UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
OR
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
Commission File Number: 1 -6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware incorporation or organization) |
13 -1024020 Identification No.) |
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1271 Avenue of the Americas, New York, New York |
10020 |
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 July 31, 2003: 391,399,332 shares.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
I N D E X
PART I. FINANCIAL INFORMATION
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Page No. |
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Item 1. |
Financial Statements |
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Consolidated Statement of Operations |
3 |
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Three months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Operations |
4 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Balance Sheet |
5 |
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June 30, 2003 and |
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December 31, 2002 (unaudited) |
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Consolidated Statement of Comprehensive Income |
7 |
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Three months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Comprehensive Income |
8 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Cash Flows |
9 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Notes to Consolidated Financial Statements (unaudited) |
10 |
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Item 2. |
Management's Discussion and Analysis of |
25 |
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Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
37 |
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Item 4. |
Controls and Procedures |
38 |
PART II. OTHER INFORMATION
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Item 1. |
Legal Proceedings |
40 |
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Item 2. |
Changes in Securities and Use of Proceeds |
42 |
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Item 4. |
Submission of Matters to a Vote of Securities Holders |
46 |
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Item 6. |
Exhibits and Reports on Form 8-K |
47 |
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SIGNATURES |
49 |
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INDEX TO EXHIBITS |
50 |
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Item 1. |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENT OF OPERATIONS |
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THREE MONTHS ENDED JUNE 30, |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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2003 |
2002 |
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REVENUE |
$1,499.4 |
$1,490.4 |
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OPERATING EXPENSES: |
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Salaries and related expenses |
878.4 |
839.2 |
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Office and general expenses |
459.6 |
435.9 |
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Amortization of intangible assets |
4.1 |
2.6 |
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Restructuring charges |
94.4 |
-- |
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Long-lived asset impairment |
11.0 |
-- |
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Total operating expenses |
1,447.5 |
1,277.7 |
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OPERATING INCOME |
51.9 |
212.7 |
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OTHER INCOME (EXPENSE): |
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Interest expense |
(46.1) |
(36.9) |
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Interest income |
10.2 |
8.1 |
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Other income |
0.3 |
6.6 |
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Investment impairment |
(9.8 ) |
(16.2 ) |
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Total other income (expense) |
(45.4 ) |
(38.4 ) |
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Income before provision for income taxes |
6.5 |
174.3 |
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Provision for income taxes |
22.4 |
67.3 |
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INCOME (LOSS) OF CONSOLIDATED COMPANIES |
(15.9) |
107.0 |
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Income applicable to minority interests |
(8.4) |
(10.9) |
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Equity in net income of unconsolidated affiliates |
1.3 |
2.5 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS |
(23.0) |
98.6 |
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INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES) |
9.5 |
10.4 |
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NET INCOME (LOSS) |
$ (13.5 ) |
$ 109.0 |
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Earnings (loss) per share: |
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Basic: |
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Continuing operations |
$ (0.06) |
$ 0.26 |
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Discontinued operations |
$ 0.02 |
$ 0.03 |
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Total |
$ (0.04 ) |
$ 0.29 |
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Diluted: |
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Continuing operations |
$ (0.06) |
$ 0.26 |
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Discontinued operations |
$ 0.02 |
$ 0.03 |
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Total |
$ (0.04 ) |
$ 0.29 |
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Weighted average shares: |
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Basic |
384.3 |
375.7 |
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Diluted |
384.3 |
382.4 |
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Cash dividends per share |
$ -- |
$ 0.095 |
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The accompanying notes are an integral part of these consolidated financial statements.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENT OF OPERATIONS |
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SIX MONTHS ENDED JUNE 30, |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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2003 |
2002 |
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REVENUE |
$2,815.1 |
$2,809.4 |
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OPERATING EXPENSES: |
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Salaries and related expenses |
1,733.1 |
1,660.9 |
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Office and general expenses |
885.5 |
809.4 |
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Amortization of intangible assets |
7.3 |
4.4 |
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Restructuring charges |
94.4 |
-- |
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Long-lived asset impairment |
22.1 |
-- |
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Total operating expenses |
2,742.4 |
2,474.7 |
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OPERATING INCOME |
72.7 |
334.7 |
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OTHER INCOME (EXPENSE): |
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Interest expense |
(84.9) |
(72.2) |
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Interest income |
18.1 |
15.0 |
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Other income |
0.1 |
6.9 |
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Investment impairment |
(12.5 ) |
(16.2 ) |
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Total other income (expense) |
(79.2 ) |
(66.5 ) |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
(6.5) |
268.2 |
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Provision for income taxes |
16.8 |
102.6 |
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INCOME (LOSS) OF CONSOLIDATED COMPANIES |
(23.3) |
165.6 |
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Income applicable to minority interests |
(9.0) |
(14.2) |
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Equity in net income (loss) of unconsolidated affiliates |
(1.9 ) |
3.3 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS |
(34.2) |
154.7 |
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INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES) |
12.1 |
14.1 |
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NET INCOME (LOSS) |
$ ( 22.1 ) |
$ 168.8 |
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Earnings (loss) per share: |
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Basic: |
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Continuing operations |
$ (0.09) |
$ 0.41 |
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Discontinued operations |
0.03 |
0.04 |
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Total |
$ (0.06 ) |
$ 0.45 |
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Diluted: |
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Continuing operations |
$ (0.09) |
$ 0.41 |
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Discontinued operations |
0.03 |
0.04 |
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Total |
$ (0.06 ) |
$ 0.44 (a) |
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Weighted average shares: |
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Basic |
383.1 |
374.3 |
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Diluted |
383.1 |
381.1 |
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Cash dividends per share |
-- |
$ 0.190 |
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The accompanying notes are an integral part of these consolidated financial statements.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEET |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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June 30, |
December 31, |
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2003 |
2002 |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ 700.1 |
$ 933.0 |
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Accounts receivable (net of allowance for doubtful |
4,681.4 |
4,517.6 |
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Expenditures billable to clients |
414.8 |
407.6 |
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Deferred taxes on income |
69.4 |
37.0 |
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Prepaid expenses and other current assets |
452.5 |
427.1 |
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Assets held for sale |
452.2 |
-- |
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Total current assets |
6,770.4 |
6,322.3 |
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FIXED ASSETS, AT COST: |
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Land and buildings |
148.2 |
168.2 |
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Furniture and equipment |
1,063.6 |
1,125.1 |
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Leasehold improvements |
496.8 |
487.8 |
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1,708.6 |
1,781.1 |
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Less: accumulated depreciation |
(968.6 ) |
(955.4 ) |
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Total fixed assets |
740.0 |
825.7 |
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OTHER ASSETS: |
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Investment in less than majority-owned affiliates |
352.2 |
357.3 |
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Deferred taxes on income |
516.3 |
509.9 |
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Other assets |
274.9 |
319.8 |
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Intangible assets (net of accumulated |
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amortization: 2003-$993.3; 2002-$1,038.5) |
3,442.9 |
3,458.7 |
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Total other assets |
4,586.3 |
4,645.7 |
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TOTAL ASSETS |
$12,096.7 |
$11,793.7 |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEET |
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(Amounts in Millions, Except Per Share Amounts) |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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(Unaudited) |
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June 30, |
December 31, |
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2003 |
2002 |
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CURRENT LIABILITIES: |
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Accounts payable |
$ 5,282.7 |
$5,125.5 |
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Accrued expenses |
1,019.3 |
1,110.8 |
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Accrued income taxes |
17.3 |
33.2 |
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Loans payable |
128.5 |
239.3 |
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Zero-coupon convertible senior notes |
1.0 |
581.0 |
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Liabilities held for sale |
149.0 |
-- |
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Total current liabilities |
6,597.8 |
7,089.8 |
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NON-CURRENT LIABILITIES: |
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Long-term debt |
1,214.1 |
1,253.1 |
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Convertible subordinated notes |
573.0 |
564.6 |
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Convertible senior notes |
800.0 |
-- |
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Deferred compensation |
494.1 |
470.5 |
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Accrued postretirement benefits |
53.3 |
55.6 |
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Other non-current liabilities |
75.9 |
189.7 |
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Minority interests in consolidated subsidiaries |
63.0 |
70.4 |
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Total non-current liabilities |
3,273.4 |
2,603.9 |
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Commitments and contingencies (Note 12) |
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STOCKHOLDERS' EQUITY: |
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Preferred stock, no par value, |
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shares authorized: 20.0, shares issued: none |
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Common stock, $0.10 par value, |
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shares authorized: 800.0, |
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shares issued: 2003 - 391.1; 2002 - 389.3 |
39.1 |
38.9 |
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Additional paid-in capital |
1,742.9 |
1,797.0 |
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Retained earnings |
835.9 |
858.0 |
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Accumulated other comprehensive loss, net of tax |
(297.5 ) |
(373.6 ) |
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2,320.4 |
2,320.3 |
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Less: |
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Treasury stock, at cost: 2003- 0.1 shares; 2002 - 3.1 shares |
(11.3) |
(119.2) |
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Unamortized deferred compensation |
(83.6 ) |
(101.1 ) |
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Total stockholders' equity |
2,225.5 |
2,100.0 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$12,096.7 |
$11,793.7 |
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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 JUNE 30,
(Amounts In Millions)
(Unaudited)
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2003 |
2002 |
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Net Income (Loss) |
$(13.5 ) |
$109.0 |
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Foreign Currency Translation Adjustments |
47.0 |
107.7 |
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Adjustment for Minimum Pension Liability |
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Adjustment for minimum pension liability |
(0.5) |
-- |
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Unrealized Holding Gains (Losses) on Securities |
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Unrealized holding gains |
5.3 |
-- |
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Tax expense |
(2.2) |
-- |
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Unrealized holding losses |
-- |
(5.5) |
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Tax benefit |
-- |
2.3 |
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Unrealized Holding Gains (Losses) on Securities |
3.1 |
(3.2 ) |
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Comprehensive Income |
$ 36.1 |
$213.5 |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30,
(Amounts In Millions)
(Unaudited)
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2003 |
2002 |
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Net Income (Loss) |
$(22.1 ) |
$168.8 |
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Foreign Currency Translation Adjustments |
76.7 |
89.2 |
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Adjustment for Minimum Pension Liability |
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Adjustment for minimum pension liability |
(5.2) |
-- |
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Tax benefit |
2.0 |
-- |
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Adjustment for Minimum Pension Liability |
(3.2 ) |
-- |
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Unrealized Holding Gains (Losses) on Securities |
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Unrealized holding gains |
5.3 |
0.9 |
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Tax expense |
(2.2) |
(0.4) |
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Unrealized holding losses |
(0.8) |
(5.5) |
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Tax benefit |
0.3 |
2.3 |
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Unrealized Holding Gains (Losses) on Securities |
2.6 |
(2.7 ) |
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Comprehensive Income |
$54.0 |
$255.3 |
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CONSOLIDATED STATEMENT OF CASH FLOWS |
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SIX MONTHS ENDED JUNE 30, |
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(Amounts in Millions) |
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(Unaudited) |
|||
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2003 |
2002 |
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CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Net income (loss) from continuing operations |
$(34.2) |
$ 154.7 |
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Adjustments to reconcile net income (loss) to |
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cash used in operating activities: |
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Depreciation and amortization of fixed assets |
86.9 |
92.1 |
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Amortization of intangible assets |
7.3 |
4.4 |
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Amortization of restricted stock awards and bond discounts |
39.9 |
39.4 |
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Provision for (benefit of) deferred income taxes |
(24.7) |
60.0 |
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Undistributed equity earnings |
1.9 |
(3.3) |
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Income applicable to minority interests |
9.0 |
14.2 |
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Restructuring charges - non cash |
5.8 |
-- |
|
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Long-lived asset impairment |
22.1 |
-- |
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Investment impairment |
12.5 |
16.2 |
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Other |
4.6 |
(9.9) |
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Change in assets and liabilities, net of acquisitions: |
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Accounts receivable |
(72.2) |
(39.9) |
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Expenditures billable to clients |
(32.0) |
(102.1) |
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Prepaid expenses and other current assets |
(23.1) |
(28.6) |
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Accounts payable and accrued expenses |
34.9 |
(185.8) |
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Accrued income taxes |
(38.5) |
(45.1) |
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Other non-current assets and liabilities |
(37.0 ) |
32.4 |
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Net cash used in operating activities from continuing operations |
(36.8) |
(1.3) |
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CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Acquisitions, net of cash acquired |
(141.3) |
(199.6) |
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Capital expenditures |
(72.1) |
(77.8) |
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Proceeds from sales of businesses |
2.0 |
0.2 |
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Proceeds from sales of long-term investments |
21.3 |
39.3 |
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Purchases of long-term investments |
(11.0) |
(38.5) |
|
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Maturities of short-term marketable securities |
17.2 |
23.5 |
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Purchases of short-term marketable securities |
(27.8) |
(9.3) |
|
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Other investments and miscellaneous assets |
(34.6 ) |
(56.4) |
|
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Net cash used in investing activities from continuing operations |
(246.3 ) |
(318.6 ) |
|
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CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Increase (decrease) in short-term debt |
(209.1) |
90.3 |
|
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Payments of zero-coupon convertible senior notes |
(580.0) |
-- |
|
|
Proceeds from long-term debt |
22.9 |
1.5 |
|
|
Proceeds from 4.5% convertible senior notes |
778.0 |
-- |
|
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Payments of long-term debt |
(1.4) |
(132.1) |
|
|
Treasury stock acquired |
-- |
(7.7) |
|
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Issuance of common stock |
8.0 |
44.2 |
|
|
Distributions to minority interests |
(7.4) |
(72.5) |
|
|
Contributions from minority interests |
0.5 |
-- |
|
|
Net cash provided by (used in) financing activities from continuing operations |
11.5 |
(76.3 ) |
|
|
Effect of exchange rates on cash and cash equivalents |
52.1 |
(9.6 ) |
|
|
Net cash (used in) provided by discontinued operations |
(13.4 ) |
7.9 |
|
|
Decrease in cash and cash equivalents |
(232.9) |
(397.9) |
|
|
Cash and cash equivalents at beginning of year |
933.0 |
935.2 |
|
|
Cash and cash equivalents at end of period |
$ 700.1 |
$ 537.3 |
|
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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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 June 30, 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") annual report on Form 10-K for the year ended December 31, 2002. The operating results for the first six months of the year are not necessarily indicative of the results for the year or other interim periods. As discussed in Note 10, on July 10, 2003, the Company completed the sale of its NFO WorldGroup ("NFO") research unit to Taylor Nelson Sofres PLC ("TNS"). The results of NFO are classified as discontinued operations in accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and, accordingly, the results of operations and cash flows of NFO have been removed from the Company's results of continuing operations and cash flows for all periods presented in this document. Additionally, the assets and liabilities of NFO have been presented as held for sale in the accompanying balance sheet as of June 30, 2003. |
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2. |
Earnings (Loss) Per Share |
|
Three Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Basic |
||||
|
Income (loss) from continuing operations |
$(23.0) |
$ 98.6 |
||
|
Income from discontinued operations |
9.5 |
10.4 |
||
|
Net Income (loss) |
$(13.5 ) |
$109.0 |
||
|
Weighted average number of common shares outstanding |
384.3 |
375.7 |
||
|
Earnings (loss) per share from continuing operations |
$(0.06) |
$ 0.26 |
||
|
Earnings per share from discontinued operations |
0.02 |
0.03 |
||
|
Earnings (loss) per share - basic |
$(0.04 ) |
$ 0.29 |
||
|
Diluted (a) |
||||
|
Income (loss) from continuing operations - diluted |
$(23.0) |
$ 98.6 |
||
|
Income from discontinued operations |
9.5 |
10.4 |
||
|
Net Income (loss) - diluted |
$(13.5 ) |
$109.0 |
||
|
Weighted average number of common shares outstanding |
384.3 |
375.7 |
||
|
Weighted average number of incremental shares in connection with |
||||
|
restricted stock and assumed exercise of stock options |
-- |
6.7 |
||
|
Weighted average number of common shares outstanding - diluted |
384.3 |
382.4 |
||
|
Earnings (loss) per share from continuing operations |
$(0.06) |
$ 0.26 |
||
|
Earnings per share from discontinued operations |
0.02 |
0.03 |
||
|
Earnings (loss) per share - diluted |
$(0.04 ) |
$ 0.29 |
||
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
Six Months Ended June 30, |
|||
|
2003 |
2002 |
|||
|
Basic |
||||
|
Income (loss) from continuing operations |
$(34.2) |
$154.7 |
||
|
Income from discontinued operations |
12.1 |
14.1 |
||
|
Net Income (loss) |
$(22.1 ) |
$168.8 |
||
|
Weighted average number of common shares outstanding |
383.1 |
374.3 |
||
|
Earnings (loss) per share from continuing operations |
$(0.09) |
$ 0.41 |
||
|
Earnings per share from discontinued operations |
0.03 |
0.04 |
||
|
Earnings (loss) per share - basic |
$(0.06 ) |
$ 0.45 |
||
|
Diluted (a) |
||||
|
Income (loss) from continuing operations - diluted |
$(34.2) |
$154.7 |
||
|
Income from discontinued operations |
12.1 |
14.1 |
||
|
Net Income (loss) - diluted |
$(22.1 ) |
$168.8 |
||
|
Weighted average number of common shares outstanding |
383.1 |
374.3 |
||
|
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 |
383.1 |
381.1 |
||
|
Earnings (loss) per share from continuing operations |
$(0.09) |
$ 0.41 |
||
|
Earnings per share from discontinued operations |
0.03 |
0.04 |
||
|
Earnings (loss) per share - diluted |
$(0.06 ) |
$ 0.44 (b) |
||
|
(a) |
The computation of diluted EPS for 2003 excludes the assumed conversion of the 1.80% and 1.87% Convertible Subordinated Notes, the conversion of restricted stock and assumed exercise of stock options because they were antidilutive. The computation of diluted EPS for 2002 excludes the assumed conversion of the 1.80% and 1.87% Convertible Subordinated Notes because they were anti-dilutive. |
|
|
(b) |
Does not total due to rounding. |
|
|
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 for the three months ended and six months ended June 30 would have been as follows: |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
Three Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Income (Loss) from Continuing Operations |
|
|||
|
As reported, income (loss) from continuing operations |
$(23.0) |
$98.6 |
||
|
Add back: |
|
|||
|
Stock-based employee compensation expense included in |
|
|||
|
reported net income, net of tax |
5.5 |
|
7.4 |
|
|
Deduct: |
|
|||
|
Total fair value of stock based employee |
|
|||
|
compensation expense, net of tax |
(16.4 ) |
(16.9 ) |
||
|
Pro forma income (loss) from continuing operations |
$(33.9 ) |
$89.1 |
||
|
Earnings (Loss) Per Share From Continuing Operations |
|
|||
|
Basic earnings (loss) per share |
|
|||
|
As reported |
$(0.06) |
$0.26 |
||
|
Pro forma |
$(0.09) |
$0.24 |
||
|
Diluted earnings (loss) per share |
|
|||
|
As reported |
$(0.06) |
$0.26 |
||
|
Pro forma |
$(0.09) |
$0.23 |
||
|
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 $1.90 and $4.32 in 2003 and 2002, respectively. |
|
|
Three Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Expected option lives |
6 years |
6 years |
||
|
Risk free interest rate |
2.79% |
4.74% |
||
|
Expected volatility |
45.75% |
36.63% |
||
|
Dividend yield |
-- |
1.37% |
||
|
Six Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Income (Loss) from Continuing Operations |
||||
|
As reported, income (loss) from continuing operations |
$ (34.2) |
$154.7 |
||
|
Add back: |
||||
|
Stock-based employee compensation expense included in |
||||
|
reported net income, net of tax |
11.3 |
13.2 |
||
|
Deduct: |
||||
|
Total fair value of stock based employee |
||||
|
compensation expense, net of tax |
(30.3 ) |
(31.8 ) |
||
|
Pro forma income (loss) from continuing operations |
$(53.2 ) |
$136.1 |
||
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
Earnings (Loss) Per Share From Continuing Operations |
||||
|
Basic earnings (loss) per share |
||||
|
As reported |
$(0.09) |
$0.41 |
||
|
Pro forma |
$(0.14) |
$0.36 |
||
|
Diluted earnings (loss) per share |
||||
|
As reported |
$(0.09) |
$0.41 |
||
|
Pro forma |
$(0.14) |
$0.36 |
||
|
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 $1.70 and $4.38 in 2003 and 2002, respectively. |
|
|
Six Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Expected option lives |
6 years |
|
6 years |
|
|
|
||||
|
Risk free interest rate |
3.34% |
4.96% |
||
|
|
||||
|
Expected volatility |
43.65% |
34.41% |
||
|
|
||||
|
Dividend yield |
-- |
|
1.29% |
|
|
4. |
Restructuring Charges During the second quarter of 2003, the Company announced that it would undertake restructuring initiatives in response to softness in demand for advertising and marketing services. The restructuring initiatives include severance and lease terminations. The total amount of pre-tax charges the Company expects to incur, over several periods, is up to approximately $200.0. In the second quarter of 2003, the Company recorded a pre-tax restructuring charge of $94.4 ($61.6 after tax). The pre-tax restructuring charge was composed of severance costs of $66.0 and lease terminations costs of $28.4. Included in the $28.4 of lease termination costs was $4.8 related to the write-off of leasehold improvements and $12.4 related to additional losses on properties vacated as part of the 2001 restructuring program. The charges related to leases terminated as part of the 2003 program are recorded at net present value and are net of estimated sublease income amounts. The Company expects that the second quarter restructuring charge will result in cash payments of $88.6 to be paid in 2003 ($64.0), 2004 ($14.6) and 2005 and thereafter ($10.0). Further actions in this restructuring program will be undertaken in the third and fourth quarters of 2003. The severance and termination costs relate to a reduction in workforce of approximately 1,450 employees worldwide. The employee groups affected include all levels and functions across the Company: executive, regional and account management and administrative, creative and media production personnel. Approximately 35% of the charge relates to severance in the US, 15% to severance in the UK, 10% to severance in France with the remainder largely relating to the rest of Europe, Asia and Latin America. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. Approximately 30 locations are to be vacated with substantially all actions to be completed by December 31, 2003; however, the cash portion of the charge will be paid out over a period of several years. The majority of the offices to be vacated are located in the US with approximately one third in overseas markets principally in Europe. |
|
|
2001 Program A summary of the remaining liability for restructuring charges related to the 2003 restructuring program, together with the remaining liability related to the 2001 program, is as follows: |
|
|
Liability at |
Total |
2003 |
2003 cash |
Liability at June |
||
|
TOTAL BY TYPE |
||||||
|
Severance and termination costs |
$ 15.9 |
$66.0 |
$1.0 |
$21.6 |
$ 59.3 |
|
|
Lease terminations and other exit costs |
$ 94.6 |
28.4 |
4.8 |
19.5 |
98.7 |
|
|
Total |
$110.5 |
$94.4 |
$5.8 |
$41.1 |
$158.0 |
|
|
5. |
Long-Lived Asset Impairment During the three and six months ended June 30, 2003, the Company recorded charges of $11.0 and $22.1, respectively, related to the impairment of long-lived assets at its Motorsports business. These amounts include $8.7 and $12.7, respectively, of current capital expenditure outlays that the Company is contractually required to spend to upgrade and maintain certain of its existing racing facilities, as well as an impairment of assets at other Motorsports entities. |
|
6. |
Investment Impairment During the second quarter of 2002, the Company recorded investment impairment charges of $16.2, primarily relating to certain investments of Octagon that had been determined to have incurred an "other than temporary" impairment. |
|
7. |
New Accounting Standards During 2003, FIN 46, "Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51" ("FIN 46") was issued. FIN 46 addresses the consolidation by business enterprises of variable interest entities, as defined in FIN 46 and is based on the concept that companies that control another entity through interests other than voting interests should consolidate the controlled entity. The consolidation requirements apply immediately to FIN 46 interests held in variable interest entities created after January 31, 2003 and to interests held in variable interest entities that existed prior to February 1, 2003 and remain in existence as of July 1, 2003. The application of FIN 46 did not have an impact on, or result in additional disclosure in, the Company's June 30, 2003 consolidated results of operations or financial position. During 2003, SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" was issued. SFAS 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain cases). The standard is to be adopted effective the third quarter of 2003. The Company does not believe that the adoption of the standard will a have a material impact on its consolidated results of operations or financial position. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
8. |
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 June 30, 2003, the Company had short-term contracts covering approximately $7.2 of notional amount of currency. As of June 30, 2003, the fair value of the forward contracts was a loss of $0.2. Other The Company has two embedded derivative instruments under the 4.5% Notes issued in March 2003. At June 30, 2003, the fair value of these derivatives was negligible. |
|
9. |
Segment Information Prior to the second quarter of 2003, the Company had maintained a fifth global operating group, Advanced Marketing Services ("AMS"). In connection with the disposal of NFO (see Note 10), AMS was disbanded and its remaining components became stand-alone agencies. Each of McCann, FCB, The Partnership, SEG and the various stand-alone agencies operates 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 the entities included in the former AMS historically have had lower gross margins than the Company average. The four 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 four 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 the entities included in the former AMS, the Company believes that the long-term average gross margin of each of these agencies will converge over time and, given the s imilarity of their operations, these entities have been aggregated. SEG has different margins than the remaining groups and, given current projections, the Company believes that the margins for this operating segment will not converge with the remaining 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 the Company 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. 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. |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
At June 30, 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 for the three months ended and six months ended June 30 is shown in the following table: |
|
|
IPG |
||||||
|
(Excl. |
Consolidated |
|||||
|
SEG) |
SEG |
Total |
||||
|
Three Months Ended June 30, 2003 |
|
|
||||
|
Revenue |
$1,395.9 |
|
$103.5 |
|
$1,499.4 |
|
|
Operating income (loss) |
76.1 |
|
(24.2) |
51.9 |
||
|
Depreciation and amortization of fixed assets |
40.4 |
|
3.0 |
|
43.4 |
|
|
Capital expenditures |
$ 33.2 |
|
$ 9.3 |
|
$ 42.5 |
|
|
|
|
|||||
|
Three Months Ended June 30, 2002 |
|
|
||||
|
Revenue |
$1,383.2 |
|
$107.2 |
|
$1,490.4 |
|
|
Operating income (loss) |
216.5 |
|
(3.8) |
|
212.7 |
|
|
Depreciation and amortization of fixed assets |
42.6 |
|
4.0 |
|
46.6 |
|
|
Capital expenditures |
$ 29.2 |
|
$ 15.4 |
|
$ 44.6 |
|
A reconciliation of information between reportable segments and the Company's consolidated pre-tax earnings is shown in the following table: |
|
|
Three Months Ended June 30, |
2003 |
2002 |
||
|
Total operating income for reportable segments |
$ 51.9 |
$212.7 |
||
|
Interest expense |
(46.1) |
(36.9) |
||
|
Interest income |
10.2 |
8.1 |
||
|
Other income |
0.3 |
6.6 |
||
|
Investment impairment |
(9.8 ) |
(16.2 ) |
||
|
Income before provision for income taxes |
$ 6.5 |
$174.3 |
|
IPG |
||||||
|
(Excl. |
Consolidated |
|||||
|
SEG) |
SEG |
Total |
||||
|
Six Months Ended June 30, 2003 |
|
|
||||
|
Revenue |
$2,626.0 |
|
$189.1 |
|
$2,815.1 |
|
|
Operating income (loss) |
118.0 |
|
(45.3) |
72.7 |
||
|
Depreciation and amortization of fixed assets |
80.5 |
|
6.4 |
|
86.9 |
|
|
Capital expenditures |
$ 54.9 |
|
$ 17.2 |
|
$ 72.1 |
|
|
|
|
|||||
|
Six Months Ended June 30, 2002 |
|
|
||||
|
Revenue |
$2,618.6 |
|
$190.8 |
|
$2,809.4 |
|
|
Operating income |
332.5 |
|
2.2 |
|
334.7 |
|
|
Depreciation and amortization of fixed assets |
83.9 |
|
8.2 |
|
92.1 |
|
|
Capital expenditures |
$ 58.0 |
|
$ 19.8 |
|
$ 77.8 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
A reconciliation of information between reportable segments and the Company's consolidated pre-tax earnings is shown in the following table: |
|
|
Six Months Ended June 30, |
2003 |
2002 |
||
|
Total operating income for reportable segments |
$ 72.7 |
$334.7 |
||
|
Interest expense |
(84.9) |
(72.2) |
||
|
Interest income |
18.1 |
15.0 |
||
|
Other income |
0.1 |
6.9 |
||
|
Investment impairment |
(12.5 ) |
(16.2 ) |
||
|
Income (loss) before provision for income taxes |
$ (6.5) |
$268.2 |
|
10. |
Acquisitions, Dispositions and Deferred Payments During the first six months of 2003, the Company completed two acquisitions for $4.0 in cash. Additionally, the Company paid $24.3 in cash and $3.2 in stock for additional ownership interests in companies in which a previous investment had been made. During the first six months of 2002, the Company completed seven acquisitions for $39.8 in cash and $1.1 in stock. Additionally, the Company paid $2.0 in cash and $0.8 in stock for additional ownership interests in companies in which a previous investment had been made. Deferred Payments During the first six months of 2003, the Company paid $113.9 in cash and $37.7 in stock as deferred payments on acquisitions that had closed in prior years. During the first six months of 2002, the Company paid $162.2 in cash and $42.5 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 June 30, 2003, the Company's estimated liability for earn-outs is as follows: |
|
2006 and |
||||||||||
|
2003 |
2004 |
2005 |
thereafter |
Total |
||||||
|
Cash |
$ 48.8 |
$83.9 |
$50.4 |
$24.4 |
$207.5 |
|||||
|
Stock |
9.5 |
13.7 |
18.1 |
11.4 |
52.7 |
|||||
|
TOTAL |
$ 58.3 |
$97.6 |
$68.5 |
$35.8 |
$260.2 |
|
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. |
||||
|
2003 |
$35.8 |
|
|
|
2004 |
$31.9 |
|
|
|
2005 |
$33.0 |
|
|
|
2006 and thereafter |
$45.2 |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
The actual amount to be paid is contingent upon the achievement of projected operating performance targets and the satisfaction of other conditions as specified in the relevant agreement. |
|
|
2003 |
$15.7 |
|
|
|
2004 |
$ 7.1 |
|
|
|
2005 |
$15.3 |
|
|
|
2006 and thereafter |
$64.1 |
|
|
The actual amount to be paid is contingent upon the achievement of projected operating performance targets and the satisfaction of other conditions as specified in the relevant agreement. |
|
|
Three Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Pre-tax income from discontinued operations |
$16.0 |
$17.1 |
||
|
Tax expense |
6.5 |
6.7 |
||
|
Income from discontinued operations |
$ 9.5 |
$10.4 |
||
|
Six Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Pre-tax income from discontinued operations |
$20.4 |
$23.5 |
||
|
Tax expense |
8.3 |
9.4 |
||
|
Income from discontinued operations |
$12.1 |
$14.1 |
||
|
11. |
Debt and Certain Liquidity Matters 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 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
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, if EBITDA for the four fiscal quarters most recently ended was at least $83
1.0 (for purposes of this EBITDA calculation, only $125.0 of non-recurring restructuring charges may be added back to EBITDA). The Revolving Credit Facilities are used for general corporate purposes. As of June 30, 2003, $166.4 was utilized under the New 364-Day Revolving Credit Facility for the issuance of letters of credit and $57.6 was utilized under the Five-Year Revolving Credit Facility. |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
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 the permitted level of 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. The Company's permitted level of annual capital expenditures is $175.0. |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
Other Debt Instruments-- Convertible Senior Notes - 4.5% The 4.5% Notes may also be converted, regardless of the price of the Company's common stock, if: (i) the credit ratings assigned to the 4.5% Notes by any two of Moody's Investors Service, Inc., Standard & Poor's Ratings Services and Fitch Ratings are lower than Ba2, BB and BB, respectively, 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 4.5% Note. 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. |
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
12. |
Commitments and Contingencies Federal Securities Class Action 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 consists 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 offi cers 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") on behalf of a purported class of True North shareholders who acquired Interpublic stock. 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 i n 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. On May 29, 2003, the United States District Court for the Southern District of New York denied the motion to dismiss as to the Company and granted the motion as to the present and former directors and officers named in the consolidated amended complaint. On June 30, 2003, defendants filed an answer to the consolidated amended complaint. 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 cont rols, 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. On June 18, 2003, the Company moved to dismiss and/or stay these actions. The motions are currently pending. 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 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
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 June 30, 2003, after the plaintiffs informed the court that they had decided to dismiss the Delaware litigation, the court entered an order dismissing the Delaware action with prejudice to plaintiffs only. |
|
|
13. |
Subsequent Events As discussed in Note 10, on July 10, 2003, the Company completed the sale of NFO to TNS. Repayment of Debt As discussed in Note 11, on August 8, 2003, the Company repaid all of its outstanding borrowings under the Prudential Agreements. This transaction required repaying $142.5 principal amount of its outstanding debt. In connection with this transaction a prepayment penalty was incurred that will result in a net charge of approximately $24.5. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Item 2. RESULTS OF OPERATIONS The impact of foreign currency is the difference between prior year results converted to US Dollars at prior year exchange rates and prior year results converted to US Dollars at (constant currency) current year exchange rates. The impact of acquisitions and dispositions relates to the results of acquisitions and dispositions that occurred since January 1st of the prior year. Organic revenue is calculated as revenue in constant currency eliminating acquisitions and dispositions. The Company's results of operations are dependent upon: a) maintaining and growing its revenue, b) the ability to retain and gain new clients, c) the continuous alignment of its costs to its revenue and d) retaining and attracting key personnel. Revenue is also highly dependent on overall economic and political conditions. For a further discussion of these and other factors that could affect the Company's results of operations and financial conditions, see "Cautionary Statement". As discussed in Note 9 to the consolidated financial statements, the Company is comprised of two reportable segments: the Interpublic Sports and Entertainment Group ("SEG") and Interpublic excluding SEG. SEG was formed during the second quarter of 2002 through a carve-out from the Company's other operating groups and is primarily comprised of the operations of Octagon, the Company's sports marketing business, Motorsports, the Company's motorsports business, and Jack Morton Worldwide, the Company's event planning business. 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 in 2002. 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 the Company 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. Discontinued Operations As discussed in Note 10 to the consolidated financial statements, on July 10, 2003, the Company completed the sale of its NFO WorldGroup ("NFO") research unit to Taylor Nelson Sofres PLC ("TNS"). The results of NFO are classified as discontinued operations in accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and, accordingly, the results of operations and cash flows of NFO have been removed from the Company's results of continuing operations and cash flow for all periods presented in this document. Continuing Operations Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 The Company reported a net loss of $13.5, or $0.04 diluted loss per share, which is comprised of a $0.06 loss per share from continuing operations and $0.02 earnings per share from discontinued operations for the three months ended June 30, 2003. This compares to net earnings of $109.0, or $0.29 diluted earnings per share, comprised of $0.26 earnings per share from continuing operations and $0.03 earnings per share from discontinued operation for the three months ended June 30, 2002. Net loss in the second quarter of 2003 includes a pre-tax restructuring charge of $94.4, a pre-tax investment impairment charge of $11.0 related to the fixed assets of the Company's Motorsports business and a pre-tax investment impairment charge of $9.8 related to unconsolidated affiliates in Brazil, India, Canada and Japan. Net earnings in the second quarter of 2002 includes a pre-tax investment impairment charge of $16.2 related to Octagon, the Company's sports marketing business. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
The following summarizes certain financial information for purposes of management's discussion and analysis: |
|
Three Months Ended June 30, |
|||||||||||||
|
2003 |
2002 |
||||||||||||
|
IPG |
IPG |
||||||||||||
|
(Excl. |
Total |
(Excl. |
Total |
||||||||||
|
SEG) |
SEG |
IPG |
SEG) |
SEG |
IPG |
||||||||
|
|
|
|
|
|
|||||||||
|
Revenue |
$1,395.9 |
|
$103.5 |
|
$1,499.4 |
|
$1,383.2 |
|
$107.2 |
|
$1,490.4 |
||
|
Salaries and related expenses |
829.7 |
|
48.7 |
|
878.4 |
|
790.4 |
|
48.8 |
|
839.2 |
||
|
Office and general expenses |
392.6 |
|
67.0 |
|
459.6 |
|
375.1 |
|
60.8 |
|
435.9 |
||
|
Amortization of intangible assets |
3.6 |
|
0.5 |
4.1 |
|
1.2 |
1.4 |
2.6 |
|||||
|
Long-lived asset impairment |
-- |
11.0 |
11.0 |
-- |
-- |
-- |
|||||||
|
Restructuring charges |
93.9 |
0.5 |
94.4 |
-- |
-- |
-- |
|||||||
|
Operating income (loss) |
$ 76.1 |
$(24.2 ) |
$ 51.9 |
$ 216.5 |
$ (3.8 ) |
$ 212.7 |
|||||||
|
Some of the key factors driving the financial results in the second quarter of 2003 were: |
||
|
- |
Higher exchange rates for the second quarter of 2003, primarily the Euro and Sterling, reflected higher U.S. dollar revenue and expenses in comparison to the second quarter of 2002; |
|
|
- |
Continued softness in demand for the Company's advertising and marketing services by current clients, particularly in public relations and other project-based businesses in international markets; |
|
|
- |
Restructuring charges of $94.4 were recorded in the second quarter. The Company expects that the total cost of its restructuring initiatives underway will be up to approximately $200 over several periods; |
|
|
- |
Higher professional fees resulting from litigation matters and the SEC investigation, and the higher costs related to the Company's Motorsports business within SEG including a long-lived asset impairment charge of $11.0; |
|
|
- |
Higher debt financing costs resulting from the issuance of the Company's 4.5% Notes and retiring of the Company's Zero Coupon Notes; and, |
|
|
- |
An investment impairment charge of $9.8 was recorded in the second quarter related to unconsolidated affiliates. |
|
|
As discussed in Note 10, on July 10, 2003, the Company completed the sale of NFO to TNS. |
||
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
International revenue would have decreased 9.6% excluding the effects of changes in foreign currency of $65.7. The increase in worldwide revenue was primarily a result of the effects of higher exchange rates offset by continued softness in the demand for advertising and marketing services by current clients due to the weak economy primarily in international markets. The components of the total revenue change of 0.6% were: impact of foreign currency changes 4.2%, net acquisitions/divestitures (0.6)%, and organic revenue decline (3.0)%. Organic changes in revenue reflect increases or decreases in net new business activity and increases or decreases in activity from existing client accounts. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. Approximately 30 locations are to be vacated with substantially all actions to be completed by December 31, 2003; however, the cash portion of the charge will be paid out over a period of several years. The majority of the offices to be vacated are located in the US with approximately one third in overseas markets principally in Europe. |
|
Liability at |
Total |
2003 |
2003 cash |
Liability at June |
||
|
TOTAL BY TYPE |
||||||
|
Severance and termination costs |
$ 15.9 |
$66.0 |
$1.0 |
$21.6 |
$ 59.3 |
|
|
Lease terminations and other exit costs |
$ 94.6 |
28.4 |
4.8 |
19.5 |
98.7 |
|
|
Total |
$110.5 |
$94.4 |
$5.8 |
$41.1 |
$158.0 |
|
Long-Lived Asset Impairment OTHER INCOME (EXPENSE) Interest Expense Interest expense was $46.1 in the second quarter of 2003 compared with $36.9 in the second quarter of 2002. The increase was a result of the issuance of $800 4.5% Convertible Notes on March 13, 2003. These proceeds were invested until early April, at which time the proceeds were used for the settlement of the tender offer for the Zero-Coupon Notes. Interest Income Interest income was $10.2 for the three months ended June 30, 2003 compared with $8.1 in the same period of 2002. The increase in 2003 is primarily due to the higher cash balances resulting from the issuance of the 4.5% Notes. Other Income (Expense) Other income (expense) primarily consists of investment income, gains from the sale of businesses and gains (losses) from the sale of investments, primarily marketable securities classified as available-for-sale. Other income was $0.3 for the three months ended June 30, 2003 compared with income of $6.6 for the three months ended June 30, 2002. Included in the second quarter of 2002 was a gain on the sale of an advertising business in the United States. INVESTMENT IMPAIRMENT During the second quarter of 2003, the Company recorded investment impairment charges of $9.8 relating to certain investments in Brazil, India, Canada and Japan that had been determined to have incurred an "other than temporary" impairment. During the second quarter of 2002, the Company recorded investment impairment charges of $16.2, primarily relating to certain investments of Octagon that had been determined to have incurred an "other than temporary" impairment. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
OTHER ITEMS Minority Interest Income applicable to minority interests was $(8.4) in the second quarter of 2003 compared to $(10.9) in the second quarter of 2002. The reduction in the second quarter of 2003 was primarily due to lower operating results of certain operations in Europe and Asia Pacific. Unconsolidated Affiliates Equity in net income of unconsolidated affiliates was an income of $1.3 in the second quarter of 2003 compared to $2.5 in the second quarter of 2002. The reduction is primarily due to reduced earnings of Modem Media and unconsolidated affiliates in Europe and Brazil. Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 The Company reported a net loss of $22.1, or $0.06 diluted loss per share which is comprised of a $0.09 loss per share from continuing operations and $0.03 earnings per share from discontinued operations for the six months ended June 30, 2003. This compares to net earnings of $168.8, or $0.44 diluted earnings per share, which is comprised of $0.41 earnings per share from continuing operations and $0.04 earnings per share from discontinued operations for the six months ended June 30, 2002. Net loss in the six months ended June 30, 2003 includes a pre-tax restructuring charge of $94.4, a pre-tax impairment charge of $22.1 related to the fixed assets of the Company's Motorsports business and a pre-tax impairment charge of $12.5 related to unconsolidated affiliates in Brazil, India, Canada and Japan. Net earnings in the first six months of 2002 includes a pre-tax investment impairment charge of $16.2 related to Octagon, the Company's sports marketing business. The following summarizes certain financial information for purposes of management's discussion and analysis: |
|
Six Months Ended June 30, |
|||||||||||||
|
2003 |
2002 |
||||||||||||
|
IPG |
IPG |
||||||||||||
|
(Excl. |
Total |
(Excl.) |
Total |
||||||||||
|
SEG) |
SEG |
IPG |
SEG |
SEG |
IPG |
||||||||
|
|
|
|
|
|
|||||||||
|
Revenue |
$2,626.0 |
|
$189.1 |
|
$2,815.1 |
|
$2,618.6 |
|
$190.8 |
|
$2,809.4 |
||
|
Salaries and related expenses |
1,633.7 |
|
99.4 |
|
1,733.1 |
|
1,566.0 |
|
94.9 |
|
1,660.9 |
||
|
Office and general expenses |
774.2 |
|
111.3 |
|
885.5 |
|
717.5 |
|
91.9 |
|
809.4 |
||
|
Amortization of intangible assets |
6.2 |
|
1.1 |
7.3 |
|
2.6 |
1.8 |
4.4 |
|||||
|
Long-lived asset impairment |
-- |
22.1 |
22.1 |
-- |
-- |
-- |
|||||||
|
Restructuring charges |
93.9 |
0.5 |
94.4 |
-- |
-- |
-- |
|||||||
|
Operating income (loss) |
$ 118.0 |
$(45.3 ) |
$ 72.7 |
$ 332.5 |
$ 2.2 |
$ 334.7 |
|||||||
|
REVENUE |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
acquisitions/divestitures (0.2)%, and organic revenue decline (3.8)%. Organic changes in revenue reflect increases or decreases in net new business activity and increases or decreases in activity from existing client accounts. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
INVESTMENT IMPAIRMENT During the six months ended June 30, 2003, the Company recorded investment impairment charges of $12.5 relating to certain investments in Brazil, India, Canada and Japan that had been determined to have incurred an "other than temporary" impairment. During the six months ended June 30, 2002, the Company recorded investment impairment charges of $16.2, primarily relating to certain investments of Octagon that had been determined to have incurred an "other than temporary" impairment. OTHER ITEMS Effective Income Tax Rate The Company's effective income tax rate was negatively impacted by the restructuring charges, long-lived asset impairment charges and non-deductible investment impairment charges relating to unconsolidated affiliates. The Company's effective income tax rate was 38.3% for the first six months of 2002. In addition, the increased tax rate in 2003 reflects a higher proportion of earnings derived from the US, where it is taxed at higher rates, as well as losses incurred in non-US jurisdictions with tax benefits lower than the US statutory rates. Minority Interest Income applicable to minority interests was $(9.0) in the first six months of 2003 compared to $(14.2) in the first six months of 2002. The reduction in the first six months of 2003 was primarily due to lower operating results of certain operations in Europe and Asia Pacific. Unconsolidated Affiliates Equity in net income (loss) of unconsolidated affiliates was a loss of $(1.9) in the first six months of 2003 compared to income of $3.3 in the first six months of 2002. The reduction is primarily due to the reduced earnings of Modem Media and unconsolidated affiliates in Europe and Brazil. 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 June 30, 2003, the Company had short-term contracts covering approximately $7.2 of notional amount of currency. As of June 30, 2003, the fair value of the forward contracts was a loss of $0.2. Other The Company has two embedded derivative instruments under the terms of the 4.5% Notes issued in March 2003. At June 30, 2003, the fair value of these derivatives was negligible. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, cash and cash equivalents were $700.1, a decrease of $232.9 from the December 31, 2002 balance of $933.0. The Company collects funds from clients on behalf of media outlets resulting in cash receipts and disbursements at levels substantially exceeding its revenue. Therefore, the working capital amounts reported on its balance sheet and cash flows from operating activities reflect the "pass-through" of these items. Cash flow from operations and borrowings under existing credit facilities, and refinancings thereof, have been the primary sources of the Company's working capital, and management believes that they will continue to be so in the future. Operating Activities Net cash used by operating activities was $36.8 and $1.3 for the six months ended June 30, 2003 and 2002, respectively. The increase in cash used for the first six months of 2003 was primarily attributable to the lower earnings level in 2003 resulting from continued softness in client demand for advertising and marketing services. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Investing Activities Historically the Company has pursued acquisitions to complement and enhance its service offerings. In addition, the Company has also sought to acquire businesses similar to those already owned to expand its geographic scope to better serve new and existing clients. Acquisitions have historically been funded using stock, cash or a combination of both. Currently, the Company is restricted from making acquisitions or investments by new terms of its Revolving Credit Facilities. See "Financing Activities" for further discussion. During the first six months of 2003 and 2002, the Company paid $141.3 and $199.6, respectively, in cash for new acquisitions and earn out payments for previous acquisitions including payments for a number of specialized marketing and communications services companies to complement its existing agency systems and to optimally position itself in the ever-broadening communications market place. The reduction in 2003 reflects the Company's reduced level of acquisition activity. The Company's capital expenditures in the first six months of 2003 were $72.1 compared to $77.8 in the first six months of 2002. The primary purposes of these expenditures were to upgrade computer and telecommunications systems and to modernize offices. Currently, the Company is restricted in making capital expenditures by new terms of its Revolving Credit Facilities. See "Financing Activities" for further discussion. Financing Activities 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 exten d the maturity of amounts outstanding on the termination date under the New 364-Day Revolving Credit Facility for a period of one year, if EBITDA for the four fiscal quarters most recently ended was at least $831.0 (for purposes of this EBITDA calculation, only $125.0 of non-recurring restructuring charges may be added back to EBITDA). The Revolving Credit Facilities are used for general corporate purposes. As of June 30, 2003, $166.4 was utilized under the New 364-Day Revolving Credit Facility for the issuance of letters of credit and $57.6 was utilized 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, the Company agreed to new pricing under the Revolving Credit Facilities that increased the interest spread payable on loans by 25 basis points. Based on the Company's current credit ratings, interest rates on loans under the New 364-Day Revolving Credit Facility are currently calculated by adding 1.75% to either the applicable bank base rate (in the case of base rate loans) or LIBOR (in the case of LIBOR loans), and interest rates on loans under the Five-Year Revolving Credit Facility are currently calculated by adding 1.7% to these rates. 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 those agreements). In connection with entering into 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 of 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 quarters 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 Motorsports 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 Motorsports business, and to exclude the gain realized by the Company upon the sale of NFO. The corresponding financial covenant ratio levels in the Revolving Credit Facilities were also amended. As of June 30, 2003, the Company has recorded (i) $94.4 of restructuring charges ($88.6 of which were cash charges) and (ii) $22.1 of non-cash charges with |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
respect to the impairment of the remaining book value of its Motorsports business. These charges counted toward the $200.0 restructuring charges and $70.0 of non-cash charges relating to Motorsports that, under the loan agreements, are allowed to be added back to the definition of EBITDA and do not adversely affect the ability of the Company to comply with its financial covenants. As explained in Note 4, it is the Company's current expectation that any charges incurred as a result of its restructuring program during periods after September 30, 2003 will be taken into account, rather than added back in the definition of EBITDA in these loan agreements, when determining whether the Company is in compliance with these financial covenants during these periods after September 30, 2003. Nonetheless, despite the incurrence of these restructuring charges after September 30, 2003 the Company expects to be in compliance with both its applicable financial and other covenants without having to obtain any
waivers or amendments. As of June 30, 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 New 364-Day Revolving Credit Facility. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
The Prudential Agreements contained 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 incur additional debt, as the new terms of the Revolving Credit Agreements described above. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|||||||||||
|
Through December 2002, the Company had paid cash dividends quarterly with the most recent quarterly dividend paid in December 2002 at a 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 the Company has not declared or paid a dividend in the second quarter of 2003. |
|||||||||||
|
2006 and |
|||||||||||
|
2003 |
2004 |
2005 |
thereafter |
Total |
|||||||
|
Cash |
$ 48.8 |
$83.9 |
$50.4 |
$24.4 |
$207.5 |
||||||
|
Stock |
9.5 |
13.7 |
18.1 |
11.4 |
52.7 |
||||||
|
TOTAL |
$ 58.3 |
$97.6 |
$68.5 |
$35.8 |
$260.2 |
|
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. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Put and Call Options The total estimated amount of potential payments under put options is $153.6, of which $7.7 is payable in stock. Exercise of the put options would require cash payments to be made as follows: |
|
2003 |
$35.8 |
|
|
|
2004 |
$31.9 |
|
|
|
2005 |
$33.0 |
|
|
|
2006 and thereafter |
$45.2 |
|
|
The actual amount to be paid is contingent upon the achievement of projected operating performance targets and to the satisfaction of other conditions as specified in the relevant agreement. |
|
2003 |
$15.7 |
|
|
|
2004 |
$ 7.1 |
|
|
|
2005 |
$15.3 |
|
|
|
2006 and thereafter |
$64.1 |
|
|
The actual amount to be paid is contingent upon the achievement of projected operating performance targets and the satisfaction of other conditions as specified in the relevant agreement. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
variable interest entities created after January 31, 2003, and to interests held in variable interest entities that existed prior to February 1, 2003 and remain in existence as of July 1, 2003. The application of FIN 46 did not have an impact on, or result in additional disclosure in, the Company's June 30, 2003 consolidated results of operations or financial position. |
|
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Item 3. Quantitative and Qualitative Disclosures about Market Risk Interest Rates At June 30, 2003, a significant portion of the Company's debt obligations was at fixed interest rates. Accordingly, for the fixed rate debt, 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 $28.4 on an annual basis if market rates were to increase by 10% and would increase by approximately $27.5 on an annual basis if market rates were to decrease by 10%. For that portion of the debt that is maintained at variable rates, based on amounts and rates outstanding at June 30, 2003, the change in interest expense and cash flow from a 10% change in rates would be approximately $2.7 on an annual basis. Foreign Currencies The Company faces two risks related to foreign currency exchange: translation risk and transaction risk. Amounts invested in the Company's foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the stockholders' equity section of the balance sheet. The Company's foreign subsidiaries generally collect revenues and pay expenses in currencies other than the U.S. dollar. Since the functional currency of the Company's 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 U.S. dollars depending upon whether the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may negatively affe ct the Company's consolidated revenues and expenses (as expressed in U.S. 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. The Company has generally 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. |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
|
Item 4. Controls and Procedures The Company continues to evaluate further improvements in its internal controls and its disclosure controls and procedures, including formalizing a plan to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The Company ensures its independent accountants are kept informed of its plans. The Company has carried out an evaluation under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. 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. Based upon the Company's evaluation, the chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Exchange Act of 1934 is recorded , processed, summarized and reported as and when required. Other than as described above, there has been no change in the Company's internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. CAUTIONARY STATEMENT This document contains forward-looking statements. Statements in this document that are not historical facts, including statements about the Company's beliefs and expectations, particularly regarding recent business and economic trends, the impact of litigation, dispositions, impairment charges, the integration of acquisitions and restructuring costs, 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 this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those associated with the effects of global, national and regional economic and political conditions, the Company's ability to attract new clients and retain existing clients, the financial success of the Company's clients, developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world, and the successful completion and integration of acquisitions which complement and expand the Company's business capabilities. The Company's liquidity could be adversely affected if it is unable to access capital or to raise proceeds from asset sales. In addition, the Company could be adversely affected by developments in connection with the purported class actions and derivative suits that it is defending or the SEC investigation relating to the restatement of the Company's financial statements. The Company's financial condition and future results of operations could also be adversely affected if the Company recognizes additional impairment charges due to future events or in the event of other adverse accounting-related developments. At any given time the Company may be engaged in a number of preliminary discussions that may result in one or more acquisitions or dispositions. These opportunities require confidentiality and from time to time give rise to bidding scenarios that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of the Company's securities. |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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The success of recent or contemplated future acquisitions will depend on the effective integration of newly-acquired and existing businesses into the Company's current operations. Important factors for integration include realization of anticipated synergies and cost savings and the ability to retain and attract new personnel and clients. |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 class consists of Interpublic shareholders who purchased Interpublic stock in the period from October 1997 to October 2002. Specifically, the consolidat
ed 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") on behalf of a purported class of True North shareholders who acquired Interpublic stock. No amount of damages is specified in the consolidated amended com
plaint. 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. On May 29, 2003, the United States District Court for the Southern District of New York denied the motion to dismiss as to the Company and granted the motion, in part, as to the present and former directors and officers named in the consolidated amended complaint. On June 30, 2003, defendants filed an answer to the consolidated amended complaint.
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 existen
ce 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. On June 18, 2003, the Company moved to dismis
s and/or stay these actions. The motions are currently pending.
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, defe
ndants filed motions to dismiss the Amended Consolidated Complaint. On June 30, 2003, after the plaintiffs informed the Court that they had decided to dismiss the Delaware litigation, the Court entered an order dismissing the Delaware action with prejudice to plaintiffs only.
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 Di
strict 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. On July 11, 2003, plaintiffs filed a Second Amended Derivative Complaint, asserting the same claims. The complaint does not state a specific amount of damages. On August 12, 2003, defendants moved to dismiss this action.
The Company intends to vigorously defend the actions discussed above. However, as with all litigation, these proceedings contain elements of uncertainty and the final resolution of these actions could have a material impact 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.
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 adverse effect on the financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
(a) On May 15, 2003 the Company amended certain provisions of the Five-Year Revolving Credit Facility which have been reflected in the New 364-Day Revolving Credit Facility. The terms of the Revolving Credit Facilities restrict (among other things) the Company's ability to declare or pay dividends and repurchase shares of common stock. The Company's permitted level of annual share buybacks and dividend payments is currently $25.0 million. All limitations on dividend payments and share buybacks expire when earnings before interest, taxes, depreciation and amortization, as defined in the amended Revolving Credit Facilities, are at least $1,300.0 million for four consecutive quarters.
The Prudential Agreements contain the same restrictions on the Company's ability to declare or pay dividends and repurchase shares of common stock, as provided in the Revolving Credit Agreements described above.
(c)
(1) On April 3, 2003, the Registrant issued 121,643 shares of its common stock, par value $.10 per share (the "Interpublic Stock"), and paid $2,296,466.88 in loan notes to the three former shareholders of a company which was acquired in the fourth quarter of 1999. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,006,228.62 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant 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 of 1933, as amended (the "Securities Act").
(2) On April 7, 2003 the Registrant issued 7,635 of Interpublic Stock and paid $147,000 in cash to one of the four former shareholders of a company as payment for 10.2 % of the shares of the company, 80% of which was acquired in the second quarter 1998 and 2% of which was acquired in the first quarter 2000. The shares of Interpublic Stock had an aggregate market value of $ 99,914 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without registration in an "off shore transaction" and solely to "non US persons" in reliance on Rule 903(b)(3) of the Regulation S under the Securities Act.
(3) On April 9, 2003, the Registrant paid $14,346,937 in cash and issued 1,009,992 shares of Interpublic Stock to the two former shareholders of a company which was acquired in the first quarter of 2000. This payment covered both a purchase of the remaining 20% of the shares held by the two former shareholders and the final deferred payment on the 80% of the shares they previously sold to the Registrant on January 21, 2000. The Registrant acquired the remaining 20% of the shares for $4,705,235 cash and 331,238 shares of Interpublic Stock, which had an aggregate market value of $3,136,823 as of the date of issuance. The portion of the payment representing the final deferred payment of the purchase price, was paid $9,641,702 in cash and 678,754 shares of Interpublic Stock, which had an aggregate market value of $6,427,802 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the acquired company's former stockholders. The shareholders had access to all the documents filed by the Registrant with the Securities and Exchange Commission (the "SEC"), including (i) the Company's Annual Report on Form 10-K for the year ended 2002, (ii) Quarterly Reports on Form 10-Q for 2002, (iii) Reports on Form 8-K for 2002 and 2003, and iv) Proxy Statement for the 2002 Annual Meeting of Stockholders.
(4) On April 15, 2003, the Registrant issued an aggregate of $250,000 in cash and 5,252 shares of Interpublic Stock to two shareholders of a company that the Registrant acquired in the second quarter of 2001. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $50,000 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the shareholders. The shareholders had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report on Form 10-K for the year ended December 31, 2002, (ii) Quarterly Report on Form 10-Q for the period ended September 30, 2002, (iii) Current Reports on Form 8-K for 2002 and 2003, and iv) Prox
y Statement for the 2002 Annual Meeting of Stockholders.
(5) On April 16, 2003, the Registrant issued 408,000 shares of Interpublic Stock, on April 17, 2003 paid $4,752,127.73 in cash and on June 18, 2003 paid $758,163.48 in cash to a company the assets of which were acquired in the fourth quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $5,157,113.29 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant 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.
(6) On April 23, 2003, the Registrant paid $770,009 in cash and issued 9,527 shares of Interpublic Stock to the four former shareholders of a company that was acquired by a subsidiary of the Registrant in the first quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had a market value of $85,557 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the former shareholders of the company. The former shareholders had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended 2002, (ii) Reports on Form 8-K for 2003, and (iii) Proxy Statement for the 2003 Annual Meeting of Stockholders.
(7) On April 23, 2003, the Registrant paid $368,349 in cash and issued 66,528 shares of Interpublic Stock to the former sole shareholder of a company that was acquired by a subsidiary of the Registrant in the third quarter of 1998. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,117,083 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the former sole shareholder of the company. The former sole shareholder had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended 2002, (ii) Reports on Form 8-K for 2003 and (iii) Proxy Statement for the 2003 Annual Meeting of S
tockholders.
(8) On April 24, 2003 and May 8, 2003, respectively, the Registrant paid $300,000 in cash and issued 9,560 shares of Interpublic Stock to the former owner of a company substantially all of the assets of which were acquired by the Registrant in the third quarter of 1999. The shares of Interpublic Stock had a market value of $100,000 as of the date of issuance. This represented a deferred payment of the purchase price. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the former owner who received Interpublic Stock. The former owner had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended 2002, (ii) Reports on Form 8-K for 2003, and (iii) Proxy Statement for the 20
03 Annual Meeting of Stockholders.
(9) On and as of April 24, 2003, the Registrant paid $86,312 in cash and issued 8,682 shares of Interpublic Stock to the former owner of a company substantially all of the assets of which were acquired by the Registrant in the first quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $86,000 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the former owner who received the Interpublic Stock. The former owner had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended 2002; (ii) Reports on Form 8-K for 2003; and (iii) Proxy Statement for the 2003 Ann
ual Meeting of Stockholders.
(10) On May 2, 2003, the Registrant issued 156,937 shares of Interpublic Stock and on April 17, 2003 paid $3,711,434.45 in cash to the eighteen former shareholders of a company which was acquired in the fourth quarter of 1999. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,485,246.52 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant 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.
(11) On May 9, 2003, the Registrant issued 11,945 shares of Interpublic Stock to the two former stockholders of a company that was acquired in the first quarter of 1998. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of approximately $74,000 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the acquired company's former stockholders. The former stockholders had access to all the documents filed by the Registrant with the SEC, including the Registrant's (i) Annual Report and Form 10-K for the year ended 2002, (ii) Reports on Form 8-K for 2003, and (iii) Proxy Statement for the 2003 Annual Meeting of Stockholders.
(12) On May 16, 2003, the Registrant issued an aggregate of $4,584,087.90 in cash and 166,889 shares of Interpublic Stock to eight former shareholders of a company that the Registrant acquired in the third quarter of 2001. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,964,609.10 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the status of seven of the former shareholders as accredited investors and the sophistication of the other former shareholder. The former shareholders had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended December 31, 2002, (ii) Current Reports on Fo
rm 8-K for 2003, (iii) Quarterly Report on Form 10-Q for the period ended March 31, 2003, and (iv) Proxy Statement for the 2003 Annual Meeting of Stockholders.
(13) On May 29, 2003, the Registrant issued 185,118 shares of Interpublic Stock to one former shareholder of a company that was acquired by the Registrant in the fourth quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,948,556 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant 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.
(14) On June 5, 2003, the Registrant paid $283,560 in cash and issued 123,807 shares of Interpublic Stock to the two former shareholders of a foreign company that was acquired by the Registrant in the second quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,060,900 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant 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.
(15) On June 16, 2003, the Registrant issued 109,320 shares of Interpublic Stock and on May 8, 2003 paid $1,296,000 to the former shareholder of a company as a first deferred payment in respect of 65% of the company acquired in the second quarter of 2002. The Shares of Interpublic Stock had a market value of $1,283,636 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without registration in an "off shore transaction" and solely to "non US persons" in reliance on Rule 903(b)(3) of the Regulation S under the Securities Act.
(16) On June 17, 2003, the Registrant issued 118,888 shares of Interpublic Stock and on June 18, 2003 paid $4,840,644.26 in cash to the twelve former shareholders of four related companies which were acquired in the third quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $1,414,254.09 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant 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.
(17) On June 25, 2003, the Registrant paid an aggregate of $409,101 in cash and issued an aggregate of 14,284 shares of Interpublic Stock to four former shareholders of a company that the Registrant acquired in the first quarter of 1999. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had an aggregate market value of $136,367 as of the date of issuance. The shares of Interpublic Stock were issued by the Registrant without registration in reliance on Section 4(2) under the Securities Act, based on the sophistication of the former shareholders of the acquired company. The former shareholders had access to all the documents filed by the Registrant with the SEC, including the Company's (i) Annual Report and Form 10-K for the year ended December 31, 2002, (ii) Quarterly Report on Form 10-Q for the period ended March 31, 2003,
(iii) Current Reports on Form 8-K for 2003, and (iv) Proxy Statement for the 2003 Annual Meeting of Stockholders.
(18) On June 26, 2003, the Registrant issued 50,705 shares of Interpublic Stock and on June 13, 2003 paid $1,330,000 to the former shareholder of a company as a deferred payment in respect of 100% of the company acquired in the fourth quarter of 2000. The shares of Interpublic Stock had an aggregate market value of $672,196 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without registration in an "off shore transaction" and solely to "non US persons" in reliance on Rule 903(b)(3) of the Regulation S under the Securities Act.
(19) On June 30, 2003, the Registrant issued 122,300 shares and on July 7, 2003 paid $5,039,000 to two former shareholders of a company acquired in the fourth quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock had a market value of $1,731,000 as of the date of issuance.
The shares of Interpublic Stock were issued by the Registrant 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.
Item 4. Submission of Matters to a Vote of Securities Holders
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(a) |
This item is answered in respect of the Annual Meeting of Stockholders held on May 20, 2003 (the "Annual Meeting"). |
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(b) |
No response is required to Paragraph (b) because (i) proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; (ii) there was no solicitation in opposition to Management's nominees as listed in the proxy statement; and (iii) all such nominees were elected. |
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(c) |
At the Annual Meeting, the following number of shares were cast with respect to each matter voted upon: |
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|
-- |
Proposal to approve Management's nominees for director as follows: |
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|
BROKER |
||||||||
|
NOMINEE |
FOR |
WITHHELD |
NONVOTES |
|||||
|
David A. Bell |
310,447,612 |
5,755,365 |
0 |
|||||
|
Frank J. Borelli |
308,517,006 |
7,685,971 |
0 |
|||||
|
Reginald K. Brack |
310,578,739 |
5,624,238 |
0 |
|||||
|
Jill M. Considine |
308,463,826 |
7,739,151 |
0 |
|||||
|
John J. Dooner, Jr. |
299,861,995 |
16,340,982 |
0 |
|||||
|
Richard A. Goldstein |
310,513,365 |
5,689,612 |
0 |
|||||
|
H. John Greeniaus |
310,583,149 |
5,619,828 |
0 |
|||||
|
Sean F. Orr |
300,225,986 |
15,976,991 |
0 |
|||||
|
Michael I. Roth |
310,523,942 |
5,679,035 |
0 |
|||||
|
J. Phillip Samper |
308,459,272 |
7,743,705 |
||||||
|
-- Proposal to approve the amendment to the Registrant's Restated Certificate of Incorporation. |
||||||||
|
BROKER |
||||||||
|
FOR |
AGAINST |
ABSTAIN |
NONVOTES |
|||||
|
287,806,899 |
25,437,080 |
2,958,998 |
0 |
|||||
|
-- Proposal to approve confirmation of independent accountants. |
||||||||
|
BROKER |
||||||||
|
FOR |
AGAINST |
ABSTAIN |
NONVOTES |
|||||
|
304,158,674 |
9,894,711 |
2,149,592 |
0 |
|||||
|
-- Approval of Stockholder's Resolution on Adoption of MacBride Principles for Northern Ireland Subsidiaries. |
||||||||
|
BROKER |
||||||||
|
FOR |
AGAINST |
ABSTAIN |
NONVOTES |
|||||
|
17,712,681 |
234,606,375 |
24,425,342 |
39,458,579 |
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Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
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EXHIBIT NO. |
DESCRIPTION |
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2 |
Stock Purchase Agreement by and between Taylor Nelson Sofres PLC and The Interpublic Group of Companies, Inc. ("Interpublic"), dated as of May 14, 2003 ((The "SPA"), is incorporated by reference to Exhibit 2.1 to Interpublic's Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 18, 2003.* |
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|
3(ii) |
By-Laws of Interpublic, amended through July 31, 2003. |
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|
10(iii)(A)(i)(a) |
Executive Special Benefit Agreement, made as of April 1, 2003, by and between Interpublic and David A Bell. |
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|
10(iii)(A)(i)(b) |
Memorandum dated May 1,2003, from David A. Bell, providing for Cancellation of Certain Stock Options. |
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|
10(iii)(A)(ii)(a) |
Supplemental Agreement, made as of April 7, 2003, to an Employment Agreement, made as of November 18, 2002, between Interpublic and Brian J. Brooks. |
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|
10(iii)(A)(ii)(b) |
Supplemental Agreement, made as of May 20, 2003, to an Employment Agreement, made as of November 18, 2002, by and between Interpublic and Brian J. Brooks. |
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10(iii)(A)(ii)(c) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Brian J. Brooks. |
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|
10(iii)(A)(iii)(a) |
Supplemental Agreement, made as of January 1, 2003 and executed as of June 23, 2003 to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and Nicholas J. Camera. |
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10(iii)(A)(iii)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and Nicholas J. Camera. |
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10(iii)(A)(iv)(a) |
Supplemental Agreement, made as of March 31, 2003 and executed as of April 15, 2003, to an Employment Agreement, made as of January 1, 1994, by and between Interpublic and John J. Dooner, Jr. |
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10(iii)(A)(iv)(b) |
Supplemental Agreement, made as of January 1, 2003 and executed as of June 17, 2003, to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and John J. Dooner, Jr. |
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10(iii)(A)(iv)(c) |
Letter Agreement, dated May 8, 2003, between Interpublic and John J. Dooner, Jr., providing for Cancellation of Certain Stock Options. |
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10(iii)(A)(v)(a) |
Executive Special Benefit Agreement, made as of May 1, 2003, by and between Interpublic and Bruce S. Nelson. |
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10(iii)(A)(v)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of April 18, 2002, by and between Interpublic and Bruce S. Nelson. |
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10(iii)(A)(vi)(a) |
Confidential Separation Agreement and General Release, dated June 26, 2003, between Interpublic and Sean F. Orr. |
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10(iii)(A)(vi)(b) |
Supplemental Agreement made as of March 31, 2003 and executed as of April 11, 2003, to an Employment Agreement, made as of April 27, 1999, by and between Interpublic and Sean F. Orr. |
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10(iii)(A)(vii) |
Letter Agreement, dated May 28, 2003, between Interpublic and J. Brendan Ryan providing for the Cancellation of Certain Stock Options. |
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10(iii)(A)(viii)(a) |
Supplemental Agreement, made as of April 8, 2003, to an Employment Agreement, made as of January 28, 2002, by and between Interpublic and Philippe Krakowsky. |
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10(iii)(A)(viii)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Philippe Krakowsky. |
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10(iii)(A)(ix)(a) |
Executive Special Benefit Agreement, made as of November 1, 2002 and executed as of June 23, 2003, by and between Interpublic and Richard P. Sneeder. |
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10(iii)(A)(ix)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Richard P. Sneeder. |
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10(iii)(A)(x) |
Supplemental Agreement, made as of June 16, 2003 to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Susan Watson. |
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|
10(iii)(A)(xi) |
Letter Agreement, dated June 27, 2003, between Interpublic and Gunnar Wilmot providing for the Cancellation of Certain Stock Options. |
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10(iii)(A)(xii) |
Letter Agreement, dated May 15, 2003, between Interpublic and Barry Linsky providing for the Cancellation of Certain Stock Options. |
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31.1 |
Certification, dated as of August 14, 2003 and executed by David A Bell under Section 302 of the Sarbanes Oxley Act of 2002 ("S-OX"). |
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31.2 |
Certification, dated as of August 14, 2003 and executed by Sean F. Orr, under Section 302 of S-OX. |
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|
32 |
Certification, dated as of August 14, 2003 and executed by David A Bell and Sean F. Orr, under Section 906 of S-OX. |
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|
* |
The schedules to the SPA have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. |
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|
(b) |
REPORTS ON FORM 8-K. |
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The following Reports on Form 8-K were filed or furnished during the quarter ended June 30, 2003: |
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|
1) |
Report, filed April 9, 2003. Item 5 Other Events and Regulation FD Disclosure and Item 7 Financial Statements and Exhibits. Exhibit 99.1. |
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2) |
Report, filed May 8, 2003. Item 5 Other Events and Regulation FD Disclosure, Item 7 Financial Statements and Exhibits and Item 12 Results of Operations and Financial Condition. Exhibit 99.1. |
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3) |
Report, furnished May 14, 2003. Item 7 Financial Statements and Exhibits, Item 9 Regulation FD Disclosure and Item 12 Results of Operations and Financial Condition. Exhibit 99.1. This report has merely been "furnished" to the SEC. The Registrant does not intend for the report to be deemed "filed." |
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|
4) |
Report, filed June 18, 2003. Item 5 Other Events and Regulation FD Disclosure and Item 7 Financial Statements and Exhibits. Unaudited proforma condensed consolidated statement of operations for the periods ended December 31, 2002, 2001 and 2000 and March 31, 2003 and unaudited proforma condensed consolidated balance sheet as of March 31, 2003. Exhibit 2.1. |
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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. |
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(Registrant) |
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|
Date: August 14, 2003 |
BY /S/ DAVID A. BELL |
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DAVID A. BELL |
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|
Chairman of the Board, President |
|
|
and Chief Executive Officer |
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|
|
|
|
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|
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Date: August 14, 2003 |
BY /S/ SEAN F. ORR |
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SEAN F. ORR |
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Executive Vice President and |
INDEX TO EXHIBITS
|
EXHIBIT NO. |
DESCRIPTION |
|
|
2 |
Stock Purchase Agreement by and between Taylor Nelson Sofres PLC and The Interpublic Group of Companies, Inc. ("Interpublic"), dated as of May 14, 2003 (The "SPA"), is incorporated by reference to Exhibit 2.1 to Interpublic's Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 18, 2003.* |
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3(ii) |
By-Laws of Interpublic, amended through July 31, 2003. |
|
|
10(iii)(A)(i)(a) |
Executive Special Benefit Agreement, made as of April 1, 2003, by and between Interpublic and David A Bell. |
|
|
10(iii)(A)(i)(b) |
Memorandum dated May 1,2003, from David A. Bell, providing for Cancellation of Certain Stock Options. |
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|
10(iii)(A)(ii)(a) |
Supplemental Agreement, made as of April 7, 2003, to an Employment Agreement, made as of November 18, 2002, between Interpublic and Brian J. Brooks. |
|
|
10(iii)(A)(ii)(b) |
Supplemental Agreement, made as of May 20, 2003, to an Employment Agreement, made as of November 18, 2002, by and between Interpublic and Brian J. Brooks. |
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10(iii)(A)(ii)(c) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Brian J. Brooks. |
|
|
10(iii)(A)(iii)(a) |
Supplemental Agreement, made as of January 1, 2003 and executed as of June 23, 2003 to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and Nicholas J. Camera. |
|
|
10(iii)(A)(iii)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and Nicholas J. Camera. |
|
|
10(iii)(A)(iv)(a) |
Supplemental Agreement, made as of March 31, 2003 and executed as of April 15, 2003, to an Employment Agreement, made as of January 1, 1994, by and between Interpublic and John J. Dooner, Jr. |
|
|
10(iii)(A)(iv)(b) |
Supplemental Agreement, made as of January 1, 2003 and executed as of June 17, 2003, to an Executive Severance Agreement, made as of January 1, 1998, by and between Interpublic and John J. Dooner, Jr. |
|
|
10(iii)(A)(iv)(c) |
Letter Agreement, dated May 8, 2003, between Interpublic and John J. Dooner, Jr., providing for Cancellation of Certain Stock Options. |
|
|
10(iii)(A)(v)(a) |
Executive Special Benefit Agreement, made as of May 1, 2003, by and between Interpublic and Bruce S. Nelson. |
|
|
10(iii)(A)(v)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of April 18, 2002, by and between Interpublic and Bruce S. Nelson. |
|
|
10(iii)(A)(vi)(a) |
Confidential Separation Agreement and General Release, dated June 26, 2003, between Interpublic and Sean F. Orr. |
|
|
10(iii)(A)(vi)(b) |
Supplemental Agreement made as of March 31, 2003 and executed as of April 11, 2003, to an Employment Agreement, made as of April 27, 1999, by and between Interpublic and Sean F. Orr. |
|
|
10(iii)(A)(vii) |
Letter Agreement, dated May 28, 2003, between Interpublic and J. Brendan Ryan providing for the Cancellation of Certain Stock Options. |
|
|
10(iii)(A)(viii)(a) |
Supplemental Agreement, made as of April 8, 2003, to an Employment Agreement, made as of January 28, 2002, by and between Interpublic and Philippe Krakowsky. |
|
|
10(iii)(A)(viii)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Philippe Krakowsky. |
|
|
10(iii)(A)(ix)(a) |
Executive Special Benefit Agreement, made as of November 1, 2002 and executed as of June 23, 2003, by and between Interpublic and Richard P. Sneeder. |
|
|
10(iii)(A)(ix)(b) |
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Richard P. Sneeder. |
|
|
10(iii)(A)(x) |
Supplemental Agreement, made as of June 16, 2003 to an Executive Severance Agreement, made as of November 14, 2002, by and between Interpublic and Susan Watson. |
|
|
10(iii)(A)(xi) |
Letter Agreement, dated June 27, 2003, between Interpublic and Gunnar Wilmot providing for the Cancellation of Certain Stock Options. |
|
|
10(iii)(A)(xii) |
Letter Agreement, dated May 15, 2003, between Interpublic and Barry Linsky providing for the Cancellation of Certain Stock Options. |
|
|
31.1 |
Certification, dated as of August 14, 2003 and executed by David A Bell under Section 302 of the Sarbanes Oxley Act of 2002 ("S-OX"). |
|
|
31.2 |
Certification, dated as of August 14, 2003 and executed by Sean F. Orr, under Section 302 of S-OX. |
|
|
32 |
Certification, dated as of August 14, 2003 and executed by David A Bell and Sean F. Orr, under Section 906 of S-OX. |
|
|
* |
The schedules to the SPA have been omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedules to the Commission upon request. |
|