SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K


Current Report Pursuant to Section 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934


Date of Report
September 18, 2001

Commission file number
1-6686

 

 

THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of registrant as specified in its charter)


             Delaware                  
State or other jurisdiction of
incorporation or organization)

       13-1024020      
(I.R.S. Employer
Identification No.)

   

1271 Avenue of the Americas, New York, New York
(Address of principal executive offices)

   10020   
(Zip Code)


Registrant's telephone number, including area code: (212) 399-8000




Item 5.  OTHER EVENTS

On August 10, 2001, The Interpublic Group of Companies Inc. (the "Company") filed a Current Report on Form
8-K in which it restated its consolidated financial statements as previously presented in Form 10-K for the year ended December 31, 2000. Effective July 26, 2001, upon the announcement of results for the second quarter of 2001, those supplemental consolidated financial statements became the historical results of the Company.

This current report is identical to the filing made on August 10, 2001, except for the removal of references to the financial statements as being "supplemental".

As discussed in Note 15 of the consolidated financial statements of the Company, on June 22, 2001, the Company acquired True North Communications Inc. ("True North") in a transaction accounted for as a pooling of interests. This Current Report on Form 8-K includes the Company's consolidated financial statements and other financial information restated to reflect the effect of the pooling of True North.

 

 

 

 



Item 7.

FINANCIAL STATEMENTS AND EXHIBITS

(c)

Other Exhibits

Exhibit 99

Financial Statements, Financial Information and Exhibits

- Management's Discussion and Analysis of Financial

  Condition and Results of Operations

Consolidated Financial Statements

Report of Independent Accountants

     - PricewaterhouseCoopers LLP

     - Arthur Andersen LLP, New York

     - Arthur Andersen LLP, Chicago

     - J.H. Cohn LLP

Consolidated Balance Sheet

     December 31, 2000 and 1999

Consolidated Statement of Income for the Years Ended

     December 31, 2000, 1999 and 1998

Consolidated Statement of Cash Flows for the Years

     Ended December 31, 2000, 1999 and 1998

Consolidated Statement of Stockholders' Equity and

     Comprehensive Income For the Years Ended December 31, 2000, 1999

     and 1998

Notes to Consolidated Financial Statements

Selected Financial Data For Five Years

Results by Quarter (Unaudited)

Consolidated Financial Statement Schedule

Schedule II: Valuation and Qualifying Accounts

Exhibit 11

COMPUTATION OF EARNINGS PER SHARE

For the Years Ended December 31, 1996, 1997, 1998, 1999 and 2000

Exhibit 23

CONSENT OF INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP

Arthur Andersen LLP, New York

Arthur Andersen LLP, Chicago

J.H. Cohn LLP



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

THE INTERPUBLIC GROUP OF COMPANIES, INC.

 

(Registrant)  

     
     
     
     
     

Date:  September 18, 2001

BY

/S/ DAVID WEATHERSEED         

   

DAVID WEATHERSEED

   

Vice President and Controller



THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


On June 22, 2001, The Interpublic Group of Companies, Inc. (the "Company") acquired True North Communications Inc. ("True North") in a transaction accounted for as a pooling of interests. The Company's financial statements have been restated for all prior periods to reflect the results of True North. The following discussion relates to the combined results of the Company after giving effect to the pooling of interests with True North.

For the purposes of the following discussion, the restructuring and other merger related costs (in 2000, 1999 and 1998), the asset impairment and restructuring charges related to the Company's equity investment in Modem Media, Inc. ("Modem Media") (in 2000) and the Deutsch transaction costs (in 2000) will be referred to, collectively, as "non-recurring items". The non-recurring items are described in a subsequent section of this discussion. All amounts discussed below are as reported unless otherwise noted.

Results Of Operations

The Company reported net income of $420.3 million or $1.14 diluted earnings per share, $359.5 million or $.99 diluted earnings per share and $374.2 million or $1.04 diluted earnings per share for the years ended December 31, 2000, 1999, and 1998, respectively. Excluding the impact of non-recurring items in all years, net income would have been $570.2 million or $1.53 diluted earnings per share, $460.4 million or $1.26 diluted earnings per share and $376.1 million or $1.05 diluted earnings per share for the years ended December 31, 2000, 1999 and 1998, respectively.

The following table sets forth net income and earnings per share as reported and before non-recurring items:

(Dollars in thousands, except per share amounts)

2000    

1999    

1998    

Net income as reported

$420,261

$359,509

$374,174

Earnings per share

    Basic

$      1.17

$      1.02

$      1.08

    Diluted  

$      1.14

$      0.99

$      1.04

Net income before non-recurring items  

$570,245

$460,446

$376,075

Earnings per share

    Basic

$      1.59

$      1.31

$      1.08

    Diluted  

$      1.53

$      1.26

$      1.05


Revenue

Worldwide revenue for 2000 was $7.2 billion, an increase of $765 million or 11.9% over 1999. Domestic revenue, which represented 59.0% of worldwide revenue in 2000, increased $620 million or 17.1% over 1999. International revenue, which represented 41.0% of worldwide revenue in 2000, increased $145.5 million or 5.2% over 1999. International revenue would have increased 14.5% excluding the effect of the strengthening of the U.S. dollar against major currencies. The increase in worldwide revenue is a result of both growth from new business gains and growth from acquisitions. Organic revenue growth, exclusive of acquisitions and currency effects, was 12.5% over 1999.

Revenue from specialized marketing and communication services, which include market research, relationship (direct) marketing, public relations, sports and event marketing, healthcare marketing and e-consultancy and services, comprised approximately 38% of total worldwide revenue in 2000, compared to 36% in 1999.

Worldwide revenue for 1999 was $6.4 billion, an increase of $924 million or 16.8% over 1998. Domestic revenue, which represented 56.5% of worldwide revenue, increased $534 million or 17.3% over 1998. International revenue, which represented 43.5% of worldwide revenue in 1999, increased $390 million or 16.3% over 1998. International revenue would have increased 20.6% excluding the effect of the strengthening of the U.S. dollar against major currencies.

Operating Expenses

Worldwide operating expenses for 2000, excluding non-recurring items, were $6.2 billion, an increase of 9.8% over 1999. Operating expenses outside the United States increased 2.8%, while domestic operating expenses increased 15.3%. These increases were commensurate with the increases in revenue. Worldwide operating expenses for 1999, excluding non-recurring items, were $5.6 billion, an increase of 16.4% over 1998, comprised of a 14.5% increase in international expenses and a 18% increase in domestic expenses.

Significant portions of the Company's expenses relate to employee compensation and various employee incentive and benefit programs. The employee incentive programs are based primarily upon operating results. Salaries and related expenses were $4.0 billion in 2000 or 56.2% of revenue as compared to $3.6 billion in 1999 or 56.4% of revenue and $3.1 billion in 1998 or 57.3% of revenue. The year over year dollar increase is a result of growth from acquisitions and new business gains.

Office and general expenses were $2.0 billion in 2000, $1.9 billion in 1999, and $1.6 billion in 1998. The year over year increase is a result of the continued growth of the Company.

In the fourth quarter of 1999, NFO recorded special charges of $22 million as a result of the difficult competitive environment due to client consolidation in the financial services industry. Approximately $16 million of the special charges were related to the write-off of intangible assets which were deemed permanently impaired.

Income from Operations

Income from operations for 2000 was $849.1 million. Excluding non-recurring items, income from operations for 2000 was $1.03 billion, an increase of $217.9 million or 26.8% over 1999. Exclusive of acquisitions, foreign exchange fluctuations and amortization of intangible assets, income from operations increased 28.9% for 2000 compared to 1999.

Income from operations for 1999 was $649.4 million. Excluding non-recurring items, income from operations for 1999 was $808.9 million compared to $675.8 million in 1998, an increase of 19.7%. The increase is a result of growth from acquisitions and new business gains.

Restructuring and Other Merger Related Costs

During 2000, the Company recorded pre-tax restructuring and other merger related costs of $133 million ($82.6 million net of tax). Of the total pre-tax restructuring and other merger-related costs, cash charges represented $96 million. The key components of the charge were the (i) costs associated with the restructuring of Lowe Lintas & Partners Worldwide (ii) costs associated with the loss of the Chrysler account and (iii) costs relating principally to the merger with NFO. Additionally, in 1999, costs were incurred in connection with the restructuring of Bozell and FCB.

Lowe Lintas
In October 1999, the Company announced the merger of two of its advertising networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris Lintas, were combined to form a new agency network called Lowe Lintas & Partners Worldwide. The merger involved the consolidation of operations in Lowe Lintas agencies in approximately 24 cities in 22 countries around the world. As of September 30, 2000, all restructuring activities had been completed.

A summary of the components of the reserve for restructuring and other merger-related costs for Lowe Lintas is as follows:

   

                     Year to Date December 31, 2000                      

 


(Dollars in millions)

Balance at
  12/31/99  

Expense
Recognized

Cash
 Paid 

Asset
Write-offs 


Reclassifications

Balance at
  12/31/00  

             

Severance and

           

  termination costs

$43.6    

$32.0      

$(46.7)

$        --     

$(17.2)          

$11.7    

Fixed asset write-offs

11.1    

14.2      

-- 

(25.3)    

--           

--    

Lease termination costs

3.8    

21.1      

(10.1)

--     

--           

14.8    

Investment write-offs and other

 23.4    

  20.5      

(6.4)

(37.5)    

         --           

--    

             

Total

$81.9   

$87.8      

$(63.2)

$(62.8)    

$(17.2)          

$26.5    

The severance and termination costs recorded in 2000 relate to approximately 360 employees who have been terminated. The remaining severance and termination amounts will be paid in 2001. The employee groups affected include management, administrative, account management, creative and media production personnel, principally in the U.S. and several European countries. Included in severance and termination costs is an amount of $17.2 million related to non-cash charges for stock options which has been reclassified to additional paid in capital.

The fixed asset write-offs relate largely to the abandonment of leasehold improvements as part of the merger. The amount recognized in 2000 relates to fixed asset write-offs in 4 offices, the largest of which is in the U.K.

Lease termination costs relate to the offices vacated as part of the merger. The lease terminations have been completed, with the cash portion to be paid out over a period of up to five years.

The investment write-offs relate to the loss on sale or closing of certain business units. In 2000, $12.7 million of investment write-offs has been recorded, the majority of which results from the decision to sell or abandon 3 businesses located in Asia and Europe. In the aggregate, the businesses being sold or abandoned represent an immaterial portion of the revenue and operations of Lowe Lintas & Partners. The write-off amount was computed based upon the difference between the estimated sales proceeds (if any) and the carrying value of the related assets. These sales or closings were completed in mid 2000.

Loss of Chrysler Account
In September 2000, Chrysler, one of the Company's larger accounts, announced that it was undertaking a review of its two advertising agencies to reduce the costs of its global advertising and media. On November 3, 2000, the Company was informed that it was not selected as the agency of record. In December 2000, the Company terminated its existing contract with Chrysler and entered into a transition agreement effective January 1, 2001.

As a result of the loss of the Chrysler account, the Company recorded a $17.5 million pre-tax charge in the fourth quarter of 2000. The charge covers primarily severance, lease termination and other exit costs associated with the decision to close the Detroit office. The severance portion of the charge amounts to $5.8 million and reflects the elimination of approximately 250 positions. The charge also includes $11.4 million associated primarily with the lease termination of the Detroit office, as well as other exit costs. In addition, an impairment loss of $5.5 million was recorded for intangible assets that are no longer recoverable. Offsetting these charges was a $5.2 million payment from Chrysler to compensate the Company for severance and other exit costs. At December 31, 2000, 5 people had been terminated and $0.3 million of severance and other exit costs had been paid.

Bozell and FCB Worldwide

In September 1999, the Company committed to a formal plan to restructure its Bozell and FCB Worldwide agency operations and recorded a $75.4 million pre-tax charge in the third quarter of 1999. The charge covered primarily severance, lease termination and other exit costs in connection with the combination and integration of the two worldwide advertising agency networks. Bozell Worldwide's international operations, along with its Detroit and Costa Mesa offices, were merged with FCB Worldwide and operated under the FCB Worldwide name. The restructuring initiatives also included the sale or closing of certain underperforming business units.

The restructuring program was completed during the third quarter of 2000. A summary of components of the restructuring charge is as follows (in millions):

 

 

Severance and
Termination
Benefits

Lease
Termination and
Other Exit
Costs

Impairment
Loss

Total

         

Restructuring reserve, September 30, 1999 .

$ 41.4         

$24.2         

$ 9.8          

$ 75.4       

     1999 Write-downs  

--         

(0.9)        

(9.8)         

(10.7)      

     1999 Cash payments

(9.7)        

(3.2)        

     --          

(12.9)      

         

Balance, December 31, 1999

31.7         

20.1         

--          

51.8       

     2000 Write-downs  

--         

(4.3)        

--          

(4.3)      

     2000 Cash payments

(22.5)        

(9.5)        

--          

(32.0)      

     Long-term obligations secured  

(9.6)        

(5.3)        

--          

(14.9)      

     Excess reserve (net)

0.4         

(1.0)        

--          

(0.6)      

         

Balance, December 31, 2000  

$    --         

$    --         

$   --          

$ --        


The involuntary severance and termination benefits portion of the charge amounted to $41.4 million and reflected the elimination of approximately 640 positions worldwide, primarily in international locations. The employee groups affected primarily included executive and regional management and administrative personnel. As of September 30, 2000, such positions were eliminated at a cost of $41.8 million, which was $0.4 million higher than the original estimate.

The charge of $24.2 million associated with lease terminations and other exit costs represented primarily the closure, abandonment and downsizing of office space globally, including approximately 30 international locations. The costs included $13.5 million of remaining lease obligations net of estimated sublease income, as well as $5.9 million of impairment charges pertaining to leasehold improvements and fixed assets that were no longer used in the combined operation. As of September 30, 2000, these facilities were abandoned or downsized at a cost of $23.2 million, which was $1.0 million lower than the original estimate.

Accordingly, the net excess restructuring reserve of $0.6 million was reversed into income on the restructuring and other charges line in the third quarter of 2000. The remaining severance liabilities of $9.6 million pertain to terminated individuals and will be paid over the next four years in accordance with contractually defined severance agreements. The remaining lease liabilities and other exit costs of $5.3 million pertain to non-cancelable lease commitments in excess of sublease income for exited facilities that will be paid out over the remaining lease periods, which range from one to five years.

The impairment loss on the sale or closing of certain business units amounts to $9.8 million and resulted from the decision to sell two business units, one in the U.S. and one in the United Kingdom, and to close four other business units and joint ventures, including the R/GA Digital Studios, which specialized in digital production for advertising and film companies. The impairment loss was computed based upon the difference between the estimated sales proceeds (if any) and the carrying value of the related assets and investments and primarily represents the impairment of goodwill associated with such units. These sales or closures were completed by September 30, 2000.

Other
In addition to the Lowe Lintas restructuring, the costs associated with the loss of the Chrysler account and other merger related costs noted above, additional charges, substantially all of which were cash costs, were recorded during 2000. These costs relate principally to the non-recurring transaction and other merger related costs arising from the acquisition of NFO.

Deutsch Transaction Costs

In connection with the acquisition of Deutsch, the Company recognized a charge related to one-time transaction costs of $44.7 million ($41.6 million net of tax). The principal component of this amount related to the expense associated with various equity participation agreements with certain members of management.

These agreements provided for participants to receive a portion of the proceeds in the event of the sale or merger of Deutsch.

Interest Expense

Interest expense was $126 million in 2000, $99 million in 1999 and $87 million in 1998. The increase in 2000 was attributable to higher debt levels and higher interest rates in 2000.

Other Income, Net

Other income, net primarily consists of interest income, investment income and net gains from equity investments. Net equity gains were $44 million, $60 million and $62 million in 2000, 1999, and 1998, respectively.

Other Items

Income applicable to minority interests increased by $4.6 million in 2000 and by $5.6 million in 1999. The 2000 and 1999 increases were primarily due to the strong performance of companies that were not wholly owned, as well as the acquisition of additional such entities during 2000 and 1999.

Equity in net income of unconsolidated affiliates decreased by $25.6 million in 2000, primarily due to the Company's share of the asset impairment and restructuring charges of Modem Media.

The Company's effective income tax rate was 42.2% in 2000, 42.5% in 1999 and 43.4% in 1998 (40.1%, 41.4% and 43.4% excluding non-recurring items).

As described in Note 4, prior to its acquisition by the Company, Deutsch had elected to be treated as an "S" Corporation and accordingly, its income tax expense was lower than it would have been had Deutsch been treated as a "C" Corporation. Deutsch became a "C" Corporation upon its acquisition by the Company. Assuming Deutsch had been a "C" Corporation since 1997, the effective tax rate, on a pro forma basis excluding non-recurring items, would have been 41.2%, 42.1% and 43.7% for 2000, 1999 and 1998, respectively.

Cash Based Earnings

Management believes that cash based earnings are a relevant measure of financial performance as it illustrates the Company's performance and ability to support growth. The Company defines cash based earnings as net income excluding non-recurring items, adjusted to exclude amortization of intangible assets, net of tax where applicable. Cash based earnings are not calculated in the same manner by all companies and are intended to supplement, not replace, the other measures calculated in accordance with generally accepted accounting principles
.

Cash based earnings for the three years ending December 31, 2000, 1999, and 1998 were as follows:

(Amounts in thousands except per share data)

                 2000

                 1999

             1998

       

Net income as reported

$420,261 

$359,509 

$374,174 

Non-recurring items, net of tax

  149,984 

    100,937 

      1,901 

       

Net income, as adjusted  

570,245 

460,446 

376,075 

       

Add back amortization of intangible assets  

144,256 

128,417 

84,289 

Less related tax effect

  (17,708)

  (15,734)

    (7,606)

       

Cash based earnings (as defined above)

$696,793 

$573,129 

$452,758 

       

Per share amounts (diluted)

$       1.87 

$       1.57 

$      1.26 



Liquidity and Capital Resources

The Company's financial position remained strong during 2000, with cash and cash equivalents at December 31, 2000, of $844.6 million. The ratio of current assets to current liabilities was approximately .96 to 1 at December 31, 2000. Working capital at December 31, 2000, was a negative $326 million, which was $322 million lower than the level at the end of 1999.

Total debt at December 31, 2000 was $2.1 billion, an increase of $606.4 million from December 31, 1999. The increase in debt is primarily attributable to the net effect of payments made for acquisitions and other investments.

On June 27, 2000, the Company entered into a syndicated multi-currency credit agreement under which a total of $750 million may be borrowed; $375 million may be borrowed under a 364-day facility and $375 million under a five-year facility. The facilities bear interest at variable rates based on either LIBOR or a bank's base rates, at the Company's option. As of December 31, 2000, approximately $174 million had been borrowed under the facilities. The weighted-average interest rate on the borrowings at December 31, 2000 was 6.5%. The proceeds from the syndicated credit agreement were used to refinance borrowings and for general corporate purposes including acquisitions and other investments. Some of the pre-existing borrowing facilities were subsequently terminated.

On October 20, 2000, the Company completed the issuance and sale of $500 million principal amount of senior unsecured notes due 2005. The notes bear an interest rate of 7.875% per annum. The Company used the net proceeds of approximately $496 million from the sale of the notes to repay outstanding indebtedness under its credit facilities.

Cash flow from operations and existing credit facilities, and refinancings thereof, have been the primary sources of working capital and management believes that they will continue to be so in the future. Net cash provided by operating activities was $612 million, $768 million and $623 million for the years ended December 31, 2000, 1999, and 1998, respectively. The Company's working capital is used primarily to provide for the operating needs of its subsidiaries, which includes payments for space or time purchased from various media on behalf of clients. The Company's practice is to bill and collect from its clients in sufficient time to pay the amounts due for media on a timely basis. Other uses of working capital include the repurchase of the Company's common stock, payment of cash dividends, capital expenditures and acquisitions.

The Company acquires shares of its stock on an ongoing basis. During 2000, the Company purchased approximately 4.8 million shares of its common stock, compared to 6.5 million shares in 1999. The Company repurchases its stock for the purpose of fulfilling its obligations under various compensation plans.

The Company, excluding pooled entities, paid $109.1 million ($.37 per share) in dividends to stockholders in 2000, compared to $90.4 million ($.33 per share) paid during 1999 and $76.9 million ($.29 per share) paid during 1998.

The Company's capital expenditures in 2000 were $259 million compared to $250 million in 1999 and $201 million in 1998. The primary purposes of these expenditures were to upgrade computer and telecommunications systems to better serve clients and to modernize offices.

During 2000, the Company paid approximately $1,667 million in cash and stock for new acquisitions, including 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 marketplace. This amount includes the value of stock issued for pooled companies.

The Company and its subsidiaries maintain credit facilities in the United States and in countries where they conduct business to manage their future liquidity requirements. The Company's available credit facilities were approximately $1,754 million, of which $346 million were utilized at December 31, 2000, and approximately $850 million, of which $100 million were utilized at December 31, 1999.

Return on average stockholders' equity was 18.2% in 2000 and 18.6% in 1999. Excluding non-recurring items, return on average stockholders' equity was 23.5% in 2000 and 23.2% in 1999.

As discussed in Note 12, revenue from international operations was 40.9%, 43.5
% and 43.7% of worldwide revenue in 2000, 1999 and 1998, respectively. The Company continuously evaluates and attempts to mitigate its exposure to foreign exchange, economic and political risks. The notional value and fair value of all outstanding forwards and options contracts at the end of the year were not significant.

The Company is not aware of any significant occurrences that could negatively impact its liquidity. However, should such a trend develop, the Company believes that there are sufficient funds available under its existing lines of credit and refinancings thereof, and from internal cash-generating capabilities to meet future needs.


Other Matters

True North Communications Inc.

As discussed in Note 15, on June 22, 2001, the Company acquired True North Communications Inc., a global provider of advertising and communication services. The acquisition, which will create an industry leading combination of advertising and marketing services capabilities to offer clients on a global basis, has been accounted for as a pooling of interests.

New Accounting Pronouncements

Revenue Recognition

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 was adopted by the Company effective January 1, 2000. The adoption of SAB 101 had no significant effect on the Company's operating results or financial position.

Accounting for Derivatives Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which had an initial adoption date by the Company of January 1, 2000. In June 1999, the FASB postponed the adoption date of SFAS 133 until January 1, 2001. The Company will adopt the provisions of SFAS 133 effective January 1, 2001 and believes its adoption of SFAS 133 will have no impact on its financial condition or results of operations.

Equity Based Compensation

In April 2000, the FASB issued Interpretation No. 44, ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25. This interpretation, which was effective from July 1, 2000, addressed various issues including the definition of employee for the purpose of applying APB 25, criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option award and the accounting for an exchange of stock compensation awards in a business combination. The adoption of FIN 44 did not have a material impact on the Company's financial statements.

Conversion to the Euro

On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency (the "Euro"). The Company conducts business in member countries. The transition period for the introduction of the Euro will be between January 1, 1999, and June 30, 2002. The Company is addressing the issues involved with the introduction of the Euro. The major important issues facing the Company include: converting information technology systems, reassessing currency risk, negotiating and amending contracts and processing tax and accounting records.

Based upon progress to date, the Company believes that use of the Euro will not have a significant impact on the manner in which it conducts its business affairs and processes its business and accounting records. Accordingly, conversion to the Euro has not, and is not expected to have a material effect on the Company's financial condition or results of operations.

Quantitative and Qualitative Disclosures about Market Risk

The Company's financial market risk arises from fluctuations in interest rates and foreign currencies. Most of the Company's debt obligations are at fixed interest rates. A 10% change in market interest rates would not have a material effect on the Company's pre-tax earnings, cash flows or fair value. At December 31, 2000, the Company had an insignificant amount of foreign currency derivative financial instruments in place. The Company does not hold any financial instrument for trading purposes.

Interactive Assets

The Company maintains a portfolio of marketable securities and other interactive assets. The market value of these investments is subject to market volatility. The volatility, as it relates to the marketable securities, is reflected in unrealized gains and losses recorded in stockholders' equity. Management continually monitors the value of all of its investments to determine whether an "other than temporary" impairment has occurred. To the extent such an impairment occurs, provision would be made in the appropriate period.

Cautionary Statement

This Current Report on Form 8-K (the "Report"), including Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. These statements are based on current plans, expectations, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made, and Interpublic undertakes no obligation to update publicly any of them in light of new information, future events or otherwise.

Forward-looking statements involve inherent risks and uncertainties. The Company cautions that 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 effect of national and regional economic conditions, the ability of the Company to attract new clients and retain existing clients, the financial success and other developments of the clients of the Company, developments from changes in the regulatory and legal environment for advertising companies around the world, the Company's ability to effectively integrate recent acquisitions and the Company's ability to attract and retain key management personnel.



Report of Independent Accountants



To the Board of Directors and Stockholders of
     The Interpublic Group of Companies, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 7 present fairly, in all material respects, the financial position of The Interpublic Group of Companies, Inc. and its subsidiaries (the "Company") at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 7 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We did not audit the financial statements of NFO Worldwide, Inc. ("NFO"), a wholly-owned subsidiary, which statements reflect total revenues constituting approximately 7% and 5% of the related 1999 and 1998 consolidated financial statement totals. We did not audit the financial statements of Deutsch, Inc. and Subsidiary and Affiliates ("Deutsch"), a wholly-owned subsidiary, which statements reflect total net loss constituting approximately 2% of the related 2000 consolidated financial statement total and total net income constituting approximately 4% of the related 1999 consolidated financial statement total. Additionally, we did not audit the financial statements of True North Communications Inc. ("True North"), a wholly-owned subsidiary, which statements reflect total revenues constituting approximately 22%, 22% and 23% of the related consolidated financial statement totals for each of the three years in the period ended December 31, 2000. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for NFO, Deutsch and True North, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.




PricewaterhouseCoopers LLP
New York, New York
February 26, 2001, except as to the pooling of interests with True North, which is as of June 22, 2001



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of NFO Worldwide, Inc.:

We have audited the accompanying consolidated balance sheet of NFO Worldwide, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 1999. These financial statements (not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NFO Worldwide, Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The schedule referred to in Item 14 (not separately presented herein) is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole.



Arthur Andersen LLP
New York, New York,
February 25, 2000




Report of Independent Public Accountants


To the Stockholder

Deutsch, Inc. and Subsidiary and Affiliates

     We have audited the combined balance sheets of Deutsch, Inc. and Subsidiary and Affiliates as of December 31, 2000 and 1999, and the related combined statements of operations, stockholder's equity and cash flows for the years then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Deutsch, Inc. and Subsidiary and Affiliates as of December 31, 2000 and 1999, and their results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

     The 1999 combined financial statements have been restated to reflect the correct treatment of payments made to the Company's sole stockholder. In financial statements previously issued for the year ended December 31, 1999, certain payments had been classified as bonuses which, it has been determined, should have been reflected as distributions to the Company's sole stockholder. Accordingly, the Company has restated the 1999 financial statements to reflect the correct accounting for the payments and the related tax effects.



J.H. Cohn LLP
Roseland, New Jersey
February 13, 2001



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Stockholders and Board of Directors of True North Communications Inc.:

          We have audited the consolidated balance sheets of True North Communications Inc. (a Delaware corporation) and Subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of three years in the period ended December 31, 2000. These financial statements are not separately presented herein and are presented prior to any adjustments related to the pooling of interest transaction with The Interpublic Group of Companies, Inc. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Publicis Communication for the year ended December 31, 1998. The Company's equity in its net earnings was $3.7 million for the year ended December 31, 1998. The financial statements of Publicis Communication were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Publicis Communication, is based solely upon the report of the other auditors.

          We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

          In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of True North Communications Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

          As explained in the notes to the consolidated financial statements, the Company has given retroactive effect to the change in accounting for amortization of intangible assets.

/s/ Arthur Andersen LLP        


ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 20, 2001



FINANCIAL STATEMENTS

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31

(Dollars in Thousands Except Per Share Data)

ASSETS

 

    2000    

 

    1999    

CURRENT ASSETS:

     

Cash and cash equivalents (includes

     

  certificates of deposit: 2000-$110,919; 1999-$150,343)

$    844,634 

 

$  1,147,341 

Marketable securities

39,957 

 

55,699 

Receivables (net of allowance for doubtful
  accounts: 2000-$85,718; 1999-$75,857)

5,735,655 

 

5,462,488 

Expenditures billable to clients

437,929 

 

407,281 

Prepaid expenses and other current assets

       237,843 

 

      164,016 

   Total current assets

    7,296,018 

 

    7,236,825 

OTHER ASSETS:

     

Investment in unconsolidated affiliates

178,858 

 

95,537 

Deferred taxes on income  

380,306 

 

62,110 

Other investments and miscellaneous assets

       525,395 

 

       757,711 

   Total other assets

   1,084,559 

 

       915,358 

FIXED ASSETS, AT COST:

     

Land and buildings

174,079 

 

165,687 

Furniture and equipment 

1,103,741 

 

1,030,333 

Leasehold improvements

      427,856 

 

       367,515 

 

1,705,676 

 

1,563,535 

Less: accumulated depreciation

     (879,218)

 

     (813,465)

   Total fixed assets

       826,458 

 

       750,070 

       

Intangible assets (net of accumulated

     

  amortization: 2000-$861,487; 1999-$724,790)

    3,154,977 

 

    2,323,556 

TOTAL ASSETS

$12,362,012 

 

$11,225,809 

 

 

FINANCIAL STATEMENTS

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31

(Dollars in Thousands Except Per Share Data)

LIABILITIES AND STOCKHOLDERS' EQUITY

       2000      

       1999      

CURRENT LIABILITIES:

Payable to banks

$     549,260 

$     389,366 

Accounts payable  

5,751,335 

5,664,395 

Accrued expenses

1,111,060 

1,003,739 

Accrued income taxes

       210,303 

       183,126 

Total current liabilities  

    7,621,958 

    7,240,626 

NONCURRENT LIABILITIES:

Long-term debt

998,687 

566,749 

Convertible subordinated notes

533,104 

518,490 

Deferred compensation and reserve for termination allowances

464,329 

424,208 

Accrued postretirement benefits

55,197 

56,477 

Other noncurrent liabilities

105,686 

140,922 

Minority interests in consolidated subsidiaries

       100,580 

       152,014 

Total noncurrent liabilities

    2,257,583 

    1,858,860 

STOCKHOLDERS' EQUITY:

Preferred Stock, no par value

 shares authorized: 20,000,000

 shares issued: none

Common Stock, $10 par value

 shares authorized: 550,000,000

 shares issued:

  2000 - 377,270,758;

  1999 - 371,618,819

37,727 

37,162 

Additional paid-in capital

1,514,709 

1,170,985 

Retained earnings

   1,667,499 

1,406,304 

Accumulated other comprehensive loss, net of tax

     (411,581)

       (96,302)

2,808,354 

2,518,149 

Less:

Treasury stock, at cost:

   2000 - 5,462,809 shares;

   1999 - 8,909,904 shares

194,758 

312,930 

Unamortized expense of restricted stock grants

       131,125 

         78,896 

Total stockholders' equity

    2,482,471 

    2,126,323 

Commitments and contingencies

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$12,362,012 

$11,225,809 

Prior periods have been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.

The accompanying notes are an integral part of these financial statements.

 

 

FINANCIAL STATEMENTS

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31

(Amounts in Thousands Except Per Share Data)

      2000     

      1999     

      1998     

Revenue

$7,182,688 

$6,417,237 

$5,492,941 

Salaries and related expenses

4,035,178 

3,617,389 

3,146,496 

Office and general expenses

1,976,439 

1,862,504 

1,586,402 

Amortization of intangible assets

144,256 

128,417 

84,289 

Restructuring and other merger related costs

133,041 

159,537 

3,278 

Deutsch transaction costs

       44,715 

               -- 

               -- 

          Total operating expenses

  6,333,629 

  5,767,847 

  4,820,465 

 

Income from operations

849,059 

649,390 

672,476 

Interest expense  

(126,322)

(99,469)

(86,538)

Other income, net

     103,705 

     122,034 

     109,867 

Income before provision for income taxes  

826,442 

671,955 

695,805 

Provision for income taxes  

     348,789 

     285,260 

     301,702 

Income of consolidated companies

477,653 

386,695 

394,103 

Income applicable to minority interests  

(42,795)

(38,152)

(32,547)

Equity in net (loss) income of unconsolidated affiliates

     (14,597)

       10,966 

       12,618 

Net Income

$  420,261 

$  359,509 

$  374,174 

Per Share Data:

  Basic EPS

$         1.17 

$         1.02 

$         1.08 

  Diluted EPS  

$         1.14 

$         0.99 

$         1.04 

Weighted average shares:

  Basic

359,615 

351,966 

346,909 

  Diluted  

370,577 

364,632 

359,397 

Prior periods have been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.

The accompanying notes are an integral part of these financial statements.



FINANCIAL STATEMENTS

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31

(Dollars in Thousands)

           
 

  2000  

 

  1999  

 

  1998  

CASH FLOWS FROM OPERATING ACTIVITIES:

         

Net income

$    420,261 

 

$    359,509 

 

$  374,174 

Adjustments to reconcile net income to

         

  cash provided by operating activities:

         

Depreciation and amortization of fixed assets  

192,595 

 

168,048 

 

142,917 

Amortization of intangible assets  

144,256 

 

128,417 

 

84,289 

Amortization of restricted stock awards

36,693 

 

25,926 

 

20,272 

Provision for (benefit of) deferred income taxes

(551)

 

16,875 

 

6,548 

Equity in net (income) loss of unconsolidated affiliates

14,597 

 

(10,966)

 

(12,618)

Income applicable to minority interests

42,795 

 

38,152 

 

32,547 

Translation losses

1,192 

 

690 

 

1,034 

Net gain on investments

(19,345)

 

(43,390)

 

(40,465)

Restructuring costs, non-cash

37,600 

 

67,964 

 

-- 

Deutsch transaction costs, non-cash

36,091 

 

-- 

 

-- 

Involuntary conversion of Publicis investment

               -- 

 

               -- 

 

      12,616 

Other

(13,295)

 

(19,499)

 

(8,420)

Change in assets and liabilities, net of acquisitions:

         

Receivables  

(230,557)

 

(928,483)

 

(330,910)

Expenditures billable to clients

(30,005)

 

(24,413)

 

(31,199)

Prepaid expenses and other assets

(56,636)

 

(8,329)

 

(32,718)

Accounts payable and accrued expenses  

20,739 

 

1,032,723 

 

353,928 

Accrued income taxes  

(13,057)

 

(64,423)

 

26,870 

Deferred compensation and reserve for  

         

  termination allowances

       28,477 

 

        29,011 

 

      24,443 

Net cash provided by operating activities

     611,850 

 

     767,812 

 

    623,308 

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Acquisitions, net

(653,203)

 

(296,490)

 

(292,182)

Capital expenditures  

(259,489)

 

(249,725)

 

(200,857)

Proceeds from sales of assets  

27,090 

 

219,855 

 

45,239 

Net (purchases of) proceeds from marketable securities  

(3,191)

 

(25,972)

 

3,934 

Other investments and miscellaneous assets

(195,438)

 

(160,619)

 

(50,413)

Investment in unconsolidated affiliates  

     (12,494)

 

      (10,531)

 

    (16,725)

Net cash used in investing activities  

(1,096,725)

 

    (523,482)

 

  (511,004)

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Increase in short-term borrowings

105,825 

 

49,987 

 

37,994 

Proceeds from long-term debt

1,013,873 

 

433,949 

 

249,274 

Payments of long-term debt  

(521,846)

 

(111,131)

 

(112,575)

Proceeds from ESOP

-- 

 

-- 

 

7,420 

Treasury stock acquired

(253,945)

 

(313,412)

 

(172,086)

Issuance of common stock

65,859 

 

91,463 

 

51,132 

Proceeds from IPO of subsidiary

--

 

42,048 

 

-- 

Cash dividends - Interpublic

   (109,086)

 

      (90,424)

 

    (76,894)

Cash dividends - pooled companies

     (44,293)

 

      (43,314)

 

    (43,232)

Net cash provided by (used in) financing activities

    256,387 

 

       59,166 

 

    (58,967)

Deconsolidation of subsidiary

(29,143)

 

-- 

 

-- 

Effect of exchange rates on cash and cash equivalents

     (45,076)

 

     (46,047)

 

      10,823 

Increase/(decrease) in cash and cash equivalents

(302,707)

 

257,449 

 

64,160 

Cash and cash equivalents at beginning of year

 1,147,341 

 

     889,892 

 

   825,732 

Cash and cash equivalents at end of year  

$  844,634 

 

$1,147,341 

 

$  889,892 


Prior periods have been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.

The accompanying notes are an integral part of these financial statements.

 

FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2000
(Dollars in Thousands)

                 
 


Common
Stock
(par value $.10)


Additional
Paid-In
  Capital  



Retained
   Earnings   

Accumulated
Other
Comprehensive
  Income (loss)  



Treasury
    Stock     

Unamortized
Expense
of Restricted
Stock Grants


Unearned
ESOP
    Plan    




      Total      

 
 
 

BALANCES, DECEMBER 31, 1997

$35,575       

$ 728,394 

$ 934,356 

$(172,693)

$(23,411)

$(56,784)

$(7,420)

$1,438,017 

Comprehensive income:

               

      Net income

   

$    374,174

       

$  374,174 

      Adjustment for minimum pension liability  

     

(24,013)

     

(24,013)

      Change in market value of securities

               

             available-for-sale  

     

2,526 

     

2,526 

      Foreign currency translation adjustment

     

25,351 

     

     25,351 

Total comprehensive income

             

$  378,038 

Dividends

   

(123,561)

       

(123,561)

Awards of stock under Company plans:

               

    Achievement stock and incentive awards

15      

4,251 

   

110 

   

4,376 

    Restricted stock, net of forfeitures

63      

36,619 

   

(2,406)

(14,564)

 

19,712 

Employee stock purchases

26      

13,325 

         

13,351 

Exercise of stock options, including tax benefit

173      

50,430 

         

50,603 

Purchase of Company's own stock

       

(164,928)

   

(164,928)

Issuance of shares for acquisitions

56      

49,079 

   

57,947

   

107,082 

Equity adjustments - pooled companies

 

231 

         

231 

Conversion of convertible debentures

3      

1,002 

         

1,005 

Payment from ESOP

           

7,420 

7,420 

Par value of shares issued for two-for-one split

215      

 

(215)

       

--  

Other  

         1      

    11,922 

                

              

              

             

              

      11,923 

BALANCES, DECEMBER 31, 1998  

$36,127      

$ 895,253 

$1,184,754 

$(168,829)

$(132,688)

$(71,348)

           -- 

$1,743,269 

Comprehensive income:

               

      Net income  

   

$    359,509

       

$359,509 

      Adjustment for minimum pension liability

     

18,596 

     

18,596 

      Change in market value of securities

               

             available-for-sale

     

154,684 

     

154,684 

      Foreign currency translation adjustment  

     

(100,753)

     

    (100,753)

Total comprehensive income  

             

$   432,036 

Dividends

   

(137,178)

       

(137,178)

Equity adjustments - pooled companies

 

4,545 

(594)

       

3,951 

Awards of stock under Company plans:

               

    Achievement stock and incentive awards

38      

6,186 

   

333

   

6,557 

    Restricted stock, net of forfeitures

106     

42,102 

   

(7,927)

(7,548)

 

26,733 

Employee stock purchases  

40      

19,068 

         

19,108 

Exercise of stock options, including tax benefit

550      

116,106 

         

116,656 

Purchase of Company's own stock

       

(300,524)

   

(300,524)

Issuance of shares for acquisitions

57      

72,515 

   

127,876

   

200,448 

Par value of shares issued for two-for-one split

187      

 

(187)

       

-- 

Other

        57      

      15,210 

                

              

              

             

              

      15,267 

BALANCES, DECEMBER 31, 1999

$37,162      

$1,170,985 

$1,406,304 

$ (96,302)

$(312,930)

$(78,896)

           -- 

$2,126,323 

Comprehensive income:

               

   Net income

   

$  420,261 

       

$ 420,261 

   Adjustment for minimum pension liability

     

(41)

     

(41)

   Change in market value of securities

               

      available-for-sale

     

(224,175)

     

(224,175)

   Foreign currency translation adjustment

     

(91,063)

     

    (91,063)

Total comprehensive income

             

$    104,982 

Dividends

   

(158,857)

       

(158,857)

Awards of stock under Company plans:

               

    Achievement stock and incentive awards

3      

875 

   

203

   

1,081 

    Restricted stock, net of forfeitures

219      

90,844 

   

6,265

(52,229)

 

45,099 

Employee stock purchases 

63      

21,965 

         

22,028 

Exercise of stock options, including tax benefit

275      

83,962 

         

84,237 

Purchase of Company's own stock

       

(236,756)

   

(236,756)

Issuance of shares for acquisitions

33      

43,896 

   

348,460

   

392,389 

Equity adjustments - pooled companies

 

96,024 

(207)

       

95,817 

Other

     (28)     

       6,158 

           (2)

              

              

              

              

       6,128 

BALANCES, DECEMBER 31, 2000

$37,727      

$1,514,709 

$1,667,499

$(411,581)

$(194,758)

$(131,125)

           -- 

$2,482,471 


The accompanying notes are an integral part of these financial statements.

Prior periods have been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.

 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1: Summary of Significant Accounting Policies

Nature of Operations

The Company is a worldwide provider of advertising agency and related services. The Company conducts business through the following subsidiaries: McCann-Erickson WorldGroup, The Lowe Group, DraftWorldwide, Initiative Media Worldwide, Weber Shandwick Worldwide, Golin/Harris International, Octagon, NFO WorldGroup, Jack Morton Worldwide, FCB Worldwide L.L.C., BSMG Worldwide Inc., Marketing Drive Worldwide and other related companies. The Company also has arrangements through association with local agencies in various parts of the world. Other specialized marketing and communications services conducted by the Company include market research, relationship (direct) marketing, public relations, sports and event marketing, healthcare marketing and e-consultancy and services.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, most of which are wholly owned. The Company also has certain investments in unconsolidated affiliates that are carried on the equity basis.

The Company's consolidated financial statements, including the related notes, have been restated as of the earliest period presented to include the results of operations, financial position and cash flows of the 2000 pooled entities in addition to prior pooled entities.

Short-term and Long-term Investments

The Company's investments in marketable securities are categorized as available-for-sale securities, as defined by Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities". Unrealized holding gains and losses are reflected as a net amount within stockholders' equity until realized. The cost of securities sold is based on the average cost of securities when computing realized gains and losses.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies

Balance sheet accounts are translated principally at rates of exchange prevailing at the end of the year except for fixed assets and related depreciation in countries with highly inflationary economies, which are translated at rates in effect on dates of acquisition. Revenue and expense accounts are translated at average rates of exchange in effect during each year. Translation adjustments are included within stockholders' equity except for countries with highly inflationary economies, in which case they are included in current operations.

Revenue

Revenue is recognized when earned. For advertising services the revenue is earned generally when media placements appear or production costs (principally labor) are incurred and billable, as specified in the relevant client contract. Revenue from non-advertising services is recognized as the relevant services are provided.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 was adopted by the Company on January 1, 2000. The adoption of SAB 101 had no significant effect on the Company's operating results or financial position.

Depreciation and Amortization

Depreciation is computed principally using the straight-line method over estimated useful lives of the related assets, ranging generally from 3 to 20 years for furniture and equipment and from 10 to 45 years for various component parts of buildings.

Leasehold improvements and rights are amortized over the terms of related leases. Company policy provides for the capitalization of all major expenditures for renewal and improvements and for current charges to income for repairs and maintenance.

Long-lived Assets

The excess of purchase price over the fair value of net tangible assets acquired is amortized on a straight-line basis over periods not exceeding 40 years. Customer lists are amortized on a straight-line basis over the expected useful life of the customer lists (generally 5 to 40 years).

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or changes in circumstances indicate that the net book value of an operation may not be recoverable. If the sum of projected future undiscounted cash flows of an operation is less than its carrying value, an impairment loss is recognized. The impairment loss is measured by the excess of the carrying value over fair value based on estimated discounted future cash flows or other valuation measures.

During 1999, the Company recorded a pre-tax charge of $16 million related to the write-off of goodwill and customer lists within NFO's North American financial services division. Cash flow analyses were performed, resulting in the determination by management that the intangible assets within this division were
permanently impaired.

Income Taxes

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes.

Earnings per Common and Common Equivalent Share

The Company applies the principles of Statement of Financial Accounting Standards 128 ("SFAS 128"), "Earnings Per Share". Basic earnings per share is based on the weighted-average number of common shares outstanding during each year. Diluted earnings per share also includes common equivalent shares applicable to grants under the stock incentive and stock option plans and the assumed conversion of convertible subordinated debentures and notes, if they are determined to be dilutive.

Treasury Stock

Treasury stock is acquired at market value for the purpose of fulfilling obligations under various compensation plans and is recorded at cost. Issuances are accounted for on a first-in, first-out basis.

Concentrations of Credit Risk

The Company's clients are in various businesses, located primarily in North America, Latin America, Europe and the Asia Pacific Region. The Company performs ongoing credit evaluations of its clients. Reserves for credit losses are maintained at levels considered adequate by management. The Company invests its excess cash in deposits with major banks and in money market securities. These securities typically mature within 90 days and bear minimal risk.

Segment Reporting

The Company provides advertising and many other closely related specialized marketing and communications services. All of these services fall within one reportable segment as defined in Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information."

Accounting for Derivatives Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which had an initial adoption date by the Company of January 1, 2000. In June 1999, the FASB postponed the adoption date of SFAS 133 until January 1, 2001. The Company will adopt the provisions of SFAS 133 effective January 1, 2001 and believes its adoption of SFAS 133 will have no significant impact on its financial condition or results of operations.

Equity Based Compensation

In April 2000, the FASB issued Interpretation No. 44, ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25. This interpretation, which was effective from July 1, 2000, addressed various issues including the definition of employee for the purpose of applying APB 25, criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option award and the accounting for an exchange of stock compensation awards in a business combination. The adoption of FIN 44 did not have a material impact on the Company's financial statements.

Reclassifications

Certain amounts for prior years have been reclassified to conform to current year presentation.

Note 2: Stockholders' Equity

In connection with the Deutsch acquisition and based on the taxable structure of the transaction, a deferred tax asset of approximately $110 million and a current tax liability of $15 million were recorded with corresponding adjustments to additional paid in capital.

Comprehensive Income

Accumulated other comprehensive income (loss) amounts are reflected net of tax, where applicable, in the consolidated financial statements as follows:

(Dollars in thousands)

Foreign
Currency
Translation
Adjustment

Unrealized
Holding
Gains/
(Losses)

Minimum
Pension
Liability
Adjustment

Total
Accumulated
Other
Comprehensive
Income/
(Loss)

               

Balances, December 31, 1997

$(171,928)    

 

$    12,465  

 

$(13,230)    

 

$(172,693)      

Current-period change

     25,351     

 

       2,526  

 

(24,013)    

 

        3,864       

           

 

 

Balances, December 31, 1998

$(146,577)    

 

$    14,991  

 

$(37,243)    

 

$(168,829)      

Current-period change

 (100,753)    

 

   154,684  

 

18,596     

 

      72,527       

               

Balances, December 31, 1999

$(247,330)    

 

$  169,675  

 

$(18,647)    

 

$  (96,302)      

Current-period change

   (91,063)    

 

 (224,175

 

         (41)    

 

  (315,279)      

         

 

   

Balances, December 31, 2000

$(338,393)    

 

$  (54,500

 

$(18,688)    

 

$(411,581)      

See Note 13 for additional discussion of unrealized holding gains and losses on investments.

Note 3: Earnings Per Share

The following is a reconciliation of the components of the basic and diluted EPS computations for income available to common stockholders for the years ended December 31:

(Amounts in Thousands Except Per Share Data)

           
 

                    2000                       

 

                    1999                       

 

                   1998                       

     

Per
Share
Amount

     

Per
Share
Amount

     

Per
Share
Amount

                 
 

Income

Shares

 

Income

Shares

 

Income

Shares

                       

BASIC EPS

                     
                       

Income available to common stockholders

$420,261

359,615

$1.17    

 

$359,509

351,966

$1.02    

 

$374,174

346,909

$1.08    

                       

Effect of Dilutive Securities:

                     
                       

   Options

 

7,568

     

9,129

     

9,029

 
                       

   Restricted stock

       666

   3,394

   

       631

   3,537

   

       541

    3,454

 
                       

   3 3/4% Convertible Subordinated Debentures

           --

         --

   

           --

         --

   

         --

          5

 

                     

DILUTED EPS

$420,927

370,577

$1.14    

 

$360,140

364,632

$0.99    

 

$374,715

359,397

$1.04    

The computation of diluted EPS for 2000 and 1999 excludes the assumed conversion of the 1.87% and 1.80% Convertible Subordinated Notes (See Note 10) because they were antidilutive. For 1998 the computation excludes conversion for 1.80% Convertible Subordinated Note.

In the fourth quarter of 1997, the Company redeemed its 3 3/4 % Convertible Subordinated Debentures due 2002. Substantially all of the outstanding debentures were converted into approximately 4.3 million shares of the Company's common stock.

Note 4: Acquisitions

The Company acquired a number of advertising and specialized marketing and communications services companies during the three-year period ended December 31, 2000. The aggregate purchase price, including cash and stock payments for new acquisitions (including pooled entities), was $1,667 million, $658 million and $869 million in 2000, 1999 and 1998, respectively. The aggregate purchase price for new acquisitions accounted for as purchases was $908 million, $355 million, and $454 million in 2000, 1999, and 1998, respectively.

2000 Acquisitions

In 2000, the Company paid $577 million in cash and issued 27.1 million shares of its common stock to acquire 96 companies. Of the acquisitions, 93 were accounted for under the purchase method of accounting and 3 were accounted for under the pooling of interests method. The Company also recorded an additional liability for acquisition related deferred payments of $1 million, for cases where contingencies related to acquisitions have been resolved.

For those entities accounted for as purchase transactions, the purchase price of the acquisitions has been allocated to assets acquired and liabilities assumed based on estimated fair values. The results of operations of the acquired companies were included in the consolidated results of the Company from their respective acquisition dates which occurred throughout the year. The companies acquired in transactions accounted for as purchases included Capita Technology, Nationwide Advertising Services, Waylon, MWW and certain assets of Caribiner International. None of the acquisitions was significant on an individual basis.

In connection with the 2000 purchase transactions, goodwill of approximately $818 million was recorded. The purchase price allocations made in 2000 are preliminary and subject to adjustment. Goodwill related to the acquisitions is being amortized on a straight-line basis over their estimated useful lives.

In April 2000, the Company acquired NFO in a transaction accounted for as a pooling of interests. Approximately 12.6 million shares were issued. In November 2000, the Company acquired Deutsch in a transaction accounted for as a pooling of interests. Approximately 6 million shares were issued to acquire Deutsch. The Company's consolidated financial statements have been restated as of the earliest period presented to include the results of operations, financial position and cash flows of NFO, Deutsch and other acquisitions accounted for as poolings of interests.

1999 Acquisitions

In 1999, the Company paid $237 million in cash and issued 10.3 million shares of its common stock to acquire 69 companies. Of the acquisitions, 64 were accounted for under the purchase method of accounting and 5 were accounted for under the pooling of interests method. The Company also recorded a liability for acquisition related deferred payments of $28 million, for cases where contingencies related to acquisitions have been resolved.

For those entities accounted for as purchase transactions, the purchase price of the acquisitions has been allocated to assets acquired and liabilities assumed based on estimated fair values. The results of operations of the acquired companies were included in the consolidated results of the Company from their respective acquisition dates which occurred throughout the year. The companies acquired in transactions accounted for as purchases included The Cassidy Companies, Spedic France, Mullen Advertising, and PDP Promotions UK. None of the acquisitions was significant on an individual basis.

In connection with the 1999 purchase transactions, goodwill of approximately $313 million was recorded. Goodwill related to the acquisitions is being amortized on a straight-line basis over their estimated useful lives.

On December 1, 1999, the Company acquired Brands Hatch Leisure Plc. for 5.2 million shares of stock. The acquisition has been accounted for as a pooling of interests. Additionally, during 1999 the Company issued 2 million shares to acquire 4 other companies which have been accounted for as poolings of interests.

The following unaudited pro forma data summarize the results of operations for the periods indicated as if the 1999 and 2000 purchase acquisitions had been completed as of January 1, 1999. The pro forma data give effect to actual operating results prior to the acquisition, adjusted to include the estimated pro forma effect of interest expense, amortization of intangibles and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions occurred as of the beginning of the periods presented or that may be obtained in the future.

 

             For the year ended December 31, 2000             

     

Pre-
acquisition
results
(unaudited)

 

Pro forma IPG
with 2000
acquisitions
(unaudited)

       
 

IPG
(as reported)

   

(Amounts in thousands except per share data)

   
           

Revenues

$7,182,688    

 

$302,316     

 

$7,485,004    

Net income

420,261    

 

14,549     

 

434,810    

           

Earnings per share:

         
           

     Basic

1.17    

     

1.20    

     Diluted

1.14    

 

   

1.16    

   
   
 

              For the year ended December 31, 1999               

     

Pre-
acquisition
results
(unaudited)

 

Pro forma IPG
with 1999 and
2000 acquisitions
(unaudited)

       
 

IPG
(as reported)

   

(Amounts in thousands except per share data)

   
           

Revenues

$6,417,237    

 

$520,475     

 

$6,937,712       

Net income

359,509    

 

27,759     

 

387,268       

           

Earnings per share:

         
           

     Basic

1.02    

     

1.07       

     Diluted

0.99    

     

1.04       

1998 Acquisitions

In 1998, 15 million shares of the Company's common stock were issued for acquisitions accounted for as poolings of interests. The companies pooled and the respective shares of the Company's common stock issued included the following: International Public Relations - 5.2 million shares, Hill Holliday - 4.1 million shares, The Jack Morton Company - 4.3 million shares, and Carmichael Lynch - 1 million shares.

In 1998, the Company paid $318 million in cash and issued 3.3 million shares of its common stock to acquire 85 companies, all of which have been accounted for as purchases. These acquisitions included Gillespie, Ryan McGinn, CSI, Flammini, Gingko, Defederico, Herrero Y Ochoa, Infratest Burke AG, CF Group, MarketMind Technologies, and Ross-Cooper-Lund. The Company also recorded a liability for acquisition related deferred payments of $24 million.

Deferred Payments

Certain of the Company's acquisition agreements provide for deferred payments by the Company, contingent upon future revenues or profits of the companies acquired. Deferred payments of both cash and shares of the Company's common stock for prior years' acquisitions were $221 million, $235 million, and $104 million in 2000, 1999 and 1998, respectively. Such payments are capitalized and recorded as goodwill.

Investments

During 2000, the Company sold its investment in Exhibition Services for combined proceeds of approximately $12 million.

During 1999, the Company sold a portion of its investments in Lycos and USWEB for combined proceeds of approximately $56 million. Additionally, the Company sold its minority investment in Nicholson NY, Inc. to Icon for $19 million in shares of Icon's common stock.

During 1998, the Company sold a portion of its investments in marchFIRST, Inc., (formerly USWEB, CKS Group) and Lycos with combined proceeds of approximately $20 million.

Included in other income, net, are net equity gains of $44 million, $60 million and $62 million in 2000, 1999, and 1998, respectively.

Restatements

On June 22, 2001, the Company acquired True North Communications Inc. ("True North"), a global provider of advertising and communication services, in a transaction accounted for as a pooling of interests. Approximately 59 million shares were issued in connection with the acquisition. The Company's consolidated financial statements, including the related notes, have been restated as of the earliest period presented to include the results of operations, financial position and cash flows of True North.

Revenue and net income for True North for 2000 were $1,557 million and $62 million, for 1999 were $1,439 million and $28 million, and for 1998 were $1,274 million and $34 million, respectively.

As noted above, the Company acquired NFO and Deutsch during 2000 in transactions which were accounted for as poolings of interests. The accompanying consolidated financial statements, including the related notes, have been restated as of the earliest period presented to include the results of operations, financial position and cash flows of all pooled entities.

Revenue and net income for NFO for the quarter ended March 31, 2000 were $106 million and $.2 million, for the year 1999 were $457 million and a loss of $6.2 million and for the year 1998 were $275 million and $14.5 million, respectively. Revenue and net income for Deutsch for the three quarters ended September 30, 2000 were $88 million and $19 million, for the year 1999 were $85 million and $16 million and for the year 1998 were $51 million and $6 million, respectively.

In connection with the acquisition of Deutsch, the Company recognized a charge related to one-time transaction costs of $44.7 million. The principal component of this amount related to the expense associated with various equity participation agreements with certain members of management. These agreements provided for participants to receive a portion of the proceeds in the event of the sale or merger of Deutsch.

Prior to its acquisition by the Company, Deutsch elected to be treated as an "S" Corporation under applicable sections of the Internal Revenue Code as well as for state income tax purposes. Accordingly, income tax expense was lower than would have been the case had Deutsch been treated as a "C" Corporation. Deutsch became a "C" Corporation upon its acquisition by the Company. On a pro forma basis, assuming "C" Corporation status, net income for Deutsch and the Company would have been lower by $10.7 million, $6.5 million and $2.5 million in 2000, 1999 and 1998, respectively.

Note 5: Provision for Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". SFAS 109 applies an asset and liability approach that requires the recognition of deferred tax assets and liabilities with respect to the expected future tax consequences of events that have been recognized in the consolidated financial statements and tax returns.

The components of income before provision for income taxes are as follows:

(Dollars in thousands)

    2000   

 

    1999   

 

    1998   

Domestic

$501,556 

 

$440,956 

 

$388,001 

Foreign

 324,886 

 

  230,999 

 

  307,804 

Total

$826,442 

 

$671,955 

 

$695,805 

The provision for income taxes consists of:

         

Federal Income Taxes (Including

         

  Foreign Withholding Taxes):

         

    Current

$168,823 

 

$117,907 

 

$127,692 

    Deferred

     2,866 

 

    25,091 

 

    19,935 

 

 171,689 

 

  142,998 

 

  147,627 

State and Local Income Taxes:

         

    Current

48,438 

 

32,268 

 

34,813 

    Deferred

    (2,795)

 

      4,252 

 

         802 

 

   45,643 

 

    36,520 

 

    35,615 

Foreign Income Taxes:

         

    Current

 151,774 

 

  120,569 

 

  135,569 

    Deferred

  (20,317)

 

   (14,827)

 

  (17,109)

 

 131,457 

 

  105,742 

 

  118,460 

Total

$348,789 

 

$285,260 

 

$301,702 



At December 31, 2000 and 1999 the deferred tax assets/(liabilities) consisted of the following items:

(Dollars in thousands)

2000

 

1999

       

Postretirement/postemployment benefits

$55,230 

 

$ 52,317 

Deferred compensation

98,578 

 

83,040 

Pension costs

25,225 

 

10,036 

Depreciation

(11,674)

 

(15,637)

Rent

(10,515)

 

(8,674)

Interest

1,669 

 

4,100 

Accrued reserves

20,553 

 

16,999 

Allowance for doubtful accounts

13,795 

 

6,622 

Goodwill amortization

98,130 

 

(5,504)

Investments in equity securities

32,856 

 

(140,320)

Tax loss/tax credit carryforwards

54,145 

 

51,783 

Restructuring and other merger related costs

26,153 

 

42,297 

Other

      1,797 

 

     (7,716)

Total deferred tax assets

405,942 

 

89,343 

Deferred tax valuation allowance

    25,636 

 

    27,233 

Net deferred tax assets

$380,306 

 

$  62,110 


The valuation allowance of $25.6 million and $27.2 million at December 31, 2000 and 1999, respectively, represents a provision for uncertainty as to the realization of certain deferred tax assets, including U.S. tax credits and net operating loss carryforwards in certain jurisdictions. The change during 2000 in the deferred tax valuation allowance primarily relates to the utilization of tax credits and net operating loss carryforwards. At December 31, 2000, there were $19.3 million of tax credit carryforwards with expiration periods through 2005 and net operating loss carryforwards with a tax effect of $34.8 million with various expiration periods.

A reconciliation of the effective income tax rate as shown in the consolidated statement of income to the federal statutory rate is as follows:

 

2000

 

1999

 

1998

Statutory federal income tax rate

35.0%

 

35.0%

 

35.0%

State and local income taxes, net of federal income tax benefit

3.5   

 

2.8   

 

3.7   

Impact of foreign operations, including withholding taxes

(0.5)  

 

0.8   

 

0.4   

Goodwill and intangible assets

3.4   

 

3.6   

 

2.8   

Effect of pooled companies

1.7   

 

2.2   

 

2.1   

Other

(0.9)  

 

(1.9)  

 

(0.6)  

Effective tax rate

42.2%

 

42.5%

 

43.4%

Excluding the impact of non-recurring items, the effective tax rate would have been 40.1%, 41.4% and 43.4% in 2000, 1999 and 1998, respectively.

As described in Note 4, prior to its acquisition by the Company, Deutsch had elected to be treated as an "S" Corporation and accordingly, its income tax expense was lower than it would have been had Deutsch been treated as a "C" Corporation. Deutsch became a "C" Corporation upon its acquisition by the Company. Assuming Deutsch had been a "C" Corporation since 1997, the pro forma effective tax rate for the Company, would have been 41.2%, 42.1% and 43.7% respectively (excluding non-recurring items) for 2000, 1999 and 1998.

Also, in connection with the Deutsch transaction a deferred tax asset of approximately $110 million and a current tax liability of approximately $15 million were recognized with a corresponding adjustment to additional paid in capital.

The total amount of undistributed earnings of foreign subsidiaries for income tax purposes was approximately $785 million at December 31, 2000. It is the Company's intention to reinvest undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or United States income taxes which may become payable if undistributed earnings of foreign subsidiaries were paid as dividends to the Company. The additional taxes on that portion of undistributed earnings which is available for dividends are not practicably determinable.

Note 6: Cash Flow Information

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.

Income Tax and Interest Payments

Cash paid for income taxes was approximately $274 million, $239 million and $232 million in 2000, 1999 and 1998, respectively. Interest payments were approximately $89 million, $72 million and $57 million in 2000, 1999, and 1998, respectively.

Acquisitions

As more fully described in Note 4, the Company issued 27.1 million shares, 10.3 million shares, and 18.3 million shares of the Company's common stock in connection with acquisitions during 2000, 1999 and 1998, respectively. Details of businesses acquired in transactions accounted for as purchases were as follows:

(Dollars in thousands)

2000

 

1999

 

1998

           

Fair value of assets acquired

$1,444,104

 

$725,834

 

$775,418

           

Liabilities assumed

    349,024

 

  148,637

 

  319,676

           

Net assets acquired

1,095,080

 

577,197

 

455,742

           

Less: noncash consideration

390,680

 

236,955

 

103,707

           

Less: cash acquired

      51,197

 

    43,752

 

    59,853

           

Net cash paid for acquisitions

$  653,203

 

$296,490

 

$291,182


The amounts shown above exclude future deferred payments due in subsequent years, but include cash deferred payments of $221 million, $235 million and $104 million made during 2000, 1999 and 1998, respectively.

Note 7: Incentive Plans

The 1997 Performance Incentive Plan ("1997 PIP Plan") was approved by the Company's stockholders in May 1997 and includes both stock and cash based incentive awards. The maximum number of shares of the Company's common stock which may be granted in any year under the 1997 PIP Plan is equal to 1.85% of the total number of shares of the Company's common stock outstanding on the first day of the year adjusted for additional shares as defined in the 1997 PIP Plan document (excluding management incentive compensation performance awards). The 1997 PIP Plan also limits the number of shares available with respect to awards made to any one participant as well as limiting the number of shares available under certain awards. Awards made prior to the 1997 PIP Plan remain subject to the respective terms and conditions of the predecessor plans. Except as otherwise noted, awards under the 1997 PIP Plan have terms similar to awards made under the respective predecessor plans.

Stock Options

Outstanding options are generally granted at the fair market value of the Company's common stock on the date of grant and are exercisable as determined by the Compensation Committee of the Board of Directors (the "Committee"). Generally, options become exercisable between two and five years after the date of grant and expire ten years from the grant date.

Following is a summary of stock option transactions during the three-year period ended December 31:

 

                2000               

 

                1999               

 

                1998               

     

Weighted
Average
Exercise
Price

     

Weighted
Average
Exercise
Price

     

Weighted
Average
Exercise
Price

                 
                 

(Shares in thousands)

Shares

   

Shares

   

Shares

 

Shares under option,

                     

beginning of year

34,665 

 

$ 22     

 

37,401 

 

$ 18     

 

30,408 

 

$ 13     

Options granted

6,381 

 

38     

 

6,774 

 

33     

 

12,024 

 

29     

Options exercised

(3,657)

 

15     

 

(6,485)

 

12     

 

(3,647)

 

8     

Options cancelled

(2,450)

 

   28     

 

(3,025)

 

23     

 

(1,384)

 

15     

                       

Shares under option,

                     

end of year

34,939 

 

$ 25     

 

34,665 

 

$ 22     

 

37,401 

 

$ 18     

                       

Options exercisable

                     

at year-end

12,008 

 

$ 15     

 

11,647 

 

$ 14     

 

10,187 

 

$ 11     



The following table summarizes information about stock options outstanding and exercisable at December 31, 2000:

(Shares in thousands)

     

Weighted-
Average
Remaining
Contractual
      Life      

           
       

Weighted-
Average
Exercise
   Price   

 

Number
Exercisable
at
  12/31/00  

 

Weighted-
Average
Exercise
   Price   

 

Number
Outstanding
at 12/31/00

       

    Range of
Exercise Prices

       
       
                   

$ 433 to $999

2,652        

 

2             

 

$ 8         

 

2,652       

 

$ 8         

                   

1000 to 1499

2,849       

 

4             

 

11         

 

2,773       

 

11         

                   

1500 to 2499

13,608       

 

6             

 

19         

 

5,451       

 

20         

                   

2500 to 5628

15,830       

 

8             

 

36         

 

1,132       

 

31         


Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan ("ESPP"), employees may purchase common stock of the Company through payroll deductions not exceeding 10% of their compensation. The price an employee pays for a share of stock is 85% of the market price on the last business day of the month. The Company issued approximately .6 million shares in 2000 and .5 million shares in 1999, and 1998, respectively, under the ESPP. An additional 14.9 million shares were reserved for issuance at December 31, 2000.

SFAS 123 Disclosures

The Company applies the disclosure principles of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". As permitted by the provisions of SFAS 123, the Company applies APB Opinion 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock-based employee compensation plans.

If compensation cost for the Company's stock option plans and its 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 and earnings per share would have been as follows:

(Dollars in Thousands Except Per Share Data)

 

2000

 

1999

 

1998

Net Income

As reported

$420,261

 

$359,509

 

$374,174

 

Pro forma

$382,883

 

$325,267

 

$351,751

Earnings Per Share

             

     Basic

As reported

$   1.17

 

$   1.02

 

$   1.08

 

Pro forma

$   1.06

 

$   0.92

 

$   1.01

     Diluted

As reported

$   1.14

 

$   0.99

 

$   1.04

 

Pro forma

$   1.03

 

$   0.89

 

$   0.98


For purposes of this pro forma information, the fair value of shares issued 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 $6.17, $5.28, and $3.82 in 2000, 1999, and 1998, respectively.

The weighted average fair value of options granted during 2000, 1999, and 1998 was $14.86, $12.94, and $8.85, respectively. The fair value of each option grant has been estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

2000

 

1999

 

1998

Expected option lives

6 years

 

6 years

 

6 years

Risk free interest rate

6.15%

 

5.72%

 

4.87%

Expected volatility

25.86%

 

19.73%

 

19.17%

Dividend yield

.89%

 

.81%

 

.95%


As required by SFAS 123, this pro forma information is based on stock awards beginning in 1995 and accordingly the pro forma information for 1999 and 1998 is not likely to be representative of the pro forma effects in future years because options generally vest over five years.

Restricted Stock

Restricted stock issuances are subject to certain restrictions and vesting requirements as determined by the Committee. The vesting period is generally five to seven years. No monetary consideration is paid by a recipient for a restricted stock award and the grant date fair value of these shares is amortized over the restriction periods. At December 31, 2000, there was a total of 7.0 million shares of restricted stock outstanding. During 2000, 1999 and 1998, the Company awarded 2.4 million shares, 1.2 million shares and 1.3 million shares of restricted stock with a weighted-average grant date fair value of $42.13, $35.84 and $28.99, respectively. The cost recorded for restricted stock awards in 2000, 1999 and 1998 was $40.3 million, $27.7 million, and $20.3 million, respectively.

Performance Units

Performance units have been awarded to certain key employees of the Company and its subsidiaries. The ultimate value of these performance units is contingent upon the annual growth in profits (as defined) of the Company, its operating components or both, over the performance periods. The awards are generally paid in cash. The projected value of these units is accrued by the Company and charged to expense over the performance period. The Company expensed approximately $40 million, $42 million and $30 million in 2000, 1999, and 1998, respectively.

Note 8: Retirement Plans

Defined Benefit Pension Plans
Through March 31, 1998 the Company and certain of its domestic subsidiaries had a defined benefit plan ("Domestic Plan") which covered substantially all regular domestic employees. Effective April 1, 1998, this Plan was curtailed, and participants with five or less years of service became fully vested in the Domestic Plan. Participants with five or more years of service as of March 31, 1998 retain their vested balances and participate in a new compensation plan.

Under the new plan, each participant's account is credited with an annual allocation, which approximates the projected discounted pension benefit accrual (normally made under the Domestic Plan) plus interest, while they continue to work for the Company. Participants in active service are eligible to receive up to ten years of allocations coinciding with the number of years of plan participation with the Company after March 31, 1998.

Net periodic pension costs (income) for the Domestic Plan for 2000, 1999 and 1998 were ($.9) million, $1.3 million and $.9 million, respectively.

Additionally, NFO maintains a defined benefit plan ("NFO Plan") covering approximately one half of NFO's U.S. employees. The periodic pension costs for this plan for 2000, 1999, and 1998 were $.5 million, $.8 million and $.6 million, respectively.

The Company's stockholders' equity balance includes a minimum pension liability of $18.7 million, $18.6 million and $37.2 million at December 31, 2000, 1999 and 1998, respectively.

The Company also has several foreign pension plans in which benefits are based primarily on years of service and employee compensation. It is the Company's policy to fund these plans in accordance with local laws and income tax regulations.

Net periodic pension costs for foreign pension plans for 2000, 1999 and 1998 included the following components:

(Dollars in thousands)

2000

 

1999

 

1998

Service cost

$   9,464 

 

$   9,619 

 

$  6,847 

Interest cost

11,600 

 

11,759 

 

10,908 

Expected return on plan assets

(11,999)

 

(9,380)

 

(9,437)

Amortization of unrecognized transition obligation

501 

 

390 

 

373 

Amortization of prior service cost

713 

 

833 

 

482 

Recognized actuarial loss / (gain)

(329)

 

508 

 

(70)

Other

           -- 

 

         (9)

           -- 

Net periodic pension cost

$  9,950 

 

$ 13,720 

 

$ 9,103 

 

The following table sets forth the change in the benefit obligation, the change in plan assets, the funded status and amounts recognized for the pension plans in the Company's consolidated balance sheet at December 31, 2000, and 1999:

 

Domestic
               Pension Plans               

 

Foreign
               Pension Plans               

   

(Dollars in thousands)

   2000   

 

   1999   

 

   2000   

 

   1999   

Change in benefit obligation

Beginning obligation

$ 151,878 

$ 166,538 

$ 226,503 

$ 220,964 

Service cost

701 

768 

9,464 

9,619 

Interest cost

10,512 

9,869 

11,600 

11,759 

Benefits paid

(14,721)

(12,671)

(10,912)

(12,777)

Participant contributions

-- 

-- 

1,589 

2,410 

Actuarial (gains) / losses

5,439 

(12,626)

7,991 

(7,264)

Currency effect

-- 

-- 

(14,912)

1,440 

Other

               -- 

               -- 

         316  

          352 

Ending obligation

   153,809 

   151,878 

   231,639 

   226,503 

Change in plan assets

Beginning fair value

135,510 

129,755 

192,739 

161,975 

Actual return on plan assets

2,496 

15,354 

(2,338)

30,651 

Employer contributions

9,185 

3,072 

8,278 

7,887 

Participant contributions

-- 

-- 

1,589 

2,410 

Benefits paid

(14,721)

(12,671)

(10,912)

(12,777)

Currency effect

-- 

-- 

(5,799)

156 

Other

            -- 

            -- 

         190 

       2,437 

Ending fair value

   132,470 

 

   135,510   

   183,747 

   192,739 

Funded status of the plans

(21,339)

(16,368)

(47,892)

(33,764)

Unrecognized net actuarial loss/(gain)

33,542 

18,927 

5,374 

(18,163)

Unrecognized prior service cost

(7)

(13)

1,306 

3,704 

Unrecognized transition cost

            -- 

            -- 

      2,732 

      1,838 

Net asset/(liability) recognized

$   12,196 

$    2,546 

$ (38,480)

$ (46,385)

At December 31, 2000 and 1999, the assets of the Domestic Plan and the foreign pension plans were primarily invested in fixed income and equity securities.

For the Domestic Plans, discount rates of 7.5% in 2000, 7.75% in 1999 and 6.75% to 7% in 1998 and salary increase assumptions of 4.5% in 2000 and 1999 (for the NFO Plan) and 4.5% to 6% in 1998 were used in determining the actuarial present value of the projected benefit obligation. The expected return of Domestic Plans assets was 9% to 9.5% in 2000 and 1999 and 9% to 10% in 1998. For the foreign pension plans, discount rates ranging from 3.8% to 10% in 2000, 3.75% to 14% in 1999, and 4% to 14% in 1998 and salary increase assumptions ranging from 2.5% to 10% in 2000, 3% to 10% in 1999 and 2% to 10% in 1998 were used in determining the actuarial present value of the projected benefit obligation. The expected rates of return on the assets of the foreign pension plans ranged from 2% to 10% in 2000, and 2% to 14% in 1999 and 1998.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Domestic Plan with accumulated benefit obligation in excess of plan assets were $145 million, $145 million, and $124 million, respectively, as of December 31, 2000, and $152 million, $152 million, and $136 million, respectively, as of December 31, 1999. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the foreign pension plans with accumulated benefit obligations in excess of plan assets were $77 million, $72 million and $5 million respectively, as of December 31, 2000, and $90 million, $72 million and $9 million respectively, as of December 31, 1999.

Other Benefit Arrangements

The Company also has special unqualified deferred benefit arrangements with certain key employees. Vesting is based upon the age of the employee and the terms of the employee's contract. Life insurance contracts have been purchased in amounts which may be used to fund these arrangements.

In addition to the defined benefit plans described above, the Company also sponsors other defined contribution plans ("Savings Plans") and certain domestic subsidiaries maintain a profit sharing plan that cover substantially all domestic employees of the Company and participating subsidiaries. The Savings Plans permit participants to make contributions on a pre-tax and/or after-tax basis. The Savings Plans allow participants to choose among several investment alternatives. The Company matches a portion of participants' contributions based upon the number of years of service. The Company contributed $34.2 million, $27.4 million and $24.9 million to the Savings Plans and Profit Sharing Plan in 2000, 1999 and 1998, respectively.

The Company has entered into agreements whereby certain employee directors and other employees are or will be eligible for part-time employment, consulting and/or deferred compensation upon retirement from full-time employment. The provisions for these agreements, which are charged to income over the employment period of these individuals, were $5.9 million in 2000, $13.3 million in 1999, and $12.9 million in 1998.

Postretirement Benefit Plans

The Company and its subsidiaries provide certain postretirement health care benefits for employees who were in the employ of the Company as of January 1, 1988, and life insurance benefits for employees who were in the employ of the Company as of December 1, 1961. The plans cover certain domestic employees and certain key employees in foreign countries. Effective January 1, 1993, the Company's plan covering postretirement medical benefits was amended to place a cap on annual benefits payable to retirees.

The coverage is self-insured, but is administered by an insurance company.

The Company accrues the expected cost of postretirement benefits other than pensions over the period in which the active employees become eligible for such postretirement benefits.

The net periodic expense for these postretirement benefits for 2000, 1999 and 1998 was $3 million, $3 million and $4.5 million, respectively.

The following table sets forth the change in benefit obligation, change in plan assets, funded status and amounts recognized for the Company's postretirement benefit plans in the consolidated balance sheet at December 31, 2000 and 1999:

(Dollars in thousands)

2000

1999

Change in benefit obligation

Beginning obligation

$ 45,835 

$ 48,793 

Service cost

493 

477 

Interest cost

3,863 

2,795 

Participant contributions

90 

90 

Benefits paid

(3,931)

(2,020)

Plan amendments

(625)

-- 

Actuarial gain

     3,623 

 

    (4,300)

Ending obligation

   49,348 

   45,835 

Change in plan assets

Beginning fair value

-- 

-- 

Actual return on plan assets

-- 

-- 

Employer contributions

3,841 

1,930 

Participant contributions

90 

90 

Benefits paid

    (3,931)

    (2,020)

Ending fair value

            -- 

             --

Funded status of the plans

(49,348)

(45,835)

Unrecognized net actuarial gain

(6,170)

(10,640)

Unrecognized prior service cost

(1,532)

(1,951)

Unrecognized net transaction obligation (assets)

     1,853 

     1,949 

Net amount recognized

$(55,197)

$(56,477)


Discount rates of 7.5% to 7.8% in 2000, 6.8% to 7.75% in 1999, and 6.75% to 7.3% in 1998 and salary increase assumption of 5% to 6% in 2000 and 4% to 6% in 1999 and 4% to 6% in 1998 were used in determining the accumulated postretirement benefit obligation. A 5% to 7.5% and a 7% to 8.0% increase in the cost of covered health care benefits were assumed for 2000 and 1999, respectively. This rate is assumed to decrease incrementally to approximately 5.5% to 6% in the year 2002 and remain at that level thereafter. The health care cost trend rate assumption does not have a significant effect on the amounts reported.

Postemployment Benefits

In accordance with SFAS 112, "Employers' Accounting for Postemployment Benefits", the Company accrues costs relating to certain benefits including severance, worker's compensation and health care coverage over an employee's service life.

The Company's liability for postemployment benefits totaled approximately $83 million and $67 million at December 31, 2000 and 1999, respectively, and is included in deferred compensation and reserve for termination allowances. The net periodic expense recognized in 2000, 1999 and 1998 was approximately $29 million, $34 million and $32 million, respectively.

Note 9: Short-Term Borrowings

The Company and its domestic subsidiaries have lines of credit with various banks including new facilities as discussed in Note 10. These credit lines permit borrowings at fluctuating interest rates determined by the banks. Short-term borrowings by subsidiaries outside the United States principally consist of drawings against bank overdraft facilities and lines of credit. These borrowings bear interest at the prevailing local rates. Where required, the Company has guaranteed the repayment of these borrowings. Unused lines of credit by the Company and its subsidiaries at December 31, 2000 and 1999 aggregated approximately $1.4 billion and $750 million, respectively. The weighted-average interest rate on outstanding balances at December 31, 2000 and 1999 were approximately 6.6% and 5.65%, respectively. Current maturities of long-term debt are included in the payable to banks balance.

Note 10: Long-Term Debt

Long-term debt at December 31 consisted of the following:

(Dollars in thousands)

2000

1999

Convertible Subordinated Notes - 1.87%

$   311,860

$   304,076

Convertible Subordinated Notes - 1.80%

221,244

214,414

Term loans - 5.03% to 7.91% (4.20% to 7.91% in 1999)

307,596

325,021

Syndicated Multi-Currency Credit Agreement - 7.0%

160,000

--

Senior Notes Payable to Banks under a Revolving Credit

   Agreement Due March 2003 - 4.3% to 6.9%

--

35,603

Senior Notes Payable - 6.83% to 7.52%

--

102,000

Subordinated Notes - 9.84%

--

25,000

Senior Unsecured Note - 7.88%

500,000

--

Germany mortgage note payable - 7.6%

24,537

26,779

Other mortgage notes payable and long-term loans - 3.0% to 11.0%

       72,045

       85,258

1,597,282

1,118,151

Less: current portion

       65,491

       32,912

Long-term debt

$1,531,791

$1,085,239



On June 1, 1999, the Company issued $361 million face amount of Convertible Subordinated Notes due 2006. The 2006 notes were issued at an original price of 83% of the face amount, generating proceeds of approximately $300 million. The notes are convertible into 6.4 million shares of the Company's common stock at a conversion rate of 17.616 shares per $1,000 face amount.

On September 16, 1997, the Company issued $250 million face amount of Convertible Subordinated Notes due 2004 with a coupon rate of 1.80%. The 2004 Notes were issued at an original price of 80% of the face amount, generating proceeds of approximately $200 million. The notes are convertible into 6.7 million shares of the Company's common stock at a conversion rate of 26.772 shares per $1,000 face amount.

On June 27, 2000, the Company entered into a syndicated multi-currency credit agreement under which a total of $750 million may be borrowed; $375 million may be borrowed under a 364-day facility and $375 million under a five-year facility. The facilities bear interest at variable rates based on either LIBOR or a bank's base rates, at the Company's option. As of December 31, 2000, approximately $174 million had been borrowed under the facilities. Of this amount $160 million is included as long-term debt at December 31, 2000. The proceeds from the syndicated credit agreement were used to refinance borrowings and for general corporate purposes including acquisitions and other investments. Some of the pre-existing borrowing facilities were subsequently terminated.

On October 20, 2000, the Company completed the issuance and sale of $500 million principal amount of senior unsecured notes due 2005. The notes bear an interest rate of 7.875% per annum. The Company used the net proceeds of approximately $496 million from the sale of the notes to repay outstanding indebtedness under its credit facilities.

On May 29, 1998, the Company established a revolving credit facility, totaling $250 million, with eight banks. This facility has two parts: a $175 million five-year revolving-credit agreement and a $75 million 364-day revolving-credit facility. The Company may borrow under these agreements at a Eurodollar rate plus a spread, a base reference rate, or a competitive bid. In addition, the Company is required to pay a facility fee ranging from 0.1% to 0.2%, depending upon the Company's financial performance. While the Company borrowed under the $175 million five-year revolving-credit agreement during 2000, there was no outstanding balance as of December 31, 2000.

On May 26, 2000, the Company extended its 364-day credit agreement for up to $75 million of borrowings as part of its $250 million revolving credit facility. The terms of the extension include the payment of a commitment fee to the bank of 0.04%. As of December 31, 2000, there was no outstanding balance under the 364-day credit agreement.

Under various loan agreements, the Company must maintain specified levels of net worth and meet certain cash flow requirements and is limited in its level of indebtedness. The Company has complied with the limitations under the terms of these loan agreements.

Long-term debt maturing over the next five years and thereafter is as follows: 2001-$65.5 million; 2002-$137.7 million; 2003-$32.3 million; 2004-$259.2 million; 2005-$667.3 million and $435.2 million thereafter.

See Note 13 for discussion of fair market value of the Company's long-term debt.

Note 11: Restructuring and Other Merger Related Costs

During 2000, the Company recorded pre-tax restructuring and other merger related costs of $133 million ($82.6 million net of tax). Of the total pre-tax restructuring and other merger-related costs, cash charges represented $96 million. The key components of the charge were the i) costs associated with the restructuring of Lowe Lintas & Partners Worldwide, ii) costs associated with the loss of the Chrysler account and iii) costs relating principally to the merger with NFO. Additionally, in 1999, costs were incurred in connection with the restructuring of Bozell and FCB.

Lowe Lintas
In October 1999, the Company announced the merger of two of its advertising networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris Lintas, were combined to form a new agency network called Lowe Lintas & Partners Worldwide. The merger involved the consolidation of operations in Lowe Lintas agencies in approximately 24 cities in 22 countries around the world. As of September 30, 2000, all restructuring activities had been completed.

A summary of the components of the reserve for restructuring and other merger-related costs for Lowe Lintas is as follows:

   

                         Year to Date December 31, 2000                  

 


(Dollars in millions)

Balance at 12/31/99  

Expense    recognized

Cash   Paid   

Asset       Write-offs


Reclassifications

Balance at 12/31/00  

             

Severance and

           

termination costs

$43.6    

$32.0      

$(46.7)

$        --     

$(17.2)          

$11.7    

Fixed asset write-offs

11.1    

14.2      

-- 

(25.3)    

--           

--    

Lease termination costs

3.8    

21.1      

(10.1)

--     

--           

14.8    

Investment write-offs and other

 23.4    

  20.5      

   (6.4)

(37.5)    

        --           

--    

             

Total

$81.9   

$87.8      

$(63.2)

$(62.8)    

$(17.2)          

$26.5    

The severance and termination costs recorded in 2000 relate to approximately 360 employees who have been terminated. The remaining severance and termination amounts will be paid in 2001. The employee groups affected include management, administrative, account management, creative and media production personnel, principally in the U.S. and several European countries. Included in severance and termination costs is an amount of $17.2 million related to non-cash charges for stock options which has been reclassified to additional paid in capital.

The fixed asset write-offs relate largely to the abandonment of leasehold improvements as part of the merger. The amount recognized in 2000 relates to fixed asset write-offs in 4 offices, the largest of which is in the U.K.

Lease termination costs relate to the offices vacated as part of the merger. The lease terminations have been completed, with the cash portion to be paid out over a period of up to five years.

The investment write-offs relate to the loss on sale or closing of certain business units. In 2000, $12.7 million of investment write-offs has been recorded, the majority of which results from the decision to sell or abandon 3 businesses located in Asia and Europe. In the aggregate, the businesses being sold or abandoned represent an immaterial portion of the revenue and operations of Lowe Lintas & Partners. The write-off amount was computed based upon the difference between the estimated sales proceeds (if any) and the carrying value of the related assets. These sales or closings were completed in mid 2000.

Loss of Chrysler Account

In September 2000, Chrysler, one of the Company's larger accounts, announced that it was undertaking a review of its two advertising agencies to reduce the costs of its global advertising and media. On November 3, 2000, the Company was informed that it was not selected as the agency of record. In December 2000, the Company terminated its existing contract with Chrysler and entered into a transition agreement effective January 1, 2001.

As a result of the loss of the Chrysler account, the Company recorded a $17.5 million pre-tax charge in the fourth quarter of 2000. The charge covers primarily severance, lease termination and other exit costs associated with the decision to close the Detroit office. The severance portion of the charge amounts to $5.8 million and reflects the elimination of approximately 250 positions. The charge also includes $11.4 million associated primarily with the lease termination of the Detroit office, as well as other exit costs. In addition, an impairment loss of $5.5 million was recorded for intangible assets that are no longer recoverable. Offsetting these charges was a $5.2 million payment from Chrysler to compensate the Company for severance and other exit costs. At December 31, 2000, 5 people had been terminated and $0.3 million of severance and other exit costs had been paid.

Bozell and FCB Worldwide
In September 1999, the Company committed to a formal plan to restructure its Bozell and FCB Worldwide agency operations and recorded a $75.4 million pre-tax charge in the third quarter of 1999. The charge covered primarily severance, lease termination and other exit costs in connection with the combination and integration of the two worldwide advertising agency networks. Bozell Worldwide's international operations, along with Bozell Detroit and Bozell Costa Mesa, were merged with FCB Worldwide and now operate under the FCB Worldwide name. The restructuring initiatives also included the sale or closing of certain underperforming business units.

The restructuring program was completed during the third quarter of 2000. A summary of components of the restructuring charge is as follows (in millions):

 

Severance and Termination       Benefits      

Lease Termination and Other Exit          Costs         

Impairment         Loss       

Total

         

Restructuring reserve, September 30, 1999

$ 41.4         

$24.2         

$ 9.8          

$ 75.4       

    1999 Write-downs

--         

(0.9)        

(9.8)         

(10.7)      

    1999 Cash payments

  (9.7)        

 (3.2)        

     --          

(12.9)      

         

Balance, December 31, 1999

31.7         

20.1         

--          

51.8       

    2000 Write-downs

--         

(4.3)        

--          

(4.3)      

    2000 Cash payments

(22.5)        

(9.5)        

--          

(32.0)      

    Long-term obligations secured

(9.6)        

(5.3)        

--          

(14.9)      

    Excess reserve (net) 

     0.4         

  (1.0)        

      --          

 (0.6)      

Balance, December 31, 2000

$    --         

$    --         

$   --          

$ --        

The involuntary severance and termination benefits portion of the charge amounted to $41.4 million and reflected the elimination of approximately 640 positions worldwide, primarily in international locations. The employee groups affected primarily included executive and regional management and administrative personnel. As of September 30, 2000, such positions were eliminated at a cost of $41.8 million, which was $0.4 million higher than the original estimate.

The charge of $24.2 million associated with lease terminations and other exit costs represented primarily the closure, abandonment and downsizing of office space globally, including approximately 30 international locations. The costs included $13.5 million of remaining lease obligations net of estimated sublease income, as well as $5.9 million of impairment charges pertaining to leasehold improvements and fixed assets that were no longer used in the combined operation. As of September 30, 2000, these facilities were abandoned or downsized at a cost of $23.2 million, which was $1.0 million lower than the original estimate.

Accordingly, the net excess restructuring reserve of $0.6 million was reversed into income on the restructuring and other charges line in the third quarter of 2000. The remaining severance liabilities of $9.6 million pertain to terminated individuals and will be paid over the next four years in accordance with contractually defined severance agreements. The remaining lease liabilities and other exit costs of $5.3 million pertain to non-cancelable lease commitments in excess of sublease income for exited facilities that will be paid out over the remaining lease periods, which range from one to five years.

The impairment loss on the sale or closing of certain business units amounts to $9.8 million and resulted from the decision to sell two business units, one in the U.S. and one in the United Kingdom, and to close four other business units and joint ventures, including the R/GA Digital Studios, which specialized in digital production for advertising and film companies. The impairment loss was computed based upon the difference between the estimated sales proceeds (if any) and the carrying value of the related assets and investments and primarily represents the impairment of goodwill associated with such units. These sales or closures were completed by September 30, 2000.

Other
In addition to the Lowe Lintas restructuring, the costs associated with the loss of the Chrysler account and other merger related costs noted above, additional charges, substantially all of which were cash costs, were recorded during 2000. These costs relate principally to the non-recurring transaction and other merger related costs arising from the acquisition of NFO.

The Company also recorded its share of the asset impairment and restructuring charges of Modem Media. This charge, approximately $26 million is reflected in equity in net income of unconsolidated affiliates.

Note 12: Geographic Areas

Long-lived assets and revenue are presented below by major geographic area:

(Dollars in thousands)

     2000     

     1999     

     1998     

Long-Lived Assets:

United States

$2,702,910

$2,189,462

$1,485,890

International

United Kingdom

568,892

504,991

419,396

All other Europe

850,280

742,754

701,173

Asia Pacific

310,796

297,033

286,771

Latin America

118,918

105,566

87,232

Other

     133,892

       87,068

       60,872

Total International

  1,982,778

  1,737,412

  1,555,444

Total Consolidated

$4,685,688

$3,926,874

$3,041,334

Revenue:

United States

$4,244,160

$3,624,180

$3,090,711

International

United Kingdom

605,630

595,971

511,278

All other Europe

1,233,227

1,278,719

1,018,607

Asia Pacific

511,241

415,179

389,008

Latin America

335,074

280,033

306,106

Other

     253,356

     223,155

     177,231

Total International

  2,938,528

  2,793,057

  2,402,230

Total Consolidated

$7,182,688

$6,417,237

$5,492,941


Revenue is attributed to geographic areas based on where the services are performed. Property and equipment is allocated based upon physical location. Intangible assets, other assets, and investments are allocated based on the location of the related operation.

The largest client of the Company contributed approximately 6% in 2000, 6% in 1999 and 5% in 1998 to revenue. The Company's second largest client contributed approximately 2% in 2000, 3% in 1999, and 3% in 1998 to revenue.

Consolidated net income includes (gains)/losses from exchange and translation of foreign currencies of ($1.4) million, $6.7 million and $4.3 million in 2000, 1999 and 1998, respectively.

Note 13: Financial Instruments

Financial assets, which include cash and cash equivalents, marketable securities and receivables, have carrying values which approximate fair value. Long-term equity securities are deemed to be available-for-sale as defined by SFAS 115 and accordingly are reported at fair value, with net unrealized gains and losses reported within stockholders' equity.

The following table summarizes net unrealized gains and losses on marketable securities before taxes at December 31:

(Dollars in millions)

2000

1999

1998

   Cost

$217.1 

$172.3 

$255.7 

   Unrealized gains / (losses)

     - gains

1.3 

304.3 

29.7 

     - losses

  (94.9)

  (12.2)

    (1.5)

   Net unrealized gains / (losses)

  (93.6)

  292.1 

    28.2 

   Fair market value

$123.5 

$464.4

$283.9


Net of tax, net unrealized holding gains (losses) were ($55) million, $170 million and $15 million at December 31, 2000, 1999 and 1998, respectively.

Financial liabilities with carrying values approximating fair value include accounts payable and accrued expenses, as well as payable to banks and long-term debt. As of December 31, 2000, the 1.87% Convertible Subordinated Notes due 2006 had a cost basis of $312 million with a market value of $339 million, and the 1.80% Convertible Subordinated Notes due 2004 had a cost basis of $221 million with a market value of $293 million. As of December 31, 1999, the 1.87% Convertible Subordinated Notes due 2006 had a cost basis of $304 million with a market value of $416 million, and the 1.80% Convertible Subordinated Notes due 2004 had a cost basis of $214 million with a market value of $392 million. The fair values were determined by obtaining quotes from brokers (refer to Note 10 for additional information on long-term debt).

On October 20, 2000, the Company completed the issuance and sale of $500 million principal amount of senior unsecured notes due 2005. As of December 31, 2000, the market value of this note was $509 million. The notes bear an interest rate of 7.875% per annum.

On November 6, 1998, Publicis S.A. announced its intention to convert the Company's 26.5% investment in Publicis Communication to approximately 0.8 million of its publicly traded shares. Despite the Company's objections, this transaction was approved by the shareholders of Publicis S.A. and Publicis Communication in special shareholders' meetings held in December 1998 and closed shortly thereafter. As a result, the Company owned approximately 8.8% of Publicis S.A., which was recorded as an "available-for-sale security" in marketable securities.

The book value of the Company's 26.5% investment in Publicis Communication at the date of conversion was $146.6 million. The fair value of the Publicis S.A. shares (based on a December 14, 1998, closing price of $169.15 per share) was $134.0 million. Accordingly, the Company recorded a pre-tax loss of $12.6 million in the fourth quarter of 1998 as a result of the involuntary conversion of its investment in Publicis Communication to shares of Publicis S.A. In addition, the Company recorded a deferred tax obligation of approximately $3.2 million upon the exchange. As a result, the after-tax impact of this transaction was a loss of approximately $15.8 million.

On June 14, 1999, the Company sold its entire investment in Publicis S.A. for net cash proceeds of $135.3 million and realized a pre-tax gain of $1.3 million ($0.8 million after taxes).

Effective February 10, 1999, a majority-owned subsidiary of the Company, Modem Media, Poppe Tyson, Inc. (now known as Modem Media, Inc.), completed an initial public offering (IPO) of its common stock. The number of shares issued was 3.0 million, at a price of $16 per share, with net proceeds totaling $42.0 million. As a result of the IPO, the Company owned approximately 48% of Modem Media, down from its 70% ownership, but controlled approximately 80% of the related stockholder votes due to the super-majority voting right on its Class B shares. Modem Media used the proceeds from the IPO for working capital, capital expenditures, and acquisitions. As a result of this transaction, the Company recorded a $2.6 million gain, net of $2.0 million of deferred income taxes, as a credit to stockholders' equity.

In April 2000, the Company converted all of its shares of Modem Media Class B common stock into Class A Common stock pursuant to a Stockholders' Agreement with Modem Media. As a result, the Company's voting power was reduced from approximately 80% to approximately 46%. Accordingly, effective with the second quarter of 2000, Modem Media is no longer consolidated in the Company's financial statements and is accounted for on the equity method.

The Company occasionally uses forwards and options to hedge a portion of its net investment in foreign subsidiaries and certain intercompany transactions in order to mitigate the impact of changes in foreign exchange rates on working capital. The notional value and fair value of all outstanding forwards and options contracts at the end of the year as well as the net cost of all settled contracts during the year were not significant.

Note 14: Commitments And Contingencies

The Company and its subsidiaries lease certain facilities and equipment. Gross rental expense amounted to approximately $433.8 million for 2000, $393.6 million for 1999 and $356 million for 1998, which was reduced by sublease income of $34.7 million in 2000, $33.5 million in 1999 and $35.4 million in 1998.

Minimum rental commitments for the rental of office premises and equipment under noncancellable leases, some of which provide for rental adjustments due to increased property taxes and operating costs for 2001 and thereafter, are as follows:

(Dollars in thousands)

 
 

Amount

Period

 

2001

$298.8    

2002

277.3    

2003

236.9    

2004

220.3    

2005

185.9    

2006 and thereafter 

916.6    



Certain of the Company's acquisition agreements provide for deferred payments by the Company, contingent upon future revenues or profits of the companies acquired. Such contingent amounts would not be material taking into account the future revenues or profits of the companies acquired.

The Company and certain of its subsidiaries are party to various tax examinations, some of which have resulted in assessments. The Company intends to vigorously defend any and all assessments and believes that additional taxes (if any) that may ultimately result from the settlement of such assessments or open examinations would not have a material adverse effect on the consolidated financial statements.

The Company is involved in legal and administrative proceedings of various types. While any litigation contains an element of uncertainty, the Company believes that the outcome of such proceedings or claims will not have a material adverse effect on the Company.

Note 15: Subsequent Events (unaudited)

Following the completion of the True North acquisition, the Company initiated a series of operational initiatives focusing on i) the integration of the True North operations and the identification of synergies and savings, ii) the realignment of certain Interpublic businesses, and iii) productivity initiatives to achieve higher operating margins. As a result of the operational initiatives, the combined Company will be organized into four global operating divisions. Three of these divisions will provide a full complement of global marketing services and marketing communication services; McCann-Erickson WorldGroup, an enhanced FCB Group and a new global marketing resource called The Partnership. The fourth division, Advanced Marketing Services Group will focus on expanding the Company's operations in the area of specialized marketing communications.

In connection with these initiatives, the Company has approved a wide-ranging restructuring plan that includes severance, lease termination and other costs. The ultimate amount of the charges expected to be incurred in connection with the restructuring plan (including the direct costs of the merger) are estimated to be approximately $500 million. The majority of this amount is expected to be incurred in the third quarter of 2001 and involves reducing the workforce by approximately 3,500 personnel and combining or closing approximately 75 offices worldwide.

In the second quarter of 2001, the Company recognized $51.3 million of restructuring and other merger related costs in connection with its restructuring plan. Approximately $32.4 million of this amount relates to transaction and other costs incurred in connection with the acquisition of True North. The remaining amount relates largely to the cost of severance actions incurred due to the expected closure of the True North corporate office. Approximately 60 True North corporate employees have been notified that they will be terminated.

Following the completion of the True North acquisition, in connection with the Company's initiative on realignment of certain Interpublic businesses, the Company is evaluating the realizability of various assets. In connection with this review, undiscounted cash flow projections were prepared for certain investments, and the Company determined that the goodwill attributable to certain acquisitions was in excess of its estimates of the entities' future cashflows. As a result, an impairment charge of $221.4 million was recorded in the second quarter of 2001. The largest component of the goodwill impairment (approximately $145 million) relates to Capita Technologies, Inc., an Internet services business. The remaining amount relates principally to several other businesses including Internet services and healthcare consulting, and an advertising office in Asia.

During the first quarter of 2001, the Company recorded a $160.1 million pre-tax charge ($103.7 million net of tax) to recognize the impairment of investments primarily in publicly traded internet-related companies, including marchFIRST, Inc. (an Internet professional services firm), which had filed for relief under Chapter 11 of the Federal Bankruptcy Code in April 2001. The impairment charge adjusts the carrying value of remaining investments to estimated market value where an "other than temporary impairment" has occurred.

 

 

SELECTED FINANCIAL DATA FOR FIVE YEARS

(Amounts in Thousands Except Per Share Data and Number of Employees)

                   
                   
 

2000

 

1999

 

1998

 

1997

 

1996

OPERATING DATA

                 

Revenue

$  7,182,688 

 

$  6,417,237 

 

$  5,492,941 

 

$  4,850,706 

 

$  4,066,826 

Operating expenses

6,155,873 

 

5,608,310 

 

4,817,187 

 

4,396,277 

 

3,661,846 

Restructuring and other merger related costs

133,041 

 

159,537 

 

3,278 

 

79,638 

 

--  

Deutsch transaction costs

44,715 

 

--  

 

--  

 

--  

 

--  

Special compensation charge

--  

 

--  

 

--  

 

32,229 

 

--  

Interest expense

126,322 

 

99,469 

 

86,538 

 

79,998 

 

69,327 

Provision for income taxes

348,789 

 

285,260 

 

301,702 

 

208,624 

 

190,074 

Net Income

$     420,261 

 

$     359,509 

 

$    374,174 

 

$    168,674 

 

$     262,337 

                   

PER SHARE DATA

                 

Basic

                 

Net Income

$           1.17 

 

$           1.02 

 

$          1.08 

 

$          0.51 

 

$           0.79 

Weighted-average shares

359,615 

 

351,966 

 

346,909 

 

333,764 

 

333,002 

Diluted

                 

Net Income

$           1.14 

 

$           0.99 

 

$          1.04 

 

$          0.49 

 

$           0.77 

Weighted-average shares

370,577 

 

364,632 

 

359,397 

 

345,218 

 

342,112 

                   

FINANCIAL POSITION

                 

Working capital

$    (325,940)

 

$      (3,801) 

 

$     (89,662)

 

$       (3,471)

 

$       33,361 

Total assets

$12,362,012 

 

$11,225,809 

 

$ 9,345,363 

 

$ 7,959,577 

 

$  6,905,056 

Total long-term debt

$  1,531,791 

 

$  1,085,239 

 

$    721,743 

 

$    590,465 

 

$     479,377 

Book value per share

$           6.68 

 

$           5.86 

 

$          4.91 

 

$          4.04 

 

$           4.10 

                   

OTHER DATA

                 

Cash dividends - Interpublic

$     109,086 

 

$       90,424 

 

$      76,894 

 

$      61,242 

 

$       51,786 

Cash dividends per share - Interpublic

$             .37 

 

$             .33 

 

$            .29 

 

$            .25 

 

$             .22 

Number of employees

        62,000 

 

        54,800 

 

        49,500 

 

        43,100 

 

        32,000 


Prior year data has been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.



RESULTS BY QUARTER (UNAUDITED)

(Amounts in Thousands Except Per Share Data)

 

        First Quarter        

 

        Second Quarter       

 

       Third Quarter       

 

        Fourth Quarter      

 

2000

 

1999

 

2000

 

1999

 

2000

 

1999

 

2000

 

1999

Revenue

$1,584,953 

 

$1,341,306 

 

$1,821,628 

 

$1,605,293 

 

$1,734,242 

 

$1,529,597 

 

$2,041,865 

 

$1,941,041 

Operating expenses

1,454,340 

 

1,239,391 

 

1,469,833 

 

1,314,119

 

1,516,738 

 

1,363,038 

 

1,714,962 

 

1,691,762 

Restructuring and other

                             

merger related charges

36,051 

 

-- 

 

52,775 

 

-- 

 

26,715 

 

75,354 

 

17,500 

 

84,183 

Non-recurring
   transactions costs


-- 

 


-- 

 


-- 

 


-- 

 


-- 

 


-- 

 


44,715 

 


-- 

Income from operations

94,562 

 

101,915 

 

299,020 

 

291,174 

 

190,789 

 

91,205 

 

264,688 

 

165,096 

Interest expense

(24,272)

 

(21,863)

 

(26,212)

 

(26,049)

 

(36,492)

 

(25,644)

 

(39,346)

 

(25,913)

Other income, net

18,404 

 

18,628 

 

30,201 

 

32,413 

 

18,582 

 

18,113 

 

36,518 

 

52,880 

Income before provision

                   

 

       

for income taxes

88,694 

 

98,680 

 

303,009 

 

297,538 

 

172,879 

 

83,674 

 

261,860 

 

192,063 

                               

Provision for income taxes

37,075 

 

40,837 

 

127,589 

 

120,283 

 

72,059 

 

41,007 

 

112,066 

 

83,133 

Income applicable to

  minority interests

(5,422)

 

(3,753)

 

(10,287)

 

(9,003)

 

(10,012)

 

(6,288)

 

(14,088)

 

(14,947)

Equity in net income of
  unconsolidated affiliates

3,737 

 

1,550 

 

1,230 

 

2,528 

 

37 

 

1,099 

 

(22,587)

 

1,628 

Net equity interests

    (1,685)

 

     (2,203)

 

      (9,057)

 

     (6,475)

 

     (9,975)

 

     (5,189)

 

    (36,675)

 

   (13,319)

                               

Net income

$ 49,934 

 

$ 55,640 

 

$ 166,363 

 

$ 170,780 

 

$ 90,845 

 

$ 37,478 

 

$ 113,119 

 

$ 95,611

                               

Per share data:

                             

  Basic EPS

$ .14 

 

$ .16 

 

$ .47 

 

$ .49 

 

$ .25 

 

$ .11 

 

$   .31 

 

$     .27 

  Diluted EPS 

$ .14 

 

$ .15 

 

$ .45 

 

$ .47 

 

$ .24 

 

$ .10 

 

$   .30 

 

$   .26 

Cash dividends per

                             

 share - Interpublic

$ .085

 

$ .075

 

$ .095 

 

$ .085

 

$ .095

 

$ .085

 

$ .095

 

$   .085

                     

 

       

Weighted-Average Shares:

                             

  Basic

355,615 

 

349,000 

 

356,680 

 

352,043 

 

362,653 

 

353,137 

 

363,512 

 

353,686 

  Diluted  

368,032 

 

362,112 

 

380,869 

 

373,094 

 

373,114 

 

366,137 

 

373,346 

 

365,999 

                               

Stock price:

                             

  High 

$  55 9/16 

 

$         40 

 

$   48 1/4 

 

$  43 5/16 

 

$   44 5/8 

 

$ 44 1/16 

 

$   43 3/4 

 

$ 58 1/16 

  Low  

$          37 

 

$   34 7/8 

 

$         38 

 

$34 19/32 

 

$   33 1/2 

 

$   36 1/2 

 

$ 33 1/16 

 

$   35 3/4 


Prior year data has been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.




Exhibit 23


Consent of Independent Accountants

We hereby consent to the incorporation by reference in the following Registration Statements of The Interpublic Group of Companies, Inc. (the "Company"), of our report dated February 26, 2001, except as to the pooling of interests with True North Communications Inc. ("True North"), which is as of June 22, 2001, relating to the financial statements and financial statement schedule, which appears in this Current Report on Form 8-K: Registration Statements on Form S-8 No. 2-79071; No. 2-43811; No. 2-56269; No. 2-61346; No. 2-64338; No. 2-67560; No. 2-72093; No. 2-88165; No. 2-90878; No. 2-97440; and No. 33-28143, relating to the Stock Option Plan (1971), the Stock Option Plan (1981), the Stock Option Plan (1988) and the Achievement Stock Award Plan of the Company; Registration Statements on Form S-8 No. 2-53544; No. 2-91564; No. 2-98324; No. 33-22008; No. 33-64062; and No. 33-61371, relating to the Employee Stock Purchase Plan (1975), the Employee Stock Purchase Plan (1985) and the Employee Stock Purchase Plan of the Company (1995); Registration Statements on Form S-8 No. 33-20291 and No. 33-2830 relating to the Management Incentive Compensation Plan of the Company; Registration Statements on Form S-8 No. 33-5352; No. 33-21605; No. 333-4747; and No. 333-23603 relating to the 1986 Stock Incentive Plan, the 1986 United Kingdom Stock Option Plan and the 1996 Stock Incentive Plan of the Company; Registration Statements on Form S-8 No. 33-10087 and No. 33-25555 relating to the Long-Term Performance Incentive Plan of the Company; Registration Statement on Form S-8 No. 333-28029 relating to The Interpublic Outside Directors' Stock Incentive Plan of the Company; Registration Statement on Form S-8 No. 33-42675 relating to the 1997 Performance Incentive Plan of the Company and Registration Statement on Form S-3 No. 333-53592 related to the public offering of shares of the Company.




PricewaterhouseCoopers LLP
New York, New York
September 12, 2001



CONSENT OF INDEPENDENT ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of The Interpublic Group of Companies, Inc. (the "Company"), of our report dated February 25, 2000, with respect to the consolidated financial statements of NFO Worldwide, Inc. and subsidiaries as of December 31, 1999, and for each of the years in the two-year period ended December 31, 1999, which appears in this Current Report on Form 8-K: Registration Statements on Form S-8 No. 2-79071; No. 2-43811; No. 2-56269; No. 2-61346; No. 2-64338; No. 2-67560; No. 2-72093; No. 2-88165; No. 2-90878; No. 2-97440; and No. 33-28143, relating to the Stock Option Plan (1971), the Stock Option Plan (1981), the Stock Option Plan (1988) and the Achievement Stock Award Plan of the Company; Registration Statements on Form S-8 No. 2-53544; No. 2-91564; No. 2-98324; No. 33-22008; No. 33-64062; and No. 33-61371, relating to the Employee Stock Purchase Plan (1975), the Employee Stock Purchase Plan (1985) and the Employee Stock Purchase Plan of the Company (1995); Registration Statements on Form S-8 No. 33-20291 and No. 33-2830 relating to the Management Incentive Compensation Plan of the Company; Registration Statements on Form S-8 No. 33-5352; No. 33-21605; No. 333-4747; and No. 333-23603 relating to the 1986 Stock Incentive Plan, the 1986 United Kingdom Stock Option Plan and the 1996 Stock Incentive Plan of the Company; Registration Statements on Form S-8 No. 33-10087 and No. 33-25555 relating to the Long-Term Performance Incentive Plan of the Company; Registration Statement on Form S-8 No. 333-28029 relating to The Interpublic Outside Directors' Stock Incentive Plan of the Company; Registration Statement on Form S-8 No. 33-42675 relating to the 1997 Performance Incentive Plan of the Company. We also consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-53592 related to the public offering of shares of the Company, of our report dated February 25, 2000, which appears in this Current Report on Form 8-K. It should be noted that we have not audited any financial statements of NFO Worldwide, Inc. subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report.




Arthur Andersen LLP
New York, New York

September 12, 2001



CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation by reference in the Registration Statements on Form S-8 of The Interpublic Group of Companies, Inc. (the "Company"), of our report dated March 20, 2001, with respect to the consolidated financial statements of True North Communications Inc. and Subsidiaries as of December 31, 2000, and for each of the years in the three-year period ended December 31, 2000, which appears in this Current Report on Form 8-K: Registration Statements on Form S-8 No. 2-79071; No. 2-43811; No. 2-56269; No. 2-61346; No. 2-64338; No. 2-67560; No. 2-72093; No. 2-88165; No. 2-90878; No. 2-97440; and No. 33-28143, relating to the Stock Option Plan (1971), the Stock Option Plan (1981), the Stock Option Plan (1988) and the Achievement Stock Award Plan of the Company; Registration Statements on Form S-8 No. 2-53544; No. 2-91564; No. 2-98324; No. 33-22008; No. 33-64062; and No. 33-61371, relating to the Employee Stock Purchase Plan (1975), the Employee Stock Purchase Plan (1985) and the Employee Stock Purchase Plan of the Company (1995); Registration Statements on Form S-8 No. 33-20291 and No. 33-2830 relating to the Management Incentive Compensation Plan of the Company; Registration Statements on Form S-8 No. 33-5352; No. 33-21605; No. 333-4747; and No. 333-23603 relating to the 1986 Stock Incentive Plan, the 1986 United Kingdom Stock Option Plan and the 1996 Stock Incentive Plan of the Company; Registration Statements on Form S-8 No. 33-10087 and No. 33-25555 relating to the Long-Term Performance Incentive Plan of the Company; Registration Statement on Form S-8 No. 333-28029 relating to The Interpublic Outside Directors' Stock Incentive Plan of the Company; Registration Statement on Form S-8 No. 33-42675 relating to the 1997 Performance Incentive Plan of the Company. We also consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-53592 related to the public offering of shares of the Company, of our report dated March 20, 2001, which appears in this Current Report on Form 8-K. It should be noted that we have not audited any financial statements of True North Communications Inc. and Subsidiaries subsequent to December 31, 2000 or performed any audit procedures subsequent to the date of our report.





Arthur Andersen LLP

Chicago, Illinois
September 12, 2001


Consent of Independent Public Accountants



We consent to the incorporation by reference in the Registration Statements on Form S-8 of The Interpublic Group of Companies, Inc. (the "Company"), of our report dated February 13, 2001, with respect to the consolidated financial statements of Deutsch, Inc. and Subsidiary and Affiliates as of December 31, 2000 and 1999, which appears in this Current Report on Form 8-K: Registration Statements on Form S-8 No. 2-79071; No. 2-43811; No. 2-56269; No. 2-61346; No. 2-64338; No. 2-67560; No. 2-72093; No. 2-88165; No. 2-90878; No. 2-97440; and No. 33-28143, relating to the Stock Option Plan (1971), the Stock Option Plan (1981), the Stock Option Plan (1988) and the Achievement Stock Award Plan of the Company; Registration Statements on Form S-8 No. 2-53544; No. 2-91564; No. 2-98324; No. 33-22008; No. 33-64062; and No. 33-61371, relating to the Employee Stock Purchase Plan (1975), the Employee Stock Purchase Plan (1985) and the Employee Stock Purchase Plan of the Company (1995); Registration Statements on Form S-8 No. 33-20291 and No. 33-2830 relating to the Management Incentive Compensation Plan of the Company; Registration Statements on Form S-8 No. 33-5352; No. 33-21605; No. 333-4747; and No. 333-23603 relating to the 1986 Stock Incentive Plan, the 1986 United Kingdom Stock Option Plan and the 1996 Stock Incentive Plan of the Company; Registration Statements on Form S-8 No. 33-10087 and No. 33-25555 relating to the Long-Term Performance Incentive Plan of the Company; Registration Statement on Form S-8 No. 333-28029 relating to The Interpublic Outside Directors' Stock Incentive Plan of the Company; Registration Statement on Form S-8 No. 33-42675 relating to the 1997 Performance Incentive Plan of the Company. We also consent to the incorporation by reference in the Registration Statement on Form S-3 No. 333-53592 related to the public offering of shares of the Company, of our report dated February 13, 2001, which appears in this Current Report on Form 8-K. It should be noted that we have not audited any financial statements of Deutsch, Inc. and Subsidiary and Affiliates subsequent to December 31, 2000 or performed any audit procedures subsequent to the date of our report.


J.H. Cohn LLP

Roseland, New Jersey

September 12, 2001

 

SCHEDULE II

 

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2000, 1999 and 1998

(Dollars in thousands)

Additions/(Deductions)

Description

Balance at
Beginning
  of Period  

Charged to
Costs &
  Expenses  

Charged
to Other
Accounts-
  Describe  

Deductions-
   Describe   

Balance
at End
of Period

Allowance for Doubtful Accounts - deducted from Receivables in the Consolidated Balance Sheet:

2000

$75,857

$43,825

$3,630 (1)  

$(30,614) (3) 

$85,718

1,503 (5)  

(4,792) (4) 

(3,691) (2) 

1999

$66,752

$31,513

$5,148 (1)  

$(29,065) (3) 

$75,857

2,934 (5)  

(815) (2) 

(610) (4) 

1998

$56,081

$24,121

$6,699 (1)  

$(20,638) (3) 

$66,752

2,111 (5)  

(3,318) (4) 

1,696 (2)  


______________

(1) Allowance for doubtful accounts of acquired and newly consolidated companies.
(2) Foreign currency translation adjustment.
(3) Principally amounts written off.
(4) Reversal of previously recorded allowances on accounts receivable.
(5) Miscellaneous.

EXHIBIT 11

EXHIBIT 11

 
 

THE INTERPUBLIC GROUP OF COMPANIES, INC.

COMPUTATION OF EARNINGS PER SHARE

(Dollars in Thousands Except Per Share Data)

Year Ended December 31

                   
 

2000      

 

1999      

 

1998      

 

1997      

 

1996      

BASIC:

Net income

$420,261

$359,509

$374,174

$168,674

$262,337

Weighted average number of
   common shares outstanding

359,615,126

 

351,966,488

 

346,908,503

 

333,764,150

 

333,001,925

Net income per share - Basic

$1.17

$1.02

$1.08

$ .51

$ .79

DILUTED:

Net income

$420,261

$359,509

$374,174

$168,684

$262,314

After tax interest savings
   on assumed conversion of
   subordinated debentures(1)(2)(3)(4)

--

 

--

 

--

 

--

 

--

Dividends paid net of
   related income tax applicable
   to the Restricted Stock Plan

         666

 

         631

 

         541

 

         447

 

         384

Net income, as adjusted

$420,927

$360,140

$374,715

$169,131

$262,698

Weighted average number of
   common shares outstanding

359,615,126

 

351,966,488

 

346,908,503

 

333,764,150

 

333,001,925

Assumed conversion of
  subordinated debentures(1)(2)(3)(4)

--

 

--

 

5,321

 

--

 

--

Weighted average number of
   incremental shares in
   connection with assumed
   exercise of stock options

7,568,272

 

9,129,110

 

9,029,393

 

8,176,116

 

5,899,086

Weighted average number of
   incremental shares in
   connection with the
   Restricted Stock Plan  

    3,393,666

 

    3,536,805

 

    3,453,838

 

    3,277,294

 

    3,211,128

Total

370,577,064

364,632,403

359,397,055

345,217,560

342,112,139

Diluted earnings per share data:

Net income per share - diluted

$1.14

$0.99

$1.04

$ .49

$ .77



All data for prior periods have been adjusted for the two-for-one stock split effective July 15, 1999.

(1) 

The computation of diluted EPS for 2000 and 1999 excludes the assumed conversion of the 1.87% and 1.80% Convertible Subordinated Notes due 2006 and 2004, respectively, because they were antidilutive.

   

(2) 

The computation of diluted EPS for 1998, 1997 and 1996 excludes the assumed conversion of the 1.80% Convertible Subordinated Notes due 2004 because they were antidilutive.

   

(3)

In the fourth quarter of 1997, the Company redeemed its 3 3/4 % Convertible Subordinated Debentures due 2002. Substantially all of the outstanding debentures were converted into approximately 4.3 million shares of the Company's common stock.

   

(4)

The computation of diluted EPS for 1997 and 1996 excludes the assumed conversion of the 3 3/4% Convertible Subordinated Debentures due 2002 because they were antidilutive.