UNITED STATES
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): May 7, 2004
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 May 7, 2004, The Interpublic Group of Companies, Inc. (the
"Company") issued a press release announcing its first quarter 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.
(c) Exhibits
Exhibit 99.1: Press Release of the Company, dated May 7, 2004.
Item 12. Results of Operations and Financial Condition.
On May 7, 2004, the Company issued a press release announcing its first
quarter 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: May 7, 2004 By: /s/ Nicholas J. Camera
------------------------------
Nicholas J. Camera
Senior Vice President, General
Counsel and Secretary
EXHIBIT INDEX
Exhibit No. Description
99.1 Press Release of the Company, dated May 7, 2004.
Exhibit 99.1
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[LOGO - OMITTED] THE INTERPUBLIC GROUP OF COMPANIES, INC.
WORLWIDE ADVERTISING AND MARKETING COMMUNICATIONS
1271 Avenue of the Americas, New York, N.Y. 10020
NEW YORK, NY May 7, 2004
------------------------
INTERPUBLIC REPORTS FIRST QUARTER RESULTS
Highlights
o First quarter revenue increased 6.0% to $1.4 billion versus the same period
last year. In constant currency, revenue increased 0.9% in the quarter
relative to the first quarter of 2003.
o Compared to the same period last year, organic revenue decreased 0.6%,
improving sequentially from the prior quarter for the fourth consecutive
quarter.
o Reported operating margin for the quarter was (0.7%) compared to 1.6% in
the first quarter of 2003. Excluding restructuring and long-lived asset
impairment charges, operating margin was 4.7%, compared to a like margin of
2.4% in 2003. The company's motor sports unit further negatively impacted
operating margin by 60 basis points in the first quarter of 2004. A
reconciliation of operating margin is included in the schedules that
accompany this release.
o First quarter net loss was $16.9 million or ($0.05) per share.
o Charges associated with the company's previously announced
restructuring program were $70.2 million, of which $7.6 million are
included in office and general expenses.
o Non-cash investment and long-lived asset impairment charges were $8.8
million.
o Continued improvement in the company's balance sheet and financial
condition relative to the same period a year ago.
o At the end of the first quarter, Interpublic's total debt was $2.3
billion, compared to $3.3 billion a year earlier.
o Net debt stood at $894 million, down from $2.1 billion at the end of
last year's first quarter.
o The company's debt-to-capital ratio at the end of the first quarter
was 47.1%, down from 60.4% at the same point in 2003.
o Subsequent to the quarter, Interpublic announced that it had reached
agreement to terminate its contract and related guarantees with the Formula
One Administration Limited relating to the British Grand Prix. This
contract was originally scheduled to terminate in 2015. Charges in the
amount of approximately $80 million related to this transaction will be
recognized in the second quarter of 2004, reflecting payments of $93
million offset by reserves related to these matters. The company remains
bound under its Silverstone lease and related obligations through the end
of 2007.
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"Performance in the quarter provides further evidence that our turnaround is
successfully reaching the end of its initial phase.
Organic growth improved sequentially for the fourth consecutive quarter. We saw
indications at many of our companies of a more favorable business climate in the
United States, as well as further signs of revenue strengthening at McCann.
Our ongoing focus on improving financial talent, systems and controls is
beginning to yield results. We are also seeing sustained benefits from our
restructuring program. Excluding restructuring and long-lived asset impairment
charges, operating margin in the quarter nearly doubled relative to the same
measure a year ago.
We remain committed to moving the company through a change process as rapidly as
possible. We have made significant strides in the first year, but there is still
much work to be done."
David Bell, Chairman and CEO, The Interpublic Group
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Operating Results
First Quarter
2004 2003
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Revenue $ 1,395.1 $ 1,315.7
Operating Income (Loss) (10.4) 20.8
Net Loss (16.9) (8.6)
EPS Continuing Ops $ (0.05) ($0.03)
EPS Discontinued Ops -- 0.01
---------------------------------------------------
EPS (0.05) ($0.02)
Revenue increased 6.0% in the first quarter to $1.4 billion, compared with the
year-ago period. This largely reflects improving favorable foreign currency
translations. On a constant currency basis, operating revenue in the first
quarter increased 0.9% compared to the first quarter of 2003.
Organic revenue--defined as revenue in constant currency adjusted for
acquisitions and dispositions, as well as the impact of reclassifying certain
out of pocket expenses--decreased 0.6% in the first quarter compared to the same
quarter in 2003.
In the United States, reported revenue for the first quarter increased 3.9%,
while organic revenue increased 1.3% compared to the same period in 2003. In
markets outside of the United States, reported revenue rose 9.2% in the first
quarter. In constant currency, international revenue decreased 3.0% in the
quarter and organic revenue decreased 3.0% compared to the first quarter of
2003.
Organic and constant currency revenue are non-GAAP measures, which are defined
and reconciled in the schedules that follow this release.
First Quarter Revenue Analysis
Worldwide US Non-US
-----------------------------
Reported Growth 6.0% 3.9% 9.2%
Less: Currency Translation 5.1% -- 12.2%
------------------------------
Constant Currency 0.9% 3.9% (3.0%)
Plus: Net Dispositions 1.4% 1.0% 1.8%
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Organic Revenue
Before Reclassifications 2.3% 4.9% (1.2%)
Less: Reclassifications (out of pocket expenses) 2.9% 3.6% 1.8%
------------------------------
Organic Revenue (0.6%) 1.3% (3.0%)
==============================
A comprehensive analysis of Interpublic's geographic revenue mix and performance
will be provided on the company's conference call and is available through the
company's web site.
Organic Revenue Trend
[BAR GRAPH -- OMITTED]
New Business
Significant wins during the first quarter included the CRM consolidation at
Microsoft, Miller Genuine Draft, Allstate Insurance, Marriott International, CVS
pharmacies, media consolidation wins at Interbrew and Levi Strauss, as well as
new assignments with General Motors in Europe. Notably, the company retained two
significant accounts: the media agency of record assignment for America Online
in the first quarter and Verizon Wireless early in the second quarter.
Collaboration Update
The company continued to make progress against its Organic Growth Initiative
(OGI), which was introduced in August of last year. During the quarter, OGI
activity generated an additional 30 projects, bringing the total of on-stream
collaborative assignments to 130. Overall, collaborate projects involve over 450
Interpublic employees across more than 20 companies and represent an anticipated
$65 to $75 million in annualized revenue.
Operating Expenses
Salary and related expenses increased 2.3% in the first quarter to $874.0
million, as the benefits of the company's restructuring efforts were offset by
the impact of currency translation. On a constant currency basis, salary and
related expenses decreased 2.8%. Since the first quarter of 2003, headcount has
declined from 45,500 to 43,700.
Office and general expenses increased 8.0% to $463.3 million, driven largely by
higher foreign exchange rates, primarily in Europe, as well as by increases in
out of pocket expenses billed to clients. Adjusted for currency, acquisitions
and dispositions, and these out of pocket expenses, office and general expenses
decreased by 4.0%. This improvement reflects benefits of the company's
restructuring program, a decrease in bad debt expense and a reduction in bank
fees.
Schedules reconciling adjusted expense calculations follow this release.
Restructuring Program
Continuing the restructuring actions, the company recorded a pre-tax
restructuring charge of $62.6 million, $55.9 million of which will be cash.
Through the first quarter, the company has incurred $238.2 million of
restructuring charges, of which $229.9 million will be cash and $124.7 million
has been paid. The company expects to generate gross annualized savings of
approximately $200 million from actions taken to date.
In the quarter, restructuring charges were applied as follows:
Total
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Severance $ 22.1
Facilities Costs 40.5
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Total Restructuring $ 62.6
The company's restructuring program is essentially complete, however certain
actions will be expensed in the second and third quarters of 2004, leading to
total charges of approximately $300 million, of which approximately $30 million
will have been recorded as office and general expenses.
Long-Lived Asset Impairment
Long-lived asset impairment charges (non-cash) totaled $5.6 million in the
quarter. Of these, $4.0 million related to the impairment of goodwill at a
business that Interpublic is in negotiations to sell. The remaining charge is
made up of capital expenditures in the motor sports unit that are impaired as
incurred.
Non-Operating and Tax
Interest expense was virtually unchanged at $39.1 million in the first quarter
compared to $38.8 million in the prior year. Higher average cash balances
generated interest income of $9.7 million during the period, compared to $7.9
million in the first quarter of last year.
Interpublic recognized a benefit of taxes of $26.8 million in the quarter. The
company's tax rate in the first quarter was impacted by transactions related to
the motorsports business, restructuring and impairment charges, as well as
geographical disparities in profitability.
Debt and Liquidity
At March 31, 2004, cash and equivalents totaled $1.4 billion, up from $1.2
billion at the same time in 2003. At the end of the first quarter, Interpublic's
total debt was $2.3 billion, compared to $3.3 billion a year earlier. The
company's debt-to-capital ratio at the end of the first quarter was 47.1%, down
from 60.4% at the same point in 2003.
At the end of the first quarter, net debt was $894 million, down from $2.1
billion at the end of last years first quarter.
Net Debt
($MM)
[BAR GRAPH -- OMITTED]
Early next week, the company expects to sign newly negotiated credit agreements
to replace the company's existing committed credit facilities.
Conference Call
Management will host a conference call today at 8:30AM (Eastern) to discuss
first 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, 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 press release contains forward-looking statements. Interpublic's
representatives may also make forward-looking statements orally from time to
time. Statements in this document that are not historical facts, including
statements about Interpublic's beliefs and expectations, particularly regarding
recent business and economic trends, ongoing liabilities following termination
of the British Grand Prix promoters agreement, the impact of litigation, the SEC
investigation, dispositions, impairment charges, and the integration of
acquisitions and restructuring costs, constitute forward-looking statements.
These statements are based on current plans, estimates and projections, and are
subject to change based on a number of factors, including those outlined in this
section. Forward-looking statements speak only as of the date they are made, and
Interpublic undertakes no obligation to update publicly any of them in light of
new information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those
contained in any forward-looking statement. Such risk factors include, but are
not limited to, the following:
o risks associated with the effects of global, national and regional economic
and political conditions;
o Interpublic's ability to attract new clients and retain existing clients;
o the financial success of Interpublic's clients;
o Interpublic's ability to retain and attract key employees;
o developments from changes in the regulatory and legal environment for
advertising and marketing and communications services companies around the
world;
o potential adverse effects if Interpublic is required to recognize
additional impairment charges or other adverse accounting related
developments;
o potential adverse developments in connection with the SEC investigation;
o risks associated with Interpublic's remaining motorsports commitments;
o potential claims relating to termination of the British Grand Prix
promoters agreement and the Silverstone lease contracts;
o potential downgrades in the credit ratings of Interpublic's securities; and
o the successful completion and integration of acquisitions which complement
and expand Interpublic's business capabilities.
Investors should carefully consider these risk factors and the additional risk
factors outlined in more detail in Interpublic's Form 10-K, March 2004 Form 10-Q
and other SEC filings.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF EARNINGS
FIRST QUARTER REPORT 2004 AND 2003 (UNAUDITED)
(Amounts in Millions except Per Share Data)
Three Months Ended
March 31, Fav. (Unfav.)
------------------------------------
2004 2003 % Variance
------------------------------------ ------------------------
Revenue
United States $ 818.4 $ 787.4 3.9
International 576.7 528.3 9.2
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Total Revenue 1,395.1 1,315.7 6.0
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Operating Expenses
Salaries and Related Expenses 874.0 854.7 (2.3)
Office and General Expenses 463.3 429.1 (8.0)
Restructuring Charges 62.6 -- --
Long-Lived Asset Impairment 5.6 11.1 49.5
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Total Operating Expenses 1,405.5 1,294.9 (8.5)
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Operating Income (Loss) (10.4) 20.8 (150.0)
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Other Income (Expense)
Interest Expense (39.1) (38.8)
Interest Income 9.7 7.9
Other Income 1.1 (0.2)
Investment Impairment (3.2) (2.7)
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Total Other Income (Expense) (31.5) (33.8)
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Loss before Income Taxes (41.9) (13.0)
Provision for (benefit of) Income Taxes (26.8) (5.6)
Income Applicable to Minority Interests (2.4) (0.6)
Equity in Net Income (Loss) of Unconsolidated Affiliates 0.6 (3.2)
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Loss from Continuing Operations (16.9) (11.2)
Income from Discontinued Operations -- 2.6
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Net Loss (16.9) (8.6)
Dividend on Preferred Stock 4.8 --
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Net Loss Applicable to Common Stockholders (21.7) (8.6)
========== ==========
Per Share Data of Common Stock:
Basic EPS:
Continuing Operations $ (0.05) $ (0.03)
Discontinued Operations -- 0.01
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Total (0.05) (0.02)
========== ==========
Diluted EPS:
Continuing Operations (0.05) (0.03)
Discontinued Operations -- 0.01
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Total (0.05) (0.02)
========== ==========
Dividend per share -- --
Weighted Average Common Shares:
Basic 413.3 381.8
Diluted 413.3 381.8
INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF OPERATING MARGIN
(Dollars in millions)
2004 2003
1st QTR 1st QTR
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Revenue $1,395.1 $1,315.7
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Operating Expenses:
Salaries and related expenses 874.0 854.7
Office and general expenses 463.3 429.1
Restructuring charges 62.6 --
Long-lived asset impairment 5.6 11.1
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Total Operating Expenses 1,405.5 1,294.9
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Operating Income (Loss) - As Reported $ (10.4) $ 20.8
Operating Margin - As Reported (0.7)% 1.6%
Add back:
Restructuring charges $ 62.6 $ --
Restructuring program charges in office
& general expenses 7.6 --
Long-lived asset impairment 5.6 11.1
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Total restructuring program charges and
long-lived asset impairment 75.8 11.1
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Excluding Restructuring Program Charges and
Long-lived Asset Impairment:
Operating Income $ 65.4 $ 31.9
Operating Margin 4.7% 2.4%
In calculating operating margins, 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 these charges, we can focus our comparison on the trends that have a
continuing effect on the company's operations. The company expects to incur
further charges relating to its restructuring program in 2004, and may incur
future long-lived asset impairment charges as well.
CERTAIN NON-GAAP FINANCIAL MEASURES
Organic Revenue. We derive organic revenue by adjusting reported revenue in
respect of any given period by:
o excluding the impact of foreign currency effects over the course of
the period to provide revenues on a constant currency basis; and
o excluding the impact on reported revenue resulting from acquisitions
and dispositions that were consummated after the first day of the year
prior to the given period.
Additionally, organic revenue calculations for the quarter have been adjusted to
make 2004 organic revenue principally arising from public relations and sporting
event arrangements more directly comparable to organic revenue arising from
public relations and sporting event arrangements in periods preceding January 1,
2004. If these adjustments had been made to revenue for prior periods, there
would have been neither a material effect on results in prior periods nor any
effect whatsoever on operating or net income. These adjustments relate to
"grossing up" revenues and expenses by the same amount in connection with the
reimbursement of certain out of pocket expenses relating to public relations and
sporting event arrangements.
Management believes that discussing organic revenue, giving effect to the above
factors, provides a better understanding of the Company's revenue performance
and trends than reported revenue because it allows for more meaningful
comparisons of current-period revenue to that of prior periods. Management also
believes that organic revenue determined on a generally comparable basis is a
common measure of performance in the businesses in which it operates. For the
same reasons, management makes analogous adjustments to office and general
expenses which expenses, as adjusted, are a non-GAAP measure.
Constant Currency. When the Company discusses amounts on a constant currency
basis, the prior period results are adjusted to remove the impact of changes in
foreign currency exchange rates during the current period that is being compared
to the prior period. The impact of changes in foreign currency exchange rates on
prior period results is removed by converting the prior period results into U.S.
dollars at the average exchange rate for the current period. Management believes
that discussing results on a constant currency basis allows for a more
meaningful comparison of current-period results to such prior-period results.
Net Debt. Net debt as of any given date is total debt as reported at that date
less total cash and cash equivalents as of that date. Management believes that
discussing net debt is useful because it provides a more complete picture of the
Company's liquidity position.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF NON-GAAP MEASURES
FIRST QUARTER 2004 AND 2003
(Amounts in Millions except Percentage Variance)
ORGANIC REVENUE
Worldwide US Non-US
1Q04 1Q03 Var 1Q04 1Q03 Var 1Q04 1Q03 Var
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Reported Revenue $1,395.1 $1,315.7 6.0% $818.4 $787.4 3.9% $576.7 $528.3 9.2%
Effects of Currency Translation 66.3 66.3
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Constant Currency 1,395.1 1,382.0 0.9% 818.4 787.4 3.9% 576.7 594.6 (3.0)%
Effects of Acquisitions/
Dispositions (1.7) (20.1) (0.3) (7.5) (1.4) (12.6)
Reclassified Amounts (Out of
Pocket) (73.3) (34.4) (46.6) (17.9) (26.7) (16.5)
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Organic Revenue $1,320.1 $1,327.5 (0.6)% $771.5 $762.0 1.3% $548.6 $565.5 (3.0)%
===============================================================================================
REDUCTION IN SALARIES AND RELATED EXPENSES
-----------------------------------
1Q04 1Q03 Var
-----------------------------------
Reported Salaries and Related Expenses $874.0 $854.7 2.3%
Effects of Currency Translation 44.4
-----------------------------------
Constant Currency 874.0 899.1 (2.8)%
Effects of Acquisitions/Dispositions (1.2) (12.9)
Reclassified Amounts (2.3)
-----------------------------------
Reductions in Salaries and Related
Expenses from Existing Operations $870.5 $886.2 (1.8)%
===================================
REDUCTION IN OFFICE AND GENERAL EXPENSES
-----------------------------------
1Q04 1Q03 Var
-----------------------------------
Reported Office and General Expenses $463.3 $429.1 8.0%
Effects of Currency Translation 27.7
-----------------------------------
Constant Currency 463.3 456.8 1.4%
Effects of Acquisitions/Dispositions (0.8) (13.6)
Reclassified Amounts (70.1) (34.4)
-----------------------------------
Reductions in Office and General
Expenses from Existing Operations $392.4 $408.8 (4.0)%
===================================
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RECONCILIATION OF ORGANIC REVENUE BY REGION
FIRST QUARTER 2004 AND 2003
Foreign Exchange Acquisitions/ Reclassifications
Organic Impact Dispositions Reported
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US 1.3% 0.0% (1.0)% 3.6% 3.9%
Europe (5.6)% 13.1% (2.1)% 1.7% 7.1%
Asia/Other 1.5% 10.6% 0.0% 2.6% 14.7%
Latin America 5.9% 6.6% (5.5)% 0.7% 7.7%
Canada (1.2)% 13.2% 0.0% 4.2% 16.2%
----------------------------------------------------------------------------------
Worldwide (0.6)% 5.1% (1.4)% 2.9% 6.0%