Interpublic Reports on Third Quarter
For additional information related to this press release, please see
SEC Form 8-K, filed on 02/01/05.
NEW YORK--(BUSINESS WIRE)--Nov. 3, 2004--Interpublic (NYSE: IPG):
Results Impacted by Charges
-- Third quarter loss of ($1.40) per common share. Net loss of
($578.4) million reflects:
-- Non-cash goodwill impairment charges in the amount of $445.2
million, arising as a result of the impairment test required
by SFAS 142, which the company performs annually at the end of
the third quarter. These include a charge of $310 million at
the company's The Partnership division and a charge of $132
million at the company's Constituency Management Group
division. The application of SFAS 142 means a small change in
valuation can trigger a large goodwill writedown.
-- A non-cash investment impairment of $31.0 million relating to
the company's unconsolidated investment in Springer & Jacoby,
a German advertising agency.
-- Provision for income taxes of $98.6 million, including the
establishment of valuation allowances of $72.7 million
(non-cash) on certain non-US deferred tax assets and loss
carry-forwards. The establishment of these reserves arises due
to recent losses, primarily in the United Kingdom.
-- A previously disclosed charge of $33.6 million in connection
with the company's agreement with the British Racing Drivers
Club giving the company and its affiliates the right to
terminate lease obligations at the Silverstone auto racing
track and related obligations. These agreements position the
company to complete its exit from motorsports by the end of
the year.
Revenue Growth
-- Third quarter revenue increased 6.3% to $1.51 billion versus
the same period last year. In constant currency, revenue
increased 2.3% in the quarter relative to the third quarter of
2003.
-- Compared to the same period last year, organic revenue
increased 1.8%, improving sequentially from the prior quarter
for the sixth consecutive quarter.
Operating Margin
-- Reported operating margin for the quarter was negative
(27.8%), compared to negative (12.1%) in the third quarter of
2003.
-- Excluding charges related to restructuring activities,
long-lived asset impairments and the company's exit from its
motorsports operations, operating margin was 4.3% in the third
quarter, compared to a like margin of 7.7% in 2003.
Third Quarter Operating Margin Analysis
The 4.3% operating margin was negatively impacted by:
-----------------------------------------------------------------
Incentive Accrual* 260 basis points
Professional Fees* 90 basis points
Reclassified Out of Pocket* 30 basis points
Currency 20 basis points
*Constant Currency
-----------------------------------------------------------------
-- Excluding charges related to restructuring activities,
long-lived asset impairments and the company's exit from its
motorsports operations, year-to-date operating margin through
the third quarter was 6.2%, compared to a like margin of 7.0%
in 2003.
Year-to-Date Operating Margin Analysis
The 6.2% operating margin was negatively impacted by:
-----------------------------------------------------------------
Incentive Accrual* 120 basis points
Professional Fees* 120 basis points
Reclassified Out of Pocket* 50 basis points
Currency 30 basis points
*Constant Currency
-----------------------------------------------------------------
A reconciliation of operating margin analysis appears in schedules accompanying this release.
Balance Sheet
-- The company's balance sheet and financial condition showed
improvement relative to the same period a year ago.
-- At the end of the third quarter, Interpublic's total debt was
$2.3 billion, compared to $2.5 billion a year earlier.
-- Net debt stood at $824.9 million, down from $1.8 billion at
the end of last year's third quarter.
-- The company's debt-to-capital ratio at the end of the third
quarter was 53.1%, down from 56.5% at the same point in 2003.
-- The company has received the necessary amendments from its
credit facility bank group related to all non-cash charges.
"The news this quarter was decidedly mixed. We continue to focus on achieving our turnaround objectives by mid-2006.
"Organic revenue growth was promising and extended our trend of sequential improvement in this important metric to six consecutive quarters. Our financial condition is strong; the balance sheet actions taken this quarter represent the tail end of the legacy of our past acquisition culture. Combined, these will provide us with the flexibility to make necessary structural changes to the organization to ensure future growth.
"While corporate cost-saving initiatives are beginning to drive improvements in office and general expenses, margins in the quarter were again adversely affected by necessary investments in our future, including costs associated with the implementation of shared services and Sarbanes-Oxley, as well as the timing of accruals related to incentives for those individuals and units that are performing up to expectations.
"We've been clear that our progress in righting Interpublic would not be linear. We continue making progress on organic revenue and other turnaround metrics"
David Bell, CEO and President, The Interpublic Group
Operating Results
Third Quarter
2004 2003
----------------------------
Revenue $1,508.8 $1,418.9
Operating Loss (420.2) (171.1)
Net Loss (578.4) (327.1)
Per Common Share Data:
EPS Continuing Ops ($1.42) ($1.08)
EPS Discontinued Ops 0.02 0.23
----------------------------
EPS ($1.40) ($0.85)
Revenue increased 6.3% in the third quarter to $1.51 billion, compared with the year-ago period. This reflects the benefit of favorable foreign currency translation and organic revenue growth. On a constant currency basis, revenue in the third quarter increased 2.3% compared to the third quarter of 2003.
Organic revenue -- defined as revenue in constant currency adjusted for acquisitions and dispositions, as well as the impact of reclassifying certain out-of-pocket expenses -- increased 1.8% in the third quarter compared to the same quarter in 2003.
In the United States, reported revenue for the third quarter increased 5.1%, while organic revenue increased 3.2%, compared to the same period in 2003. In markets outside of the United States, reported revenue rose 7.9% in the third quarter. In constant currency, non-US revenue decreased 1.1% in the quarter. In markets outside the United States, organic revenue increased 0.2% compared to the third quarter of 2003.
Organic and constant currency revenue are non-GAAP measures, which are defined and reconciled in the schedules that accompany this release.
Third Quarter Revenue Analysis
Worldwide US Non-US
----------------------------
Reported Growth 6.3% 5.1% 7.9%
Less: Currency Translation 4.0% -- 9.0%
----------------------------
Constant Currency 2.3% 5.1% (1.1%)
Plus: Net Dispositions 2.0% 1.1% 3.2%
----------------------------
Organic Revenue
Before Reclassified Amounts 4.3% 6.2% 2.1%
Less: Reclassified Amounts (out-of-pocket) 2.5% 3.0% 1.9%
----------------------------
Organic Revenue 1.8% 3.2% 0.2%
============================
Organic Revenue Trend
Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004
----------------------------------------------------------------------
-6.0% -4.5% -3.1% -1.1% -0.6% 0.3% 1.8%
----------------------------------------------------------------------
An analysis of Interpublic's geographic revenue mix and performance will be provided on the company's conference call and is available through the company's web site, www.interpublic.com.
Operating Expenses
Salary and related expenses increased 14.0% in the third quarter to $924.8 million, principally reflecting the impact of a new incentive plan, resulting in higher accruals due to the application of a new formula. Other items impacting salary and expenses include currency translation and higher severance expense. Adjusted for currency, acquisitions and dispositions, and the reclassification of out-of-pocket expenses, salary and related expenses increased 10.7%. Since the third quarter of 2003, headcount has increased from 43,500 to 44,200, impacted by new hires in growth businesses and a domestic acquisition.
Office and general expenses increased 2.2% to $519.5 million in the third quarter, driven by increases in out-of-pocket expenses billed to clients and professional fees, as well as by higher foreign exchange rates. Adjusted for currency, acquisitions and dispositions, and these out-of-pocket expenses, office and general expenses decreased by 6.2% relative to the third quarter of 2003, reflecting early success in the company's corporate cost-saving initiatives, notably real estate occupancy.
Schedules reconciling changes in expense calculations accompany this release.
New Business
Significant wins during the third quarter included Staples, Safeway, Roche Group, State Farm, Mars (direct marketing) and Hewlett-Packard (direct marketing). Significant assignments retained in the quarter included Cablevision Voom, Pier 1 and SC Johnson (media). Significant new assignments from existing clients in the quarter came from SC Johnson (media), Unilever Degree, Electrolux, Qwest, Capital One (PR) and additional CRM and direct marketing work for Microsoft. Significant losses included Unilever Flora, Gateway (media) and Subaru in the third quarter and Nestle media in top European markets early in the fourth quarter.
Major new wins thus far in the fourth quarter include ONDCP, Nautilus Fitness and the recent Novartis consolidation.
Collaboration Update
The company continued to make progress in its Organic Growth Initiative (OGI), which was introduced in August of 2003 to promote collaborative, business-building activity. During the quarter, the initiative generated an additional 105 active projects. The total number of assignments created through the OGI to date now totals 215. These collaborative projects involve more than 25 Interpublic companies and represent an anticipated $154 million in annualized revenue, of which $67.7 million has already been realized.
Long-Lived Asset Impairments
Non-cash goodwill impairment charges in the amount of $445.2 million, arising as a result of the impairment test required by SFAS 142, which the company performs annually at the end of the third quarter. These include charges of $310 million at The Partnership, $132 million at the Constituency Management Group and $3.2 million at Howard Merrell.
A previously disclosed charge of $33.6 million was recorded in the third quarter in connection with the company's agreement with the British Racing Drivers Club giving the company and its affiliates the right to terminate lease obligations at the Silverstone auto racing track and related obligations. The charge represents $49 million in cash, net of rent expense through year-end and existing reserves/accruals. These agreements position the company to complete its exit from motorsports by the end of the year.
Non-Operating and Tax
Interest expense was $39.8 million in the third quarter compared to $43.5 million in the prior year primarily due to reduction in debt balances from a year ago. Interest income of $11.1 million during the period compared to $9.5 million in the third quarter of last year, reflecting higher cash balances.
An investment impairment charge was recorded in the third quarter of $31.0 million relating to the company's unconsolidated investment in Springer & Jacoby, a German advertising agency.
Provision for income taxes in the quarter was $98.6 million, compared to $19.5 million in the third quarter of 2003. The company's tax rate was adversely affected by losses incurred in non-US jurisdictions with tax benefits at rates lower than the US statutory rates. In addition, a valuation allowance of $72.7 million (non-cash) was recorded in the third quarter, arising due to recent losses, primarily in the United Kingdom.
Debt and Liquidity
At September 30, 2004, cash and equivalents totaled $1.4 billion, up from $695.5 million at the same time in 2003. At the end of the third quarter, Interpublic's total debt was $2.3 billion, compared to $2.5 billion a year earlier. The company's debt-to-capital ratio at the end of the third quarter was 53.1%, down from 56.5% at the same point in 2003.
At the end of the third quarter, net debt was $824.9 million, down from $1.8 billion at the end of last year's third quarter.
Net Debt
($MM)
2002 2003 2004
---------------------------------------------
Debt 2,876 2,518 2,263
Cash 615 696 1,439
---------------------------------------------
Net Debt 2,261 1,822 825*
(As of September 30 each year)
*Does not add due to rounding
--------------------------------------------------------------------
The company has received the necessary amendments from its credit facility bank group related to all non-cash charges.
Conference Call
Management will host a conference call today at 8:30AM (Eastern) to discuss third quarter results and recent developments. The program and a discussion outline can be accessed at the financial section of the company's website, www.interpublic.com. An audio archive of the discussion will remain available at the site for 30 days.
About Interpublic
Interpublic is one of the world's leading organizations of advertising agencies and marketing-services companies. Major global brands include Draft, Foote, Cone & Belding Worldwide, GolinHarris International, Initiative, Jack Morton Worldwide, Lowe & Partners Worldwide, McCann Erickson, Octagon, Universal McCann and Weber Shandwick Worldwide. Leading domestic brands include Campbell-Ewald, Deutsch and Hill Holliday.
Cautionary Statement
This press release contains forward-looking statements. Interpublic's representatives may also make forward-looking statements orally from time to time. Statements in this document that are not historical facts, including statements about Interpublic's beliefs and expectations, particularly regarding recent business and economic trends,, the impact of litigation, the SEC investigation, dispositions, impairment charges, and 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 Interpublic undertakes no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such risk factors include, but are not limited to, the following:
-- risks associated with the effects of global, national and
regional economic and political conditions;
-- Interpublic's ability to attract new clients and retain
existing clients;
-- the financial success of Interpublic's clients;
-- Interpublic's ability to retain and attract key employees;
-- developments from changes in the regulatory and legal
environment for advertising and marketing and communications
services companies around the world;
-- potential adverse effects if Interpublic is required to
recognize additional impairment charges or other adverse
accounting related developments;
-- potential adverse developments in connection with the SEC
investigation;
-- potential claims relating to termination of the British Grand
Prix promoters agreement and Silverstone lease and race
contracts;
-- potential downgrades in the credit ratings of Interpublic's
securities;
-- the successful completion and integration of acquisitions
which complement and expand Interpublic's business
capabilities;
-- risks arising from material weaknesses in internal control
over financial reporting.
Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in Interpublic's 2003 Form 10-K, September 2004 Form 10-Q and other SEC filings.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2004 AND 2003 (UNAUDITED)
(Amounts in Millions except Per Share Data)
Three Months Ended Fav.
September 30, (Unfav.)
--------------------
%
2004 2003 Variance
-------------------- ---------
Revenue
United States $ 841.6 $ 800.4 5.1
International 667.2 618.5 7.9
-------- -------- -------
Total Revenue 1,508.8 1,418.9 6.3
-------- -------- -------
Operating Expenses
Salaries and Related Expenses 924.8 810.9 (14.0 )
Office and General Expenses 519.5 508.4 (2.2 )
Restructuring Charges 1.0 48.0 97.9
Long-Lived Asset Impairments 450.1 222.7 (102.1 )
Motorsports Contract Termination and
Other Costs 33.6 -- --
-------- -------- -------
Total Operating Expenses 1,929.0 1,590.0 (21.3 )
-------- -------- -------
Operating Loss (420.2 ) (171.1 ) (145.6 )
-------- -------- -------
Other Income (Expense)
Interest Expense (39.8 ) (43.5 )
Debt Prepayment Penalty -- (24.8 )
Interest Income 11.1 9.5
Other Income (Loss) (0.7 ) 1.2
Investment Impairments (33.8 ) (29.7 )
Litigation Charges -- (127.6 )
-------- --------
Total Other Income (Expense) (63.2 ) (214.9 )
-------- --------
Loss before Income Taxes (483.4 ) (386.0 )
Provision for Income Taxes 98.6 19.5
Income Applicable to Minority Interests (5.1 ) (10.4 )
Equity in Net Income (Loss) of
Unconsolidated Affiliates 2.2 (0.3 )
-------- --------
Loss from Continuing Operations (584.9 ) (416.2 )
Income from Discontinued Operations -- --
Gain on Disposal of Discontinued
Operations 6.5 89.1
-------- --------
Net Loss (578.4 ) (327.1 )
Dividend on Preferred Stock 5.0 --
-------- --------
Net Loss Applicable to Common
Stockholders $ (583.4 )$ (327.1 )
======== ========
Per Share Data of Common Stock:
Basic EPS:
Continuing Operations $ (1.42 )$ (1.08 )
Discontinued Operations 0.02 0.23
-------- --------
Total $ (1.40 )$ (0.85 )
======== ========
Diluted EPS:
Continuing Operations $ (1.42 )$ (1.08 )
Discontinued Operations 0.02 0.23
-------- --------
Total $ (1.40 )$ (0.85 )
======== ========
Dividend per share -- --
Weighted Average Shares:
Basic 415.4 385.8
Diluted 415.4 385.8
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2004 AND 2003 (UNAUDITED)
(Amounts in Millions except Per Share Data)
Nine Months Ended Fav.
September 30, (Unfav.)
---------------------
%
2004 2003 Variance
--------------------- ---------
Revenue
United States $2,520.9 $2,423.2 4.0
International 1,927.1 1,810.8 6.4
-------- -------- -------
Total Revenue 4,448.0 4,234.0 5.1
-------- -------- -------
Operating Expenses
Salaries and Related Expenses 2,692.6 2,544.0 (5.8 )
Office and General Expenses 1,489.6 1,401.2 (6.3 )
Restructuring Charges 65.6 142.4 53.9
Long-Lived Asset Impairments 458.7 244.8 (87.4 )
Motorsports Contract Termination and
Other Costs 113.6 -- --
-------- -------- -------
Total Operating Expenses 4,820.1 4,332.4 (11.3 )
-------- -------- -------
Operating Loss (372.1 ) (98.4 ) (278.2 )
-------- -------- -------
Other Income (Expense)
Interest Expense (117.3 ) (128.4 )
Debt Prepayment Penalty -- (24.8 )
Interest Income 31.2 27.6
Other Income 2.7 1.3
Investment Impairments (37.0 ) (42.2 )
Litigation Charges -- (127.6 )
-------- --------
Total Other Income (Expense) (120.4 ) (294.1 )
-------- --------
Loss before Income Taxes (492.5 ) (392.5 )
Provision for Income Taxes 105.2 36.3
Income Applicable to Minority Interests (13.1 ) (19.4 )
Equity in Net Income (Loss) of
Unconsolidated Affiliates 3.6 (2.2 )
-------- --------
Loss from Continuing Operations (607.2 ) (450.4 )
Income from Discontinued Operations -- 12.1
Gain on Disposal of Discontinued
Operations 6.5 89.1
-------- --------
Net Loss (600.7 ) (349.2 )
Dividend on Preferred Stock 14.8 --
-------- --------
Net Loss Applicable to Common
Stockholders (615.5 ) $ (349.2 )
======== ========
Per Share Data:
Basic EPS:
Continuing Operations $ (1.50 ) $ (1.17 )
Discontinued Operations 0.02 0.26
-------- --------
Total $ (1.49 )*$ (0.91 )
======== ========
Diluted EPS:
Continuing Operations $ (1.50 ) $ (1.17 )
Discontinued Operations 0.02 0.26
-------- --------
Total $ (1.49 )*$ (0.91 )
======== ========
Dividend per share -- --
Weighted Average Shares:
Basic 414.4 384.0
Diluted 414.4 384.0
*Does not foot due to rounding
INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF OPERATING MARGIN
(Dollars in millions)
2004 2003
3rdQTR 3rdQTR
--------- ---------
Revenue $1,508.8 $1,418.9
--------- ---------
Operating Expenses:
Salaries and related expenses 924.8 810.9
Office and general expenses 519.5 508.4
Restructuring charges 1.0 48.0
Long-lived asset impairments 450.1 222.7
Motorsports contract termination 33.6 --
--------- ---------
Total Operating Expenses 1,929.0 1,590.0
--------- ---------
Operating Loss - As Reported $ (420.2 )$ (171.1 )
Operating Margin - As Reported -27.8 % -12.1 %
Add back:
Restructuring charges $ 1.0 $ 48.0
Restructuring program charges in office
& general expenses 0.6 9.1
Long-lived asset impairments 450.1 222.7
Motorsports contract termination 33.6 --
--------- ---------
Total restructuring program charges, long-lived
asset impairments and motorsports contract
termination 485.3 279.8
--------- ---------
Excluding Addbacks:
Operating Income $ 65.1 $ 108.7
Operating Margin 4.3% 7.7%
In comparing performance for 2004 with 2003, the company has
excluded restructuring program charges, long-lived asset impairment
and the charge related to exiting the motorsports business because
management believes the resulting comparison better reflects the
company's ongoing operations. By excluding them, we can focus our
comparison on the trends that have a continuing effect on the
company's operations. The company expects to incur further charges
relating to its restructuring program in 2004, and may incur future
long-lived asset impairment and motorsports charges as well.
INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF OPERATING MARGIN
(Dollars in millions)
2004 2003
SEPT YTD SEPT YTD
--------- ---------
Revenue $4,448.0 $4,234.0
--------- ---------
Operating Expenses:
Salaries and related expenses 2,692.6 2,544.0
Office and general expenses 1,489.6 1,401.2
Restructuring charges 65.6 142.4
Long-lived asset impairments 458.7 244.8
Motorsports contract termination 113.6 --
--------- ---------
Total Operating Expenses 4,820.1 4,332.4
--------- ---------
Operating Loss - As Reported $ (372.1 )$ (98.4 )
Operating Margin - As Reported -8.4 % -2.3 %
Add back:
Restructuring charges $ 65.6 $ 142.4
Restructuring program charges in office
& general expenses 10.9 9.1
Long-lived asset impairments 458.7 244.8
Motorsports contract termination 113.6 --
--------- ---------
Total restructuring program charges, long-lived
asset impairment and motorsports contract
termination 648.8 396.3
--------- ---------
Excluding Addbacks:
Operating Income $ 276.7 $ 297.9
Operating Margin 6.2 % 7.0 %
In comparing performance for 2004 with 2003, the company has
excluded restructuring program charges, long-lived asset impairment
and the charge related to exiting the motorsports business because
management believes the resulting comparison better reflects the
company's ongoing operations. By excluding them, we can focus our
comparison on the trends that have a continuing effect on the
company's operations. The company expects to incur further charges
relating to its restructuring program in 2004, and may incur future
long-lived asset impairment and motorsports charges as well.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
Reconciliation of Operating Margin Analysis
($ in Millions)
--------------------------- ---------------------------
3rd QTR September YTD
--------------------------- ---------------------------
Adjusted Adjusted
Operating Q3 Operating YTD
Income %Inc(Dec) Income % Inc(Dec)
--------------------------- ---------------------------
Total Revenue $1,508.8 $4,448.0
Effect of
Currency
Translation
on Revenue 56.0 147.0
-------- --------
Adjusted
revenue for
constant
currency $1,452.8 $4,301.0
======== ========
Operating
Income (1) $ 65.1 $ 276.7
Operating
Margin 2004 (1) 4.3% 6.2%
Effect of
Currency
Translation
on Operating
Income $ 0.3 $ (4.0 )
Adjusted
operating
income for
constant
currency $ 64.8 $ 280.7
Adjusted
operating
margin for
constant
currency 4.5% 6.5%
Currency
Impact 0.2% 0.3%
Incremental
out of pocket
(on a
constant
basis) $ 34.6 $ 103.8
Adjusted
revenue for
out of pocket $1,418.2 $4,197.2
Adjusted
operating
margin for out
of pocket 4.6% 6.7%
Out of Pocket
Impact 0.3% 0.5%
Incremental
professional
fees (on a
constant
basis) $ 10.6 $ 40.9
Adjusted
operating
income for
professional
fees $ 75.7 $ 317.6
Adjusted
operating
margin for
professional
fees 5.2% 7.4%
Incremental
Professional
Fees Impact 0.9% 1.2%
Incremental
incentives
(on a
constant
basis) $ 35.1 $ 40.6
Adjusted
operating
income for
incentives $100.2 $ 317.3
Adjusted
operating
margin for
incentives 6.9% 7.4%
Incremental
Incentives
Impact 2.6% 1.2%
------ ------
Adjusted
Margin
2004 8.3% 9.4%
Operating
Margin 2003 (1) 7.7% 7.0%
------ ------
Increase
(Decrease) 0.6% 2.4%
====== ======
(1) Excluding restructuring program charges, long-lived asset
impairment, and the Motorsports contract termination charges.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF NON-GAAP MEASURES
ORGANIC REVENUE
THIRD QUARTER 2004 AND 2003
(Amounts in Millions except Percentage Variance)
Worldwide
3Q04 3Q03 Var
------------------------
Reported Revenue $1,508.8 $1,418.9 6.3%
Effects of Currency Translation 56.0
------------------------
Constant Currency 1,508.8 1,474.9 2.3%
Effects of Acquisitions/ Dispositions (2.9) (31.7)
Reclassified Amounts (Out
of Pocket) (77.2) (40.0)
------------------------
Organic Revenue $1,428.7 $1,403.2 1.8%
========================
US
3Q04 3Q03 Var
--------------------
Reported Revenue $841.6 $800.4 5.1%
Effects of Currency Translation
--------------------
Constant Currency 841.6 800.4 5.1%
Effects of Acquisitions/ Dispositions (7.6)
Reclassified Amounts (Out
of Pocket) (46.2) (21.7)
--------------------
Organic Revenue $795.4 $771.1 3.2%
====================
Non-US
3Q04 3Q03 Var
----------------------
Reported Revenue $667.2 $618.5 7.9%
Effects of Currency Translation 56.0
----------------------
Constant Currency 667.2 674.5 (1.1)%
Effects of Acquisitions/ Dispositions (2.9) (24.1)
Reclassified Amounts (Out
of Pocket) (31.0) (18.3)
----------------------
Organic Revenue $633.3 $632.1 0.2%
======================
CHANGE IN SALARIES AND RELATED EXPENSES
---------------------
3Q04 3Q03 Var
---------------------
Reported Salaries and Related Expenses $924.8 $810.9 14.0%
Effects of Currency Translation 31.7
---------------------
Constant Currency 924.8 842.6 9.8%
Effects of Acquisitions/Dispositions (1.7) (11.7)
Reclassified Amounts (3.1)
---------------------
Change in Salaries and Related Expenses (Organic
Basis) $920.0 $830.9 10.7%
=====================
CHANGE IN OFFICE AND GENERAL EXPENSES
----------------------
3Q04 3Q03 Var
----------------------
Reported Office and General Expenses $519.5 $508.4 2.2%
Effects of Currency Translation 24.0
----------------------
Constant Currency 519.5 532.4 (2.4)%
Effects of Acquisitions/Dispositions (1.1) (20.6)
Reclassified Amounts (75.9) (40.1)
----------------------
Change in Office and General Expenses (Organic
Basis) $442.5 $471.7 (6.2)%
======================
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF NON-GAAP MEASURES
ORGANIC REVENUE
SEPTEMBER YEAR TO DATE 2004 AND 2003
(Amounts in Millions except Percentage Variance)
Worldwide
YTD04 YTD03 Var
------------------------
Reported Revenue $4,448.0 $4,234.0 5.1%
Effects of Currency Translation 147.0
------------------------
Constant Currency 4,448.0 4,381.0 1.5%
Effects of Acquisitions/ Dispositions (13.9) (81.4)
Reclassified Amounts (Out
of Pocket) (223.4) (110.8)
------------------------
Organic Revenue $4,210.7 $4,188.8 0.5%
========================
US
YTD04 YTD03 Var
------------------------
Reported Revenue $2,520.9 $2,423.2 4.0%
Effects of Currency Translation
------------------------
Constant Currency 2,520.9 2,423.2 4.0%
Effects of Acquisitions/ Dispositions (4.2) (30.1)
Reclassified Amounts (Out
of Pocket) (137.4) (65.6)
------------------------
Organic Revenue $2,379.3 $2,327.5 2.2%
========================
Non-US
YTD04 YTD03 Var
--------------------------
Reported Revenue $1,927.1 $1,810.8 6.4%
Effects of Currency Translation 147.0
--------------------------
Constant Currency 1,927.1 1,957.8 (1.6)%
Effects of Acquisitions/ Dispositions (9.7) (51.3)
Reclassified Amounts (Out
of Pocket) (86.0) (45.2)
--------------------------
Organic Revenue $1,831.4 $1,861.3 (1.6)%
==========================
CHANGE IN SALARIES AND RELATED EXPENSES
------------------------
YTD04 YTD03 Var
------------------------
Reported Salaries and Related Expenses $2,692.6 $2,544.0 5.8%
Effects of Currency Translation 89.9
------------------------
Constant Currency 2,692.6 2,633.9 2.2%
Effects of Acquisitions/Dispositions (7.5) (38.8)
Reclassified Amounts (7.7)
------------------------
Change in Salaries and Related Expenses
(Organic Basis) $2,677.4 $2,595.1 3.2%
========================
CHANGE IN OFFICE AND GENERAL EXPENSES
--------------------------
YTD04 YTD03 Var
--------------------------
Reported Office and General Expenses $1,489.6 $1,401.2 6.3%
Effects of Currency Translation 61.1
--------------------------
Constant Currency 1,489.6 1,462.3 1.9%
Effects of Acquisitions/Dispositions (4.5) (49.2)
Reclassified Amounts (217.6) (110.7)
--------------------------
Change in Office and General Expenses
(Organic Basis) $1,267.5 $1,302.4 (2.7)%
==========================
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF ORGANIC REVENUE BY REGION
THIRD QUARTER 2004
-------------------------------------------------
Foreign
Exchange Acquisitions/ Reclassified
Organic Impact Dispositions Amounts Reported
-------------------------------------------------
US 3.2% --% (1.1)% 3.0% 5.1%
Europe 0.1% 10.9% (4.5)% 2.7% 9.2%
Asia/Other 3.9% 3.3% (0.4)% (0.5)% 6.3%
Latin America 1.2% 5.9% (2.3)% 1.0% 5.8%
Canada (12.9)% 11.9% --% 3.2% 2.2%
-------------------------------------------------
Worldwide 1.8% 4.0% (2.0)% 2.5% 6.3%
SEPTEMBER YTD 2004
-------------------------------------------------
Foreign
Exchange Acquisitions/ Reclassified
Organic Impact Dispositions Amounts Reported
-------------------------------------------------
US 2.2% --% (1.2)% 3.0% 4.0%
Europe (3.9)% 9.5% (2.7)% 2.6% 5.5%
Asia/Other 6.0% 5.6% (0.3)% 1.3% 12.6%
Latin America 3.1% 1.1% (2.7)% 0.9% 2.4%
Canada (8.3)% 7.4% --% 2.7% 1.8%
-------------------------------------------------
Worldwide 0.5% 3.6% (1.6)% 2.6% 5.1%
CERTAIN NON-GAAP FINANCIAL MEASURES
Organic Revenue. We derive organic revenue by adjusting reported revenue in respect of any given period by:
-- excluding the impact of foreign currency effects over the
course of the period to provide revenues on a constant
currency basis; and
-- excluding the impact on reported revenue resulting from
acquisitions and dispositions that were consummated after the
first day of the year prior to the given period.
Additionally, organic revenue calculations for the quarter have been adjusted to make 2004 organic revenue principally arising from public relations and sporting event arrangements more directly comparable to organic revenue arising from public relations and sporting event arrangements in periods preceding January 1, 2004. If these adjustments had been made to revenue for prior periods, there would have been neither a material effect on results in prior periods nor any effect whatsoever on operating or net income. These adjustments primarily relate to "grossing up" revenues and expenses by the same amount in connection with the reimbursement of certain out of pocket expenses relating to public relations and sporting event arrangements.
Management believes that discussing organic revenue, giving effect to the above factors, provides a better understanding of the Company's revenue performance and trends than reported revenue because it allows for more meaningful comparisons of current-period revenue to that of prior periods. Management also believes that organic revenue determined on a generally comparable basis is a common measure of performance in the businesses in which it operates. For the same reasons, management makes analogous adjustments to office and general expenses which expenses, as adjusted, are a non-GAAP measure.
Constant Currency. When the Company discusses amounts on a constant currency basis, the prior period results are adjusted to remove the impact of changes in foreign currency exchange rates during the current period that is being compared to the prior period. The impact of changes in foreign currency exchange rates on prior period results is removed by converting the prior period results into U.S. dollars at the average exchange rate for the current period. Management believes that discussing results on a constant currency basis allows for a more meaningful comparison of current-period results to such prior-period results.
Net Debt. Net debt as of any given date is total debt as reported at that date less total cash and cash equivalents as of that date. Management believes that discussing net debt is useful because it provides a more complete picture of the Company's liquidity position.
CONTACT: Interpublic
General Inquiries:
Julie Tu
(212) 445-8456
or
Media, Analysts, Investors:
Philippe Krakowsky
(212) 704-1328
or
Analysts, Investors:
Jerry Leshne
(212) 704-1439
SOURCE: Interpublic