SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 11, 2003
The Interpublic Group of Companies, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-6686 13-1024020
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
1271 Avenue of the Americas, New York, New York 10020
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 212-399-8000
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events and Regulation FD Disclosure.
On November 11, 2003, The Interpublic Group of Companies, Inc. (the
"Company") issued a press release announcing its third quarter 2003 earnings, a
copy of which is attached hereto as Exhibit 99.1 and is hereby incorporated into
this report by reference to this exhibit. This press release is also being
furnished pursuant to Item 12.
Item 7. Financial Statements and Exhibits.
Exhibit 99.1: Press Release of the Company, dated November 11, 2003.
Item 12. Results of Operations and Financial Condition.
On November 11, 2003, the Company issued a press release announcing its
third quarter 2003 earnings, a copy of which is attached hereto as Exhibit 99.1.
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 hereunto duly authorized.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
Date: November 12, 2003 By: /s/ Nicholas J. Camera
------------------------------
Nicholas J. Camera
Senior Vice President,
General Counsel and Secretary
Exhibit 99.1
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[LOGO -- OMITTED] THE INTERPUBLIC GROUP OF COMPANIES, INC.
WORLDWIDE ADVERTISING AND MARKETING COMMUNICATIONS
1271 Avenue of the Americas, New York, N.Y. 10020
New York, November 11, 2003
---------------------------
INTERPUBLIC REPORTS THIRD QUARTER
Recap of Results
o Third quarter net loss was $327.1 million or ($0.85) per share, comprised
of:
o Loss from continuing operations of $416.2 million or ($1.08) per
share.
o Gain on sale of NFO WorldGroup, classified as discontinued operations,
was $89.1 million or $0.23 per share.
o As part of the early stages of its turnaround program, the company
continued its restructuring activities and took other actions that resulted
in a number of charges, which are included in results from continuing
operations:
o Charges relating to the company's previously announced restructuring
program were $57.1 million, of which $9.1 million are included in
office and general expenses. The program is now expected to total up
to $250 million and be complete in the first half of 2004.
o A charge of $127.6 million, to be paid principally in Interpublic
stock, reflecting management's best current estimate for pending legal
actions. These primarily include the shareholder suits related to the
restatement of earnings for 1997-2001. The company has disclosed the
potential materiality of this litigation in its previous filings.
o Debt prepayment penalty of $24.8 million incurred in retiring the
company's highest-cost term loans.
o Non-cash investment impairment charges of $29.7 million, relating to
certain investments in which the company owns minority interests.
o A non-cash goodwill impairment charge of $221.0 million at Octagon
Worldwide, a sports marketing company made up of a combination of 35
entities acquired in the late 1990s. This charge arose in connection with
the annual impairment test required by SFAS 142. Octagon's projected growth
and performance no longer support the carrying value of the goodwill
associated with these assets. This charge represents all of the remaining
goodwill within Octagon.
o Revenue rose 2.3% in the third quarter to $1.4 billion.
o Organic revenue decreased 1.7%, improving sequentially from the prior
quarter.
o Operating margin for the quarter was (12.1%). Excluding restructuring
program charges and long-lived asset impairment described above, operating
margin was 7.7%, compared to a like margin of 3.8% in the third quarter of
2002. A reconciliation of operating margin is included in the schedules
that accompany this release.
o During the quarter, Interpublic filed a universal shelf registration in the
amount of $1.8 billion. The company intends to be opportunistic in
accessing the capital markets. Proceeds from any future transactions would
be used for various corporate purposes.
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"We are progressing through the first stage of our long-term turnaround plan.
This consists of our ongoing restructuring program, as well as the actions and
related charges we have announced today.
On a macro level, we are moving aggressively to put issues behind us, while
simultaneously positioning our company for future growth. We are also pleased to
see a firming in the economy. Interpublic has obvious untapped earnings power
and a range of opportunities to unlock its potential. We are aware of the
challenges, and while we are making headway, there remains much work to be
done."
David Bell, Chairman and CEO, The Interpublic Group
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Operating Results
Third Quarter Nine Months
2003 2002 2003 2002
---------------------- ------------------------
Revenue $ 1,418.9 $ 1,386.8 $ 4,234.0 $ 4,196.2
Operating Income (Loss) (171.1) (78.3) (98.4) 256.4
Net Income (Loss) (327.1) (89.6) (349.2) 79.2
EPS Continuing Ops $ (1.08) $ (0.26) $ (1.17) $ 0.15
EPS Discontinued Ops 0.23 0.02 0.26 0.05
---- ---- ---- ----
EPS (0.85) (0.24) (0.91) 0.21*
* Does not foot due to rounding
Revenue increased 2.3% in the third quarter to $1.4 billion compared with the
year-ago quarter, aided by improving market conditions and favorable foreign
currency translations. To calculate constant currency results, the company
applies the current period exchange rates to local currency results for the
current and year-earlier periods. On a constant currency basis, operating
revenue declined 2.4% in the third quarter.
Organic revenue--defined as revenue in constant currency adjusted for
acquisitions and dispositions--decreased 1.7% in the third quarter. In the
United States, reported revenue decreased 0.9%, while organic revenue decreased
0.7%.
In international markets, reported revenue rose 6.8%. In constant currency,
international revenue declined 4.2%, while organic revenue decreased 2.9%.
Revenue Analysis
Worldwide U.S. International
Nine Nine Nine
3Q03 Months 3Q03 Months 3Q03 Months
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Reported Growth 2.3% 0.9% (0.9%) 0% 6.8% 2.1%
Currency Translation (4.7%) (4.3%) -- -- (11.0%) (9.8%)
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Constant Dollar (2.4%) (3.4%) (0.9%) 0% (4.2%) (7.7%)
Net Acquisition/ Dispositions 0.7% 0.2% 0.2% (0.2%) 1.3% 0.9%
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Organic Revenue (1.7%) (3.2%) (0.7%) (0.2%) (2.9%) (6.8%)
===============================================================================
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[BAR GRAPH--OMITTED] showing the following information:
Organic Revenue Trend
Q1 2003 Q2 2003 Q3 2003
------- ------- -------
-5.4% -3.0% -1.7%
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"Organic revenue again improved sequentially from the previous quarter and was
the best we have posted since the first quarter of 2001. New business was solid.
According to our tracking of published sources, during the quarter our agencies
won approximately $850 million of annualized net new billings. We have also had
great success in recruiting senior talent to a number of our companies, which
should help our future competitive position."
David Bell, Chairman and CEO, The Interpublic Group
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Revenue by Discipline and Geography
Advertising and media revenue, representing 63.8% of total revenue, increased
4.1% to $904.9 million in the third quarter. In the United States, revenue
decreased 0.4% to $492.4 million. In international markets, reported revenue
increased 10.1% to $412.5 million, as the benefit of foreign currency
translation masked continuing softness in demand. On a constant currency basis,
overall advertising and media revenue decreased 1.1% in the quarter.
Marketing and communications services revenue, representing 36.2% of total
revenue, fell 0.7% to $514.0 million. In the United States, revenue decreased
1.6% to $308.0 million. In international markets, reported revenue increased
0.8% to $206.0 million, again benefiting from currency translation. On a
constant currency basis, overall marketing and communications services revenue
decreased 4.5% in the quarter.
New Business
Major wins during the third quarter included KFC, Sanofi, France Telecom,
Monster Worldwide, John Deere, Kaiser, Cadbury Schweppes, Pfizer and AARP.
Significant wins already announced in the fourth quarter include Quiznos,
Sepracor and Best Western.
Collaboration Update
In August, Interpublic introduced its Organic Growth Initiative (OGI) to
encourage agencies within Interpublic to work together. The plan provides tools
and incentives for collaborative business-building efforts.
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"We are changing attitudes and developing a growth culture within Interpublic.
In just a few months, from a standing start, we have already made important
progress. We have over 50 collaborative assignments already on-stream in the
OGI, involving approximately 300 individuals within 22 of our companies in every
region of the world. These projects represent an anticipated $25 million to $30
million of annualized revenue. It's an encouraging beginning."
David Bell, Chairman and CEO, The Interpublic Group
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Operating Expenses
Salary and related expenses decreased less than 1% in the third quarter to
$810.9 million, as the benefits of the company's restructuring efforts were
offset in part by the impact of currency translation. Since the third quarter of
2002, headcount has declined from 47,500 to 43,500.
Office and general expenses decreased 2.4% to $506.6 million. The decrease was
primarily due to reductions in occupancy and overhead costs as a result of the
company's restructuring efforts, partially offset by the impact of currency
translation and higher bad debt expense.
Restructuring Program
Continuing the program begun in the second quarter of 2003, the company recorded
a pre-tax restructuring charge of $48.0 million ($33.8 million after tax), of
which $47.6 million will be cash. Through the third quarter, the company has
incurred $142.4 million of restructuring charges, of which $136.2 million will
be cash and $56.9 million has been paid. The company expects to generate
annualized savings of $140-150 million per year from actions taken to date.
In the quarter, restructuring charges were applied as follows:
Total
-----------------
Severance $ 37.4
Facilities Costs 10.6
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Total Restructuring $ 48.0
The company expects its restructuring program to continue through the first half
of 2004 and not exceed $250 million, of which a significant portion will be
cash.
Non-Operating Expenses and Taxes
Interest expense increased 18.5% to $43.5 million in the third quarter,
reflecting, in part, the issuance of $800 million 4.5% convertible notes on
March 11, the proceeds of which were largely used to redeem the company's
zero-coupon notes on April 4. Higher average cash balances generated interest
income of $9.5 million during the period, compared to $5.9 million in the 2002
quarter.
In its third quarter review, Interpublic determined that the carrying value of
certain equity investments had become impaired and incurred a non-cash charge of
$29.7 million.
The company's tax rate in the third quarter was negatively impacted by
restructuring charges, long-lived asset impairment charges and non-deductible
equity impairment charges, as well as the establishment of valuation allowances
in the amount of $48.7 million related to certain deferred tax assets in
international jurisdictions.
Debt and Liquidity
At September 30, 2003, Interpublic's total debt was $2.5 billion, compared to
$2.9 billion a year earlier. Cash and equivalents totaled $695.5 million at
September 30, 2003 compared to $615.0 million a year earlier.
On July 10, Interpublic received cash of $415 million and equity securities
valued at $35.4 million in exchange for the assets of NFO WorldGroup, a market
research concern. On August 8, the company repaid $142.5 million of principal
amount of term loans bearing interest rates of 8% to 10%, the highest-cost debt
in Interpublic's portfolio. In addition to the principal amount paid, the
company paid a prepayment penalty of $24.8 million, which was recorded in the
third quarter.
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[BAR GRAPH - OMITTED] Showing the Following information:
Total Debt
($MM)
(As of September 30 of Each year)
2001 2002 2003
---- ---- ----
$3,098 $2,876 $2,518
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The company has received certain amendments to its credit facility agreements
that take into account the charges and expenditures described in this release.
The company intends to be opportunistic in accessing the capital markets.
Proceeds from any future transactions would be used for various corporate
purposes.
Update on Key Strategic Priorities
During previous conference calls, the company has discussed its progress against
five strategic pillars identified by management. Recent developments in these
areas include:
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Strengthen the Balance Sheet
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o Refinance zero-coupon bonds |X|
o Renew 364-day credit facility |X|
o Sell NFO |X|
o Improve debt maturity and liquidity |X| and ONGOING
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Improve Financial Reliability and Accountability
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o Hire Chief Operating Officer |X|
o Deploy additional senior finance talent |X|
Bob Thompson, SVP Finance, IPG
Ramesh Rajan, CFO, McCann
o Major operating unit CFOs report to IPG Finance |X|
o Improve financial systems - ONGOING
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Margin Improvement
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o Implement restructuring program |X| and ONGOING
o Eliminate AMS and IPSEG infrastructures |X| and ONGOING
o Exit certain motor sports assets |X|
o Decide on strategy re-Brands Hatch Circuits race tracks and Formula One
obligations - ONGOING
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Accelerate Organic Growth
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o Appoint Chief Growth Officer |X|
o Establish supplementary incentive compensation plan |X|
o Launch Organic Growth Initiative with specific incentives for organic
growth |X|
o Develop collaboration toolkit - ONGOING
o Move from acquisition to growth culture - ONGOING
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Attract Top Management Talent - ONGOING
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o New senior team (CEO, Creative Director, CFO) at McCann in Europe |X|
o New GM at McCann New York |X|
o New CEOs at Future Brand, MRM New York, Golin/Harris |X|
o New management at Lowe in UK and France |X|
o New creative leadership at all FCB US offices |X|
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Conference Call
Management will host a conference call today at 9AM (EDT) to discuss third
quarter results and recent developments. The program and a discussion outline
can be accessed at the financial section of the company's website, www.
interpublic.com. An audio archive of the discussion will remain available at the
site for 30 days.
About Interpublic
Interpublic is one of the world's leading organizations of advertising agencies
and marketing services companies. Major global brands include Draft, Foote, Cone
& Belding Worldwide, Golin/Harris International, Initiative Media, Lowe &
Partners Worldwide, McCann-Erickson, Octagon, Universal McCann and Weber
Shandwick Worldwide.
Contact Information
Press: General Inquiries: Analysts:
Philippe Krakowsky Julie Tu Dan Leib
(212) 399-8088 (212) 445-8456 (212) 621-5767
Cautionary Statement
This document contains forward-looking statements. Interpublic's representatives
may also make forward-looking statements orally from time to time. Statements in
this document that are not historical facts, including statements about
Interpublic's beliefs and expectations, particularly regarding recent business
and economic trends, the impact of litigation, dispositions, impairment charges,
the integration of acquisitions and restructuring costs, constitute
forward-looking statements. These statements are based on current plans,
estimates and projections, and are subject to change based on a number of
factors, including those outlined in this section. Forward-looking statements
speak only as of the date they are made, and Interpublic undertakes no
obligation to update publicly any of them in light of new information or future
events.
Forward-looking statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. Such factors include, but are not
limited to, those associated with the effects of global, national and regional
economic and political conditions, Interpublic's ability to attract new clients
and retain existing clients, the financial success of Interpublic's clients,
developments from changes in the regulatory and legal environment for
advertising and marketing and communications services companies around the world
and the successful completion and integration of acquisitions which complement
and expand Interpublic's business capabilities.
Interpublic's liquidity could be adversely affected if Interpublic is unable to
access capital or to raise proceeds from asset sales. In addition, Interpublic
could be adversely affected by developments in connection with the purported
class actions and derivative suits that it is defending or the SEC investigation
relating to the restatement of its financial statements. Its financial condition
and future results of operations could also be adversely affected if Interpublic
recognizes additional impairment charges due to future events or in the event of
other adverse accounting-related developments.
At any given time, Interpublic may be engaged in a number of preliminary
discussions that may result in one or more acquisitions or dispositions. These
opportunities require confidentiality and from time to time give rise to bidding
scenarios that require quick responses by Interpublic. Although there is
uncertainty that any of these discussions will result in definitive agreements
or the completion of any transactions, the announcement of any of these
transactions may lead to increased volatility in the trading price of
Interpublic's securities.
The success of recent or contemplated future acquisitions will depend on the
effective integration of newly-acquired businesses into Interpublic's current
operations. Important factors for integration include realization of anticipated
synergies and cost savings and the ability to retain and attract new personnel
and clients.
In addition, Interpublic's representatives may from time to time refer to "pro
forma" financial information, including information before taking into account
specified items. Because "pro forma" financial information by its very nature
departs from traditional accounting conventions, this information should not be
viewed as a substitute for the information prepared by Interpublic in accordance
with GAAP, including the balance sheets and statements of income and cash flow
contained in Interpublic's quarterly and annual reports filed with the SEC on
Forms 10-Q and 10-K. Investors should evaluate any statements made by
Interpublic in light of these important factors.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2003 AND 2002 (UNAUDITED)
(Amounts in Millions except Per Share Data)
Three Months Ended
September 30, Fav. (Unfav.)
-------------------------------
2003 2002 % Variance
------------------------------- -----------------
Revenue
United States $ 800.4 $ 807.7 (0.9)
International 618.5 579.1 6.8
--------- --------- ---------
Total Revenue 1,418.9 1,386.8 2.3
--------- --------- ---------
Operating Expenses
Salaries and Related Expenses 810.9 813.2 0.3
Office and General Expenses 506.6 519.0 2.4
Amortization of Intangible Assets 1.8 2.1 14.3
Restructuring Charges 48.0 12.1 (296.7)
Long-Lived Asset Impairment 222.7 118.7 (87.6)
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Total Operating Expenses 1,590.0 1,465.1 (8.5)
--------- --------- ---------
Operating Loss (171.1) (78.3) (118.5)
--------- --------- ---------
Other Income (Expense)
Interest Expense (43.5) (36.7) (18.5)
Debt Prepayment Penalty (24.8) -- --
Interest Income 9.5 5.9 61.0
Other Income 1.2 2.7 (55.6)
Investment Impairment (29.7) (4.9) (506.1)
Litigation Charges (127.6) -- --
--------- --------- ---------
Total Other Income (Expense) (214.9) (33.0) (551.2)
--------- --------- ---------
Loss before Income Taxes (386.0) (111.3) (246.8)
Provision for (Benefit of) Income Taxes 19.5 (23.0) (184.8)
Income Applicable to Minority Interests (10.4) (7.9) (31.6)
Equity in Net Income of Unconsolidated Affiliates (0.3) (0.2) (50.0)
--------- --------- ---------
Loss from Continuing Operations (416.2) (96.4) (331.7)
Income from Discontinued Operations -- 6.8 --
Gain on Disposal of Discontinued Operations 89.1 -- --
--------- --------- ---------
Net Loss $ (327.1) $ (89.6) (265.1)
========= ========= =========
Per Share Data:
Basic EPS:
Continuing Operations $ (1.08) $ (0.26) (315.4)
Discontinued Operations 0.23 0.02 1,050.0
--------- --------- ---------
Total $ (0.85) $ (0.24) (254.2)
========= ========= =========
Diluted EPS:
Continuing Operations $ (1.08) $ (0.26) (315.4)
Discontinued Operations 0.23 0.02 1,050.0
----------- --------- ---------
Total $ (0.85) $ (0.24) (254.2)
========= ========= =========
Dividend per share -- $ 0.095
Weighted Average Shares:
Basic 385.8 377.3
Diluted 385.8 377.3
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
THIRD QUARTER REPORT 2003 AND 2002 (UNAUDITED)
(Amounts in Millions except Per Share Data)
Nine Months Ended
September 30, Fav. (Unfav.)
-------------------------------
2003 2002 % Variance
------------------------------- -----------------
Revenue
United States $2,423.2 $2,422.1 0.0
International 1,810.8 1,774.1 2.1
-------- -------- --------
Total Revenue 4,234.0 4,196.2 0.9
-------- -------- --------
Operating Expenses
Salaries and Related Expenses 2,544.0 2,474.1 (2.8)
Office and General Expenses 1,392.1 1,328.4 (4.8)
Amortization of Intangible Assets 9.1 6.5 (40.0)
Restructuring Charges 142.4 12.1 (1,076.9)
Long-Lived Asset Impairment 244.8 118.7 (106.2)
--------- -------- --------
Total Operating Expenses 4,332.4 3,939.8 (10.0)
-------- -------- --------
Operating Income (Loss) (98.4) 256.4 (138.4)
-------- -------- --------
Other Income (Expense)
Interest Expense (128.4) (108.9) (17.9)
Debt Prepayment Penalty (24.8) -- --
Interest Income 27.6 20.9 32.1
Other Income 1.3 9.6 (86.5)
Investment Impairment (42.2) (21.1) (100.0)
Litigation Charges (127.6) -- --
-------- -------- --------
Total Other Income (Expense) (294.1) (99.5) (195.6)
-------- -------- --------
Income (Loss) before Income Taxes (392.5) 156.9 (350.2)
Provision for Income Taxes 36.3 79.6 54.4
Income Applicable to Minority Interests (19.4) (22.1) 12.2
Equity in Net Income of Unconsolidated Affiliates (2.2) 3.1 (171.0)
-------- -------- --------
Income (Loss) from Continuing Operations (450.4) 58.3 (872.6)
Income from Discontinued Operations 12.1 20.9 (42.1)
Gain on Disposal of Discontinued Operations 89.1 -- --
-------- -------- --------
Net Income (Loss) $ (349.2) $ 79.2 (540.9)
======== ======== ========
Per Share Data:
Basic EPS:
Continuing Operations $ (1.17) $ 0.16 (831.3)
Discontinued Operations 0.26 0.06 333.3
-------- -------- --------
Total $ (0.91) $ 0.21* (533.3)
======== ======== =========
Diluted EPS:
Continuing Operations $ (1.17) $ 0.15 (880.0)
Discontinued Operations 0.26 0.05 420.0
-------- -------- --------
Total $ (0.91) $ 0.21* (533.3)
======== ======== ========
*Does not foot due to rounding
Dividend per share -- $ 0.285
Weighted Average Shares:
Basic 384.0 375.3
Diluted 384.0 381.1
INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF OPERATING MARGIN
(Dollars in millions)
2003 2002
3RD QTR 3RD QTR
--------------- ---------------
Revenue $1,418.9 $1,386.8
------------ -------------
Operating Expenses:
Salaries and related expenses 810.9 813.2
Office and general expenses 506.6 519.0
Amortization of intangible assets 1.8 2.1
Restructuring charges 48.0 12.1
Long-lived asset impairment 222.7 118.7
------------ -------------
Total Operating Expenses 1,590.0 1,465.1
------------ -------------
Operating Income - As Reported $ (171.1) $(78.3)
Operating Margin - As Reported -12.1% -5.6%
Add back:
Restructuring charges $ 48.0 $ 12.1
Restructuring charges in office
& general expenses 9.1 -
Long-lived asset impairment 222.7 118.7
------------ -------------
Total restructuring program charges and
long-lived asset impairment 279.8 130.8
------------ -------------
Excluding Restructuring Program Charges
and Long-lived Asset Impairment:
Operating Income $ 108.7 $ 52.5
Operating Margin 7.7% 3.8%
In comparing performance for 2003 with 2002, the company has excluded
restructuring program and long-lived asset impairment charges because management
believes the resulting comparison better reflects the company's ongoing
operations. By excluding them, we can focus our comparison on the trends that
have a continuing effect on the company's operations.