below, the operating results of SEG
are not material to those of the Company, and therefore are not discussed
in detail below.
Accordingly, in accordance with SFAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION", the Company has two reportable
segments. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies.
Management evaluates performance based upon operating earnings before
interest and income taxes.
At March 31, 2003 the assets of the reportable segments have not changed
materially from those levels reported at December 31, 2002. Summary
financial information concerning the Company's reportable segments is shown
in the following table:
IPG
(EXCL. CONSOLIDATED
SEG) SEG TOTAL
--------- ----- ------------
THREE MONTHS ENDED MARCH 31, 2003
Revenue $1,347.4 $85.6 $1,433.0
Operating income (loss) 46.1 (21.0) 25.1
Depreciation and amortization of fixed assets 43.8 3.4 47.2
Capital expenditures $23.1 $7.9 $31.0
THREE MONTHS ENDED MARCH 31, 2002
Revenue $1,336.3 $83.7 $1,420.0
Operating income 122.5 6.1 128.6
Depreciation and amortization of fixed assets 44.5 4.2 48.7
Capital expenditures $30.5 $4.3 $34.8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
A reconciliation of information between reportable segments and the
Company's consolidated pre-tax earnings is shown in the following table:
THREE MONTHS ENDED MARCH 31, 2003 2002
--------------------------------------------------- ------------------------- ------------------------
Total operating income for reportable segments $25.1 $128.6
Interest expense (38.8) (35.3)
Interest income 7.9 6.9
Other income (loss) (0.2) 0.3
Investment impairment (2.7) -
------------------------- ------------------------
Income (loss) before income taxes $(8.7) $100.5
========================= ========================
9. ACQUISITIONS AND DEFERRED PAYMENTS
During the first three months of 2003, the Company completed one
acquisition for $2.1 in cash. Additionally, the Company paid $7.2 in cash
and $0.1 in stock for additional ownership interests in companies in which
a previous investment had been made.
During the first three months of 2003, the Company paid $44.2 in cash and
$14.9 in stock as deferred payments on acquisitions that had closed in
prior years. During the first three months of 2002, the Company paid $59.1
in cash and $10.0 in stock as deferred payments on acquisitions that had
closed in prior years.
Deferred payments (or "earn-outs") generally tie the aggregate price
ultimately paid for an acquisition to its performance and are recorded as
an increase to goodwill and other intangibles.
As of March 31, 2003, the Company's estimated liability for earn-outs is as
follows:
2006 AND
2003 2004 2005 THEREAFTER TOTAL
--------------- --------------- --------------- --------------- ---------------
Cash $105.1 $81.0 $49.1 $24.6 $259.8
Stock 28.4 12.1 16.6 11.6 68.7
--------------- --------------- --------------- --------------- ---------------
TOTAL $133.5 $93.1 $65.7 $36.2 $328.5
=============== =============== =============== =============== ===============
The amounts above are estimates based on the current projections as to the
amount that will be paid and are subject to revisions as the earn-out
periods progress.
PUT AND CALL OPTIONS
In addition to the estimated liability for earn-outs, the Company has
entered into agreements that require the Company to purchase additional
equity interests in certain companies (put options). In many cases, the
Company also has the option to purchase the additional equity interests
(call options) in certain circumstances.
The total amount of potential payments under put options is $193.4, of
which $6.9 is payable in stock. Exercise of the put options would require
payments to be made as follows:
2003 $74.4
2004 $33.8
2005 $35.0
2006 and thereafter $50.2
The actual amount to be paid is contingent upon the achievement of
projected operating performance targets and satisfying other conditions as
specified in the relevant agreement.
The Company also has call options to acquire additional equity interests in
companies in which it already has an ownership interest. The estimated
amount that would be paid under such call options is $111.6 and, in the
event of exercise, would be paid as follows:
2003 $23.1
2004 $7.6
2005 $15.3
2006 and thereafter $65.6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The actual amount to be paid is contingent upon the achievement of
projected operating performance targets and satisfying other conditions as
specified in the relevant agreement
10. DEBT AND CERTAIN LIQUIDITY MATTERS
Total debt at March 31, 2003 was $3,280.6, an increase of $642.6 from
December 31, 2002. The Company's debt position at March 31, 2003 reflects
both the 4.5% Convertible Notes and the Zero-Coupon Notes outstanding at
that date. In addition, the Company's debt position was positively impacted
by international cash and debt pooling arrangements that were put in place
to optimize the net debt balances in certain markets.
REVOLVING CREDIT AGREEMENTS
On June 27, 2000, the Company entered into a revolving credit facility with
a syndicate of banks providing for a term of five years and for borrowings
of up to $375.0 (the "Five-Year Revolving Credit Facility"). On May 16,
2002, the Company entered into a revolving credit facility with a syndicate
of banks providing for a term of 364 days and for borrowings of up to
$500.0 (the "Old 364-Day Revolving Credit Facility"). The Company replaced
the Old 364-Day Revolving Credit Facility with a new 364-day revolving
credit facility, which it entered into with a syndicate of banks on May 15,
2003 (the "New 364-Day Revolving Credit Facility" and, together with the
Five-Year Revolving Credit Facility, the "Revolving Credit Facilities").
The New 364-Day Revolving Credit Facility provides for borrowings of up to
$500.0, $200.0 of which are available to the Company for the issuance of
letters of credit. The New 364-Day Revolving Credit Facility expires on May
13, 2004. However, the Company has the option to extend the maturity of
amounts outstanding on the termination date under the New 364-Day Revolving
Credit Facility for a period of one year. The Revolving Credit Facilities
are used for general corporate purposes. As of March 31, 2003, no amounts
were borrowed under the Old 364-Day Revolving Credit Facility and $50.6 was
borrowed under the Five-Year Revolving Credit Facility.
The Revolving Credit Facilities bear interest at variable rates based on
either LIBOR or a bank's base rate, at the Company's option. The interest
rates on base rate loans and LIBOR loans under the Revolving Credit
Facilities are affected by the facilities' utilization levels and the
Company's credit ratings. In connection with the New 364-Day Revolving
Credit Facility, based on its current credit ratings, the Company agreed to
new pricing under the Revolving Credit Facilities that increased the
interest spread payable on LIBOR loans by 25 basis points.
The Company's Revolving Credit Facilities include financial covenants that
set i) maximum levels of debt as a function of EBITDA, ii) minimum levels
of EBITDA as a function of interest expense and iii) minimum levels of
EBITDA (in each case, as defined in these agreements). In connection with
the New 364-Day Revolving Credit Facility, the definition of EBITDA in the
Revolving Credit Facilities was amended to include (i) up to $161.4
non-cash, non-recurring charges taken in the fiscal year ended December 31,
2002; (ii) up to $200.0 of non-recurring restructuring charges (up to
$175.0 of which may be cash charges) taken in the fiscal quarter ended
March 31, 2003, June 30, 2003 and September 30, 2003; (iii) up to $70.0 of
non-cash, non-recurring charges taken with respect to the impairment of the
remaining book value of the Company's motor sports business; and (iv) all
impairment charges taken with respect to capital expenditures made on or
after January 1, 2003 with respect to the Company's motor sports business
and to exclude the gain realized by the Company upon the proposed sale of
NFO Worldwide, Inc. The corresponding financial covenant ratio levels in
the Revolving Credit Facilities were also amended. As of March 31, 2003,
the Company was in compliance with all of the covenants (including the
financial covenants, as amended) contained in the Five-Year Revolving
Credit Facility and the Old 364-Day Revolving Credit Facility.
On February 10, 2003, certain defined terms relating to financial covenants
contained in the Five-Year Revolving Credit Facility and the Old 364-Day
Revolving Credit Facility were amended effective as of December 31, 2002.
The definition of debt for borrowed money in the Five-Year Revolving Credit
Facility and the Old 364-Day Revolving Credit Facility was modified to
include the Company's 1.8% Convertible Subordinated Notes due 2004 and
1.87% Convertible Subordinated Notes due 2006. As a result, the definition
of Interest Expense was also amended to include all interest with respect
to these Subordinated Notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The Company also amended certain other provisions of the Five-Year
Revolving Credit Facility and the Old 364-Day Revolving Credit Facility
effective as of December 31, 2002, which have been reflected in the New
364-Day Revolving Credit Facility. The terms of the Revolving Credit
Facilities restrict the Company's ability to declare or pay dividends,
repurchase shares of common stock, make cash acquisitions or investments
and make capital expenditures, as well as the ability of the Company's
domestic subsidiaries to incur additional debt. Certain of these
limitations were modified upon the Company's issuance on March 13, 2003 of
4.5% Convertible Senior Notes due 2023 (the "4.5% Notes") in an aggregate
principal amount of $800.0, from which the Company received net cash
proceeds equal to approximately $778.0. In addition, pursuant to a tender
offer commenced on March 10, 2003, the Company purchased $700.5 in
aggregate principal amount at maturity of its Zero-Coupon Convertible
Senior Notes due 2021 (the "Zero-Coupon Notes"). As a result of these
transactions, the Company's permitted level of annual cash acquisition
spending has increased to $100.0 and annual share buybacks and dividend
payments has increased to $25.0. All limitations on dividend payments and
share buybacks expire when earnings before interest, taxes, depreciation
and amortization are at least $1,300.0 for four consecutive quarters.
As a result of the issuance of the 4.5% Notes in the first quarter of 2003
and the settlement of the tender offer for the Zero-Coupon Notes in the
second quarter of 2003, both the 4.5% Notes and the Zero-Coupon Notes were
outstanding at March 31, 2003. Therefore, the Company amended the Five-Year
Revolving Credit Facility and the Old 364-Day Revolving Credit Facility, as
of March 13, 2003, to exclude the Zero-Coupon Notes in calculating the
ratio of debt for borrowed money to consolidated EBITDA for the period
ended March 31, 2003 (this exclusion is also contained in the New 364-Day
Revolving Credit Facility).
On February 26, 2003, the Company obtained waivers of certain defaults
under the Five-Year Revolving Credit Facility and the Old 364-Day Revolving
Credit Facility relating to the restatement of the Company's historical
consolidated financial statements in the aggregate amount of $118.7. The
waivers covered certain financial reporting requirements related to the
Company's consolidated financial statements for the quarter ended September
30, 2002. No financial covenants were breached as a result of this
restatement.
OTHER COMMITTED AND UNCOMMITTED FACILITIES
In addition to the Revolving Credit Facilities, at March 31, 2003, the
Company had $155.3 of committed lines of credit, all of which were provided
by overseas banks that participate in the Revolving Credit Facilities. At
March 31, 2003, $6.3 was outstanding under these lines of credit.
At March 31, 2003 the Company also had $702.9 of uncommitted lines of
credit, 69.2% of which were provided by banks that participate in the
Revolving Credit Agreements. At March 31, 2003, approximately $59.9 was
outstanding under these uncommitted lines of credit. The Company's
uncommitted borrowings are repayable upon demand.
PRUDENTIAL AGREEMENTS
On May 26, 1994, April 28, 1995, October 31, 1996, August 19, 1997 and
January 21, 1999, the Company entered into five note purchase agreements,
respectively, with The Prudential Insurance Company of America (the
"Prudential Agreements"). The notes issued pursuant to the Prudential
Agreements are repayable on May 2004, April 2005, October 2006, August 2007
and January 2009, respectively. The interest rates on these notes range
from 8.05% to 10.01%. As of March 31, 2003 and 2002, respectively, $148.8
and $155.0 were outstanding under the notes.
The Prudential Agreements contain financial covenants that set i) minimum
levels for net worth and for cash flow as a function of borrowed funds, and
ii) maximum levels of borrowed funds as a function of net worth. The most
restrictive of these covenants is that of cash flow to borrowed funds. This
ratio is required to exceed an amount that varies from .16 to .25 for each
quarter in the applicable consecutive four-quarter period.
On February 10, 2003, the Company amended certain provisions of the
Prudential Agreements effective as of December 31, 2002. The new terms of
the Prudential Agreements contain the same restrictions on the Company's
ability to declare or pay dividends, repurchase shares of common stock,
make cash acquisitions or investments and make capital expenditures, as
well as the ability of the Company's domestic subsidiaries to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
incur additional debt, as the new terms of the Revolving Credit Agreements
described above. Certain defined terms relating to financial covenants
contained in the Prudential Agreements were also amended effective as of
December 31, 2002. The definitions of cash-flow and consolidated net worth
in the Prudential Agreements were amended to include up to $500.0 of
non-cash, non-recurring charges taken in the fiscal year ended December 31,
2002 and the quarter ended March 31, 2003.
The Company also amended the Prudential Agreements, as of March 28, 2003,
to exclude the Zero-Coupon Notes in calculating the ratio of total borrowed
funds to cash flow for the period ended March 31, 2003. Separately, in May
2003, the ratio level for the financial covenant relating to cash flow as a
function of borrowed funds was amended from .20 to .18 effective for the
period ended March 31, 2003.
On February 26, 2003, the Company obtained waivers of certain defaults
under the Prudential Agreements relating to the restatement of the
Company's historical consolidated financial statements in the aggregate
amount of $118.7. The waivers covered certain financial reporting
requirements related to the Company's consolidated financial statements for
the quarter ended September 30, 2002. No financial covenants were breached
as a result of this restatement.
UBS FACILITY
On February 10, 2003, the Company received from UBS AG a commitment for an
interim credit facility providing for $500.0, maturing no later than July
31, 2004 and available to the Company beginning May 15, 2003, subject to
certain conditions. This commitment terminated in accordance with its terms
when the Company received net cash proceeds in excess of $400.0 from its
sale of the 4.5% Notes. The fees associated with this commitment were not
material to the Company's financial position, cash flows or results of
operations.
OTHER DEBT INSTRUMENTS-- CONVERTIBLE SENIOR NOTES - 4.5%
In March 2003, the Company completed the issuance and sale of $800
aggregate principal amount of the 4.5% Notes. In April 2003, the Company
used $581.3 of the net proceeds of this offering to repurchase the
Zero-Coupon Notes tendered in its concurrent tender offer and will use the
remaining proceeds for the repayment of other indebtedness, general
corporate purposes and working capital. The 4.5% Notes are unsecured,
senior securities that may be converted into common shares if the price of
the Company's common stock reaches a specified threshold, at an initial
conversion rate of 80.5153 shares per one thousand dollars principal
amount, equal to a conversion price of $12.42 per share, subject to
adjustment. This threshold will initially be 120% of the conversion price
and will decline 1/2% each year until it reaches 110% at maturity in 2023.
The 4.5% Notes may also be converted, regardless of the price of the
Company's common stock, if: (i) the credit rating assigned to the 4.5%
Notes by any two of Moody's Investors Service, Inc., Standard & Poor's
Ratings Services and Fitch Ratings are Ba2, BB and BB, respectively, or
lower, or the 4.5% Notes are no longer rated by at least two of these
ratings services, (ii) the Company calls the 4.5% Notes for redemption,
(iii) the Company makes specified distributions to shareholders or (iv) the
Company becomes a party to a consolidation, merger or binding share
exchange pursuant to which its common stock would be converted into cash or
property (other than securities).
The Company, at the investor's option, may be required to redeem the 4.5%
Notes for cash on March 15, 2008. The Company may also be required to
redeem the 4.5% Notes at the investor's option on March 15, 2013 and March
15, 2018, for cash or common stock or a combination of both, at the
Company's election. Additionally, investors may require the Company to
redeem the 4.5% Notes in the event of certain change of control events that
occur prior to May 15, 2008, for cash or common stock or a combination of
both, at the Company's election. The Company at its option may redeem the
4.5% Notes on or after May 15, 2008 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.
If at any time on or after March 13, 2003 the Company pays cash dividends
on its common stock, the Company will pay contingent interest per 4.5% Note
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 a note.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
OTHER
On March 7, 2003, Standard & Poor's Ratings Services downgraded the
Company's senior secured credit rating to BB+ with negative outlook from
BBB-. On May 14, 2003, Fitch Ratings downgraded the Company's senior
unsecured credit rating to BB+ with negative outlook from BBB-. The
remaining senior unsecured credit rating is Baa3 with stable outlook;
however, as reported by Moody's Investors Services, Inc., on May 8, 2003,
this rating was placed on review for possible downgrade.
Since July 2001, the Company has not repurchased its common stock in the
open market.
The Company has previously paid cash dividends quarterly, with the most
recent quarterly rate of $0.095 per share. The determination of dividend
payments is made by the Company's Board of Directors on a quarterly basis.
However, as previously discussed, the Company's ability to declare or pay
dividends is currently restricted by new terms of its Revolving Credit
Facilities and Prudential Agreements, and the Company has not declared or
paid a dividend in the first quarter of 2003.
11. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
FEDERAL SECURITIES CLASS ACTIONS
Thirteen federal securities purported class actions were filed against The
Interpublic Group of Companies, Inc. (referred to hereinafter as
"Interpublic" or the "Company") and certain of its present and former
directors and officers by a purported class of purchasers of Interpublic
stock shortly after the Company's August 13, 2002 announcement regarding
the restatement of its previously reported earnings for the periods January
1, 1997 through March 31, 2002. These actions, which were all filed in the
United States District Court for the Southern District of New York, were
consolidated by the Court and lead counsel appointed for all plaintiffs, on
November 8, 2002. A consolidated amended complaint was filed thereafter on
January 10, 2003. The purported classes consist of Interpublic shareholders
who purchased Interpublic stock in the period from October 1997 to October
2002. Specifically, the consolidated amended complaint alleges that
Interpublic and certain of its present and former directors and officers
allegedly made misleading statements to its shareholders between October
1997 and October 2002, including the alleged failure to disclose the
existence of additional charges that would need to be expensed and the lack
of adequate internal financial controls, which allegedly resulted in an
overstatement of Interpublic's financial results during those periods. The
consolidated amended complaint alleges that such false and misleading
statements constitute violations of Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder. The consolidated
amended complaint also alleges violations of Sections 11 and 15 of the
Securities Act of 1933 in connection with Interpublic's acquisition of True
North Communications, Inc. ("True North"). No amount of damages is
specified in the consolidated amended complaint. On February 6, 2003,
defendants filed a motion to dismiss the consolidated amended complaint in
its entirety. On February 28, 2003, plaintiffs filed their opposition to
defendants' motion and, on March 14, 2003, defendants filed their reply to
plaintiff's opposition to defendants' motion. The motion is currently
pending.
STATE SECURITIES CLASS ACTIONS
Two state securities purported class actions were filed against the Company
and certain of its present and former directors and officers by a purported
class of purchasers of Interpublic stock shortly after the Company's
November 13, 2002 announcement regarding the restatement of its previously
reported earnings for the periods January 1, 1997 through March 31, 2002.
The purported classes consist of Interpublic shareholders who acquired
Interpublic stock on or about June 25, 2001 in connection with
Interpublic's acquisition of True North. These lawsuits allege that
Interpublic and certain of its present and former directors and officers
allegedly made misleading statements in connection with the filing of a
registration statement on May 9, 2001 in which Interpublic issued
67,644,272 shares of its common stock for the purpose of acquiring True
North, including the alleged failure to disclose the existence of
additional charges that would need to be expensed and the lack of adequate
internal financial controls, which allegedly resulted in an overstatement
of Interpublic's financial results at that time. The suits allege that such
misleading statements constitute violations of Sections 11 and 15 of the
Securities Act of 1933. No amount of damages is specified in the
complaints. These actions were filed in the Circuit Court of Cook County,
Illinois. On December 18, 2002, defendants removed these actions from
Illinois state court to the United States District Court for the Northern
District of Illinois. Thereafter, on January 10, 2003, defendants moved to
transfer these two actions to the Southern District of New York. Plaintiffs
moved to remand these actions. On April 15, 2003, the United States
District Court for the Northern District of Illinois granted plaintiffs'
motions to remand these actions to Illinois state court and denied
defendants' motion to transfer. The Company intends to move to dismiss or
stay these actions at the appropriate time.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
DERIVATIVE ACTIONS
In addition to the lawsuits above, several shareholder derivative suits
have been filed. On October 24, 2002, a shareholder derivative suit was
filed in Delaware Court of Chancery, New Castle County, by a single
shareholder acting on behalf of the Company against the Board of Directors.
The suit alleges a breach of fiduciary duties to Interpublic's
shareholders. On November 15, 2002, another suit was filed in Delaware
Court of Chancery, New Castle County, by a single shareholder acting on
behalf of the Company against the Board of Directors. On December 18, 2002,
defendants moved to dismiss these actions. In lieu of a response,
plaintiffs consolidated the actions and filed an Amended Consolidated
Complaint on January 10, 2003, again alleging breach of fiduciary duties to
Interpublic's shareholders. The Amended Consolidated Complaint does not
state a specific amount of damages. On January 27, 2003, defendants filed
motions to dismiss the Consolidated Amended Complaint, and those motions
are currently pending.
On September 4, 2002, a shareholder derivative suit was filed in New York
Supreme Court, New York County, by a single shareholder acting on behalf of
the Company against the Board of Directors and against the Company's
auditors. This suit alleged a breach of fiduciary duties to Interpublic's
shareholders. On November 26, 2002, another shareholder derivative suit,
alleging the same breaches of fiduciary duties, was filed in New York
Supreme Court, New York County. The plaintiffs from these two shareholder
derivative suits filed an Amended Derivative Complaint on January 31, 2003.
On March 18, 2003, plaintiffs filed a motion to dismiss the Amended
Derivative Complaint without prejudice. On April 16, 2003, the Amended
Derivative Complaint was dismissed without prejudice. On February 24, 2003,
plaintiffs also filed a Shareholders' Derivative Complaint in the United
States District Court for the Southern District of New York. On May 2,
2003, plaintiffs filed an Amended Derivative Complaint. This action alleges
the same breach of fiduciary duties claim as the state court actions, and
adds a claim for contribution and forfeiture against two of the individual
defendants pursuant to Section 21D of the Exchange Act and Section 304 of
the Sarbanes-Oxley Act. The complaint does not state a specific amount of
damages. Defendants' response is due on June 6, 2003.
The Company intends to vigorously defend the actions discussed above. While
the proceedings are in the early stages and contain an element of
uncertainty, the Company has no reason to believe that the final resolution
of the actions will have a material adverse effect on its financial
position, cash flows or results of operations.
TAX MATTERS
On April 21, 2003, the Company received a notice from the Internal Revenue
Service ("IRS") proposing adjustments to the Company's taxable income that
would result in additional taxes, including conforming adjustments to state
and local returns, of $41.5 million (plus interest) for the taxable years
1994 to 1996. The Company believes that the tax positions that the IRS has
challenged comply with applicable law, and it intends to defend those
positions vigorously. Although the ultimate resolution of these matters
will likely require the Company to pay additional taxes, any such payments
will not have a material effect on the Company's financial position, cash
flows or results of operations.
SEC INVESTIGATION
The Company was informed in January 2003 by the Securities and Exchange
Commission staff that the SEC has issued a formal order of investigation
related to the Company's restatements of earnings for periods dating back
to 1997. The matters had previously been the subject of an informal
inquiry. The Company is cooperating fully with the investigation.
OTHER
The Company is involved in other legal and administrative proceedings of
various types. While any litigation contains an element of uncertainty, the
Company has no reason to believe that the outcome of such proceedings or
claims will have a material effect on the financial condition of the
Company.
12. SUBSEQUENT EVENTS
On May 14, 2003, the Company entered into a definitive agreement for the
sale of NFO WorldGroup, Inc. ("NFO") to Taylor Nelson Sofres ("TNS") for
$400 in cash and approximately $25 in ordinary shares of TNS and, subject
to appreciation of market value of ordinary shares of TNS, an additional
$10 in cash payable approximately one year following the closure of this
divestiture. The portion of the consideration consisting of ordinary shares
of TNS will be admitted for trading on the London Stock Exchange and
subject to a lock-up undertaking that generally permits disposition of half
of the Company's position commencing in December 2003 and the remainder
commencing in March 2004. The conditions to the consummation of this
divestiture include approval by a special meeting of the shareholders of
TNS and receipt of regulatory clearances in the United States and abroad.
The Company expects to consummate the transaction in the summer of 2003. As
a result of this divestiture, the Company expects to realize a pre-tax gain
of approximately $100.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Based on circumstances surrounding the decision to divest NFO, it has been
determined that the assets and liabilities should be classified as assets
and liabilities held for sale in accordance with SFAS 144, ACCOUNTING FOR
THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. The relevant amounts for
NFO have been separately identified on the accompanying consolidated
balance sheet as assets and liabilities held for sale at March 31, 2003. As
a result of the agreement referred to above, the results of NFO will be
treated as discontinued operations in the second quarter. For 2002, the
revenues and net income of NFO were $466.0 and $18.8, respectively. For the
first quarter of 2003, the revenues and net loss of NFO were $117.3 and
$0.6, respectively.
Included in assets held for sale are accounts receivable of $81.4, prepaid
expenses and other current assets of $52.7, net fixed assets of $46.9,
intangible assets of $214.1 and other assets of $19.5. Included in
liabilities held for sale are accounts payable of $21.7, accrued expenses
of $73.8, and other liabilities of $25.6.
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.
(Registrant)
Date: December 8, 2003 BY /s/ DAVID A. BELL
-----------------
DAVID A. BELL
Chairman of the Board, President
and Chief Executive Officer
Date: December 8, 2003 BY /s/ CHRISTOPHER J. COUGHLIN
---------------------------
CHRISTOPHER J. COUGHLIN
Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
CERTIFICATION
I, David A. Bell, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q/A for the Period
Ended March 31, 2003 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 registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) 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) Evaluated the effectiveness of the registrant's 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;
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's 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 registrant's 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 registrant's internal control
over financial reporting.
Date December 8, 2003
/s/ David A. Bell
------------------
David A. Bell
Chief Executive Officer
CERTIFICATION
I, Christopher J. Coughlin, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q/A for the Period
Ended March 31, 2003 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 registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) 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) Evaluated the effectiveness of the registrant's 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;
c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's 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 registrant's 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 registrant's internal control
over financial reporting.
Date: December 8, 2003
/s/ Christopher J. Coughlin
----------------------------
Christopher J. Coughlin
Chief Financial Officer
Exhibit 99
QUARTERLY CERTIFICATION
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., a Delaware
corporation (the "Company"), does hereby certify, to such officer's knowledge,
that:
The quarterly report on Form 10-Q/A for the quarter ended March 31, 2003 of the
Company fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and information contained in the Form 10-Q/A
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: December 8, 2003 /s/ David A. Bell
-----------------
David A. Bell
Chief Executive Officer
Dated: December 8, 2003 /s/ Christopher J. Coughlin
---------------------------
Christopher J. Coughlin
Chief Financial Officer