UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 -Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the quarterly period endedJune 30, 2002
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
Commission File Number: 1 -6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 13 -1024020 |
1271 Avenue of the Americas, New York, New York | 10020 |
Registrant's telephone number, including area code(212) 399 -8000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock outstanding at July 31, 2002: 383,735,876 shares.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
I N D E X
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
Consolidated Statement of Operations | |
Three months ended June 30, 2002 | |
and 2001 (unaudited) | |
Consolidated Statement of Operations | |
Six months ended June 30, 2002 | |
and 2001 (unaudited) | |
Consolidated Balance Sheet | |
June 30, 2002 (unaudited) and | |
December 31, 2001 | |
Consolidated Statement of Comprehensive Income | |
Three months ended June 30, 2002 | |
and 2001 (unaudited) | |
Consolidated Statement of Comprehensive Income | |
Six months ended June 30, 2002 | |
and 2001 (unaudited) | |
Consolidated Statement of Cash Flows | |
Six months ended June 30, 2002 | |
and 2001 (unaudited) | |
Notes to Consolidated Financial Statements (unaudited) | |
Item 2. | Management's Discussion and Analysis of |
Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures |
about Market Risk |
PART II. OTHER INFORMATION
Item 2(c) | CHANGES IN SECURITIES | |
Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS | |
Item 6. | EXHIBITS AND REPORTS ON FORM 8-K. | |
SIGNATURES | ||
INDEX TO EXHIBITS | ||
Item 1 | |||
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENT OF OPERATIONS | |||
THREE MONTHS ENDED JUNE 30, | |||
(Amounts in Millions, Except Per Share Amounts) | |||
(unaudited) | |||
2001 | |||
2002 | (Restated) | ||
REVENUE | $1,613.0 | $1,760.4 | |
OPERATING EXPENSES: | |||
Salaries and related expenses | 883.6 | 972.4 | |
Office and general expenses | 488.6 | 504.1 | |
Amortization of intangible assets | 2.3 | 42.2 | |
Restructuring and other merger related costs | -- | 51.3 | |
Goodwill impairment and other charges | -- | 221.4 | |
Total operating expenses | 1,374.5 | 1,791.4 | |
OPERATING INCOME (LOSS) | 238.5 | (31.0) | |
OTHER INCOME (EXPENSE): | |||
Interest expense | (36.9) | (41.4) | |
Interest income | 8.1 | 10.4 | |
Other income | 10.3 | 3.3 | |
Investment impairment | (16.2) | -- | |
Total other income (expense) | (34.7) | (27.7) | |
Income (loss) before provision for income taxes | 203.8 | (58.7) | |
Provision for income taxes | 79.3 | 46.3 | |
Income (loss) of consolidated companies | 124.5 | (105.0) | |
Income applicable to minority interests | (11.1) | (10.5) | |
Equity in net income of unconsolidated affiliates | 3.6 | 2.4 | |
NET INCOME (LOSS) | $ 117.0 | $ (113.1) | |
Earnings (loss) per share: | |||
Basic | $ 0.31 | $ (0.31) | |
Diluted | $ 0.31 | $ (0.31) | |
Weighted average shares: | |||
Basic | 375.7 | 368.9 | |
Diluted | 389.1 | 368.9 | |
Cash dividends per share | $ 0.095 | $ 0.095 | |
The accompanying notes are an integral part of these financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENT OF OPERATIONS | |||
SIX MONTHS ENDED JUNE 30, | |||
(Amounts in Millions, Except Per Share Amounts) | |||
(unaudited) | |||
2002 | 2001 | ||
(Restated) | (Restated) | ||
REVENUE | $3,033.1 | $3,435.6 | |
OPERATING EXPENSES: | |||
Salaries and related expenses | 1,745.4 | 1,971.2 | |
Office and general expenses | 906.6 | 985.1 | |
Amortization of intangible assets | 3.8 | 84.1 | |
Restructuring and other merger related costs | -- | 52.9 | |
Goodwill impairment and other charges | -- | 221.4 | |
Total operating expenses | 2,655.8 | 3,314.7 | |
OPERATING INCOME | 377.3 | 120.9 | |
OTHER INCOME (EXPENSE): | |||
Interest expense | (72.2) | (78.9) | |
Interest income | 15.0 | 23.3 | |
Other income | 10.6 | 11.9 | |
Investment impairment | (16.2) | (160.1) | |
Total other income (expense) | (62.8) | (203.8) | |
Income (loss) before provision for income taxes | 314.5 | (82.9) | |
Provision for income taxes | 121.4 | 46.2 | |
Income (loss) of consolidated companies | 193.1 | (129.1) | |
Income applicable to minority interests | (14.7) | (17.4) | |
Equity in net income of unconsolidated affiliates | 4.5 | 4.1 | |
NET INCOME (LOSS) | $ 182.9 | $ (142.4) | |
Earnings (loss) per share: | |||
Basic | $ 0.49 | $ (0.39) | |
Diluted | $ 0.48 | $ (0.39) | |
Weighted average shares: | |||
Basic | 374.3 | 367.5 | |
Diluted | 381.1 | 367.5 | |
Cash dividends per share | $ 0.19 | $ 0.19 | |
The accompanying notes are an integral part of these financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEET | |||
(Amounts in Millions, Except Per Share Amounts) | |||
June 30, | December 31, | ||
2002 | 2001 | ||
(Unaudited) | (Restated) | ||
CURRENT ASSETS: | |||
Cash and cash equivalents | $ 537.3 | $ 935.2 | |
Account receivables (net of allowance for doubtful | 4,959.2 | 4,713.3 | |
Expenditures billable to clients | 474.0 | 333.0 | |
Deferred taxes on income | 44.5 | 80.0 | |
Prepaid expenses and other current assets | 391.9 | 338.5 | |
Total current assets | 6,406.9 | 6,400.0 | |
FIXED ASSETS, AT COST: | |||
Land and buildings | 168.0 | 161.1 | |
Furniture and equipment | 1,128.7 | 1,085.8 | |
Leasehold improvements | 504.6 | 461.4 | |
1,801.3 | 1,708.3 | ||
Less: accumulated depreciation | (938.6) | (858.0) | |
Total fixed assets | 862.7 | 850.3 | |
OTHER ASSETS: | |||
Investment in unconsolidated affiliates | 183.1 | 165.0 | |
Deferred taxes on income | 467.4 | 492.8 | |
Other assets and miscellaneous investments | 437.2 | 432.5 | |
Goodwill | 3,322.4 | 3,004.7 | |
Other intangible assets (net of accumulated | |||
amortization: 2002-$32.2; 2001-$24.0) | 92.9 | 102.2 | |
Total other assets | 4,503.0 | 4,197.2 | |
TOTAL ASSETS | $11,772.6 | $11,447.5 | |
The accompanying notes are an integral part of these financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEET | |||
(Amounts in Millions, Except Per Share Amounts) | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
June 30, | December 31, | ||
2002 | 2001 | ||
(Unaudited) | (Restated) | ||
CURRENT LIABILITIES: | |||
Accounts payable | $ 4,777.5 | $ 4,525.2 | |
Accrued expenses | 1,014.2 | 1,316.5 | |
Loans payable | 598.6 | 453.1 | |
Accrued income taxes | 48.4 | 75.2 | |
Dividends payable | -- | 36.0 | |
Total current liabilities | 6,438.7 | 6,406.0 | |
NON-CURRENT LIABILITIES: | |||
Long-term debt | 1,243.1 | 1,356.8 | |
Convertible subordinated notes | 556.5 | 548.5 | |
Zero-coupon convertible senior notes | 578.1 | 575.3 | |
Deferred compensation | 416.1 | 376.7 | |
Accrued postretirement benefits | 56.5 | 54.4 | |
Other non-current liabilities | 110.8 | 100.5 | |
Minority interests in consolidated subsidiaries | 89.1 | 89.3 | |
Total non-current liabilities | 3,050.2 | 3,101.5 | |
Commitments and contingencies (Note 12) | |||
STOCKHOLDERS' EQUITY: | |||
Preferred stock, no par value, | |||
shares authorized: 20.0, shares issued: none | |||
Common stock, $0.10 par value, | |||
shares authorized: 550.0, | |||
shares issued: 2002 - 388.4; 2001 - 385.8 | 38.8 | 38.6 | |
Additional paid-in capital | 1,808.8 | 1,785.2 | |
Retained earnings | 1,118.3 | 971.9 | |
Accumulated other comprehensive loss, net of tax | (365.0) | (451.5) | |
2,600.9 | 2,344.2 | ||
Less: | |||
Treasury stock, at cost: 2002 - 4.9 shares; 2001 - 7.3 shares | (193.5) | (290.2) | |
Unamortized deferred compensation | (123.7) | (114.0) | |
Total stockholders' equity | 2,283.7 | 1,940.0 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $11,772.6 | $11,447.5 | |
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
THREE MONTHS ENDED JUNE 30, | |||
(Amounts in Millions) | |||
(unaudited) | |||
2001 | |||
2002 | (Restated) | ||
Net Income (Loss) | $117.0 | $(113.1) | |
Foreign Currency Translation Adjustments | 107.7 | (11.7) | |
Unrealized Holding Gains (Losses) on Securities | |||
Unrealized holding gains | -- | 9.1 | |
Tax expense | -- | (3.8) | |
Unrealized holding losses | (5.6) | -- | |
Tax benefit | 2.4 | -- | |
Reclassification of unrealized loss to net earnings | -- | -- | |
Tax benefit | -- | -- | |
Unrealized holding gains (losses) on securities | (3.2) | 5.3 | |
Comprehensive Income (Loss) | $221.5 | $(119.5) | |
The accompanying notes are an integral part of these consolidated financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
SIX MONTHS ENDED JUNE 30, | |||
(Amounts in Millions) | |||
(unaudited) | |||
2002 | 2001 | ||
(Restated) | (Restated) | ||
Net Income (Loss) | $182.9 | $(142.4) | |
Foreign Currency Translation Adjustments | 89.2 | (99.0) | |
Unrealized Holding Gains (Losses) on Securities | |||
Unrealized holding gains | -- | 90.8 | |
Tax expense | -- | (38.0) | |
Unrealized holding losses | (4.7) | -- | |
Tax benefit | 2.0 | -- | |
Reclassification of unrealized loss to net earnings | -- | -- | |
Tax benefit | -- | -- | |
Unrealized holding gains (losses) on securities | (2.7) | 52.8 | |
Comprehensive Income (Loss) | $269.4 | $(188.6) | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS | |||
SIX MONTHS ENDED JUNE 30, | |||
(Amounts in Millions) | |||
(unaudited) | |||
2002 | 2001 | ||
(Restated) | (Restated) | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net income (loss) | $ 182.9 | $ (142.4) | |
Adjustments to reconcile net income (loss) to | |||
cash provided by (used in) operating activities: | |||
Depreciation and amortization of fixed assets | 98.7 | 104.1 | |
Amortization of intangible assets | 3.8 | 84.1 | |
Amortization of restricted stock awards and bond discounts | 39.4 | 33.4 | |
Provision for (benefit of) deferred income taxes | 59.3 | (82.1) | |
Undistributed equity earnings | (4.5) | (4.1) | |
Income applicable to minority interests | 14.7 | 17.4 | |
Restructuring charges - non cash | -- | 30.2 | |
Goodwill impairment and other | -- | 197.4 | |
Investment impairment | 16.2 | 160.1 | |
Other | (9.7) | (8.7) | |
Change in assets and liabilities, net of acquisitions: | |||
Accounts receivable | (43.8) | 220.1 | |
Expenditures billable to clients | (128.4) | (61.5) | |
Prepaid expenses and other current assets | (30.5) | (42.8) | |
Accounts payable, accrued expenses and other current liabilities | (180.5) | (776.5) | |
Accrued income taxes | (28.1) | (60.1) | |
Other non-current assets and liabilities | 30.1 | 11.5 | |
Net cash provided by (used in) operating activities | 19.6 | (319.9) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Acquisitions, net of cash acquired | (206.5) | (142.4) | |
Capital expenditures | (81.9) | (124.7) | |
Proceeds from sales of businesses | 0.2 | 12.2 | |
Proceeds from sales of long-term investments | 39.3 | 14.9 | |
Purchases of long-term investments | (38.5) | (15.4) | |
Maturities of short-term marketable securities | 23.5 | 15.6 | |
Purchases of short-term marketable securities | (9.3) | (33.6) | |
Other investments and miscellaneous assets | (56.4) | (86.1) | |
Net cash used in investing activities | (329.6) | (359.5) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Increase in short-term bank borrowings | 88.8 | 787.0 | |
Proceeds from long-term debt | 1.5 | 150.0 | |
Payments of long-term debt | (132.1) | (261.7) | |
Treasury stock acquired | (7.7) | (100.1) | |
Issuance of common stock | 44.2 | 56.4 | |
Cash dividends - Interpublic | (72.5) | (59.5) | |
Cash dividends - pooled companies | -- | (15.1) | |
Net cash provided by (used in) financing activities | (77.8) | 557.0 | |
Effect of exchange rates on cash and cash equivalents | (10.1) | (36.1) | |
Decrease in cash and cash equivalents | (397.9) | (158.5) | |
Cash and cash equivalents at beginning of year | 935.2 | 844.6 | |
Cash and cash equivalents at end of period | $ 537.3 | $ 686.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||
1. | Basis of Presentation | |||||
Certain prior year amounts have been reclassified to conform with current year presentation. Additionally, as discussed in Note 7 below, the consolidated statement of operations is not comparable to the prior year reflecting a change in accounting principle pursuant to Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets. | ||||||
2. | Restatement | |||||
CONSOLIDATED STATEMENT OF OPERATIONS | ||||||
As | As | |||||
Three months ended March 31, 2002 | ||||||
- Operating income | $ 140.1 | $138.8 | ||||
- Net income | $ 66.7 | $ 65.9 | ||||
- Earnings per share - Basic | $ 0.18 | $ 0.18 | ||||
- Earnings per share - Diluted | $ 0.18 | $ 0.17 | ||||
Three months ended March 31, 2001 | ||||||
- Operating income | $ 153.1 | $152.0 | ||||
- Net loss | $ (28.8) | $(29.2) | ||||
- Loss per share - Basic | $ (0.08) | $(0.08) | ||||
- Loss per share - Diluted | $ (0.08) | $(0.08) | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||
As | As | |||||
Three months ended June 30, 2001 | ||||||
- Operating loss | $ (26.2) | $ (31.0) | ||||
- Net loss | $(110.2) | $(113.1) | ||||
- Loss per share - Basic | $ (0.30) | $ (0.31) | ||||
- Loss per share - Diluted | $ (0.30) | $ (0.31) | ||||
Three months ended September 30, 2001 | ||||||
- Operating loss | $(570.6) | $(571.4) | ||||
- Net loss | $(477.5) | $(477.8) | ||||
- Loss per share - Basic | $ (1.29) | $ (1.29) | ||||
- Loss per share - Diluted | $ (1.29) | $ (1.29) | ||||
Three months ended December 31, 2001 | ||||||
- Operating income | $ 235.6 | $ 232.0 | ||||
- Net income | $ 111.2 | $ 108.9 | ||||
- Earnings per share - Basic | $ 0.30 | $ 0.29 | ||||
- Earnings per share - Diluted | $ 0.30 | $ 0.29 | ||||
Twelve months ended December 31, 2001 | ||||||
- Operating loss | $(208.1) | $(218.4) | ||||
- Net loss | $(505.3) | $(511.2) | ||||
- Loss per share - Basic | $ (1.37) | $ (1.39) | ||||
- Loss per share - Diluted | $ (1.37) | $ (1.39) | ||||
Twelve months ended December 31, 2000 | ||||||
- Operating income | $ 849.1 | $ 837.8 | ||||
- Net income | $ 420.3 | $ 413.5 | ||||
- Earnings per share - Basic | $ 1.17 | $ 1.15 | ||||
- Earnings per share - Diluted | $ 1.14 | $ 1.12 | ||||
Twelve months ended December 31, 1999 | ||||||
- Operating income | $ 649.4 | $ 639.8 | ||||
- Net income | $ 359.4 | $ 353.8 | ||||
- Earnings per share - Basic | $ 1.02 | $ 1.01 | ||||
- Earnings per share - Diluted | $ 0.99 | $ 0.97 | ||||
Twelve months ended December 31, 1998 | ||||||
- Operating income | $ 672.4 | $ 664.3 | ||||
- Net income | $ 374.2 | $ 369.4 | ||||
- Earnings per share - Basic | $ 1.08 | $ 1.06 | ||||
- Earnings per share - Diluted | $ 1.04 | $ 1.03 | ||||
Twelve months ended December 31, 1997 | ||||||
- Operating income | $ 342.6 | $ 335.6 | ||||
- Net income | $ 168.7 | $ 164.7 | ||||
- Earnings per share - Basic | $ 0.51 | $ 0.49 | ||||
- Earnings per share - Diluted | $ 0.49 | $ 0.48 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||
CONSOLIDATED BALANCE SHEET | ||||||
March 31, 2002 | As | As | ||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ 575.1 | $ 575.1 | ||||
Accounts receivable | 4,576.0 | 4,507.5 | ||||
Other current assets | 784.1 | 784.1 | ||||
TOTAL CURRENT ASSETS | $ 5,935.2 | $ 5,866.7 | ||||
TOTAL ASSETS | $11,043.1 | $10,974.6 | ||||
LIABILITES AND STOCKHOLDERS' EQUITY: | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable and accrued expenses | $ 5,389.7 | $ 5,389.7 | ||||
Loans payable | 525.4 | 525.4 | ||||
Accrued income taxes | 60.9 | 32.5 | ||||
Dividends payable | 36.2 | 36.2 | ||||
TOTAL CURRENT LIABILITIES | $ 6,012.2 | $ 5,983.8 | ||||
| ||||||
NON-CURRENT LIABILITIES | $ 2,990.3 | $ 2,990.3 | ||||
STOCKHOLDERS' EQUITY | $ 2,040.6 | $ 2,000.5 | ||||
TOTAL LIABILITIES AND | $11,043.1 | $10,974.6 | ||||
December 31, 2001 | As | As | ||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ 935.2 | $ 935.2 | ||||
Accounts receivable | 4,780.5 | 4,713.3 | ||||
Other current assets | 751.5 | 751.5 | ||||
TOTAL CURRENT ASSETS | $ 6,467.2 | $ 6,400.0 | ||||
TOTAL ASSETS | $11,514.7 | $11,447.5 | ||||
LIABILITES AND STOCKHOLDERS' EQUITY: | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable and accrued expenses | $ 5,841.7 | $ 5,841.7 | ||||
Loans payable | 453.1 | 453.1 | ||||
Accrued income taxes | 103.1 | 75.2 | ||||
Dividends payable | 36.0 | 36.0 | ||||
TOTAL CURRENT LIABILITIES | $ 6,433.9 | $ 6,406.0 | ||||
NON-CURRENT LIABILITIES | $ 3,101.5 | $ 3,101.5 | ||||
STOCKHOLDERS' EQUITY: | $ 1,979.3 | $ 1,940.0 | ||||
TOTAL LIABILITIES AND | $11,514.7 | $11,447.5 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |||||
3. | Earnings (Loss)Per Share | ||||
The following sets forth the computation of earnings per share for the three and six month periods ended June 30, 2002 and 2001: | |||||
Three Months Ended June 30, | |||||
2002 | 2001 | ||||
Basic | |||||
Net income (loss) | $ 117.0 | $(113.1) | |||
Weighted average number of common shares outstanding | 375.7 | 368.9 | |||
Earnings (loss) per share | $ 0.31 | $ (0.31) | |||
Diluted (a) | |||||
Net income (loss) | $117.0 | $(113.1) | |||
Addback income on assumed conversion of subordinated notes | 2.0 | -- | |||
Net income (loss) - diluted | $119.0 | $(113.1) | |||
Weighted average number of common shares outstanding | 375.7 | 368.9 | |||
Weighted average number of incremental shares | 6.7 | -- | |||
Weighted average number of incremental shares | |||||
in connection with restricted stock | |||||
and assumed exercise of stock options | 6.7 | -- | |||
Weighted average number of common shares outstanding - diluted | 389.1 | 368.9 | |||
Earnings (loss) per share - diluted | $ 0.31 | $ (0.31) | |||
(a) | The computation of diluted EPS for 2002 excludes the assumed conversion of the 1.87% Convertible Subordinated Notes because they were anti-dilutive. The computation of diluted EPS for 2001 excludes the assumed conversion of the 1.80% and 1.87% Convertible Subordinated Notes, the conversion of restricted stock and assumed exercise of stock options because they were antidilutive. | ||||
Six Months Ended June 30, | |||||
2002 | 2001 | ||||
Basic | |||||
Net income (loss) | $ 182.9 | $(142.4) | |||
Weighted average number of common shares outstanding | 374.3 | 367.5 | |||
Earnings (loss) per share | $ 0.49 | $ (0.39) | |||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |||||||||||
Diluted (b) | |||||||||||
Net income (loss) | $182.9 | $(142.4) | |||||||||
Weighted average number of common shares outstanding | 374.3 | 367.5 | |||||||||
Weighted average number of incremental shares | |||||||||||
in connection with restricted stock | |||||||||||
and assumed exercise of stock options | 6.8 | -- | |||||||||
Weighted average number of common shares outstanding - diluted | 381.1 | 367.5 | |||||||||
Earnings (loss) per share - diluted | $ 0.48 | $ (0.39) | |||||||||
(b) | The computation of diluted EPS for 2002 and 2001 excludes the assumed conversion of the 1.8% and 1.87% Convertible Subordinated Notes because they were anti-dilutive. The computation of diluted EPS for 2001 excludes the conversion of restricted stock and assumed exercise of stock options because they were antidilutive. | ||||||||||
4. | Restructuring And Other Merger Related Costs | ||||||||||
Following the completion of the True North acquisition in June 2001, the Company initiated a series of operational initiatives focusing on: a) the integration of the True North operations and the identification of synergies and savings, b) the realignment of certain Interpublic businesses and c) productivity initiatives to achieve higher operating margins. In connection with the operational initiatives, the Company executed a wide-ranging restructuring plan that included severance, lease terminations and other actions. The total amount of the charges incurred in 2001 in connection with the plan was $645.6. | |||||||||||
A summary of the remaining liability for restructuring and other merger related costs is as follows: | |||||||||||
Balance at | Cash paid | Liability | |||||||||
TOTAL BY TYPE | |||||||||||
Severance and termination costs | $154.0 | $ 94.2 | $ 59.8 | ||||||||
Lease termination and other exit costs | 157.1 | 39.4 | 117.7 | ||||||||
Total | $311.1 | $133.6 | $177.5 | ||||||||
As of June 30, 2002, the Company expects that 7,500 employees will be terminated in connection with the restructuring plan. Of that total, the majority of severance actions have occurred with the remainder to occur by the end of September. A significant portion of severance liabilities are expected to be paid out over a period of up to one year. | |||||||||||
The employee groups affected by the restructuring program include all levels and functions across the Company: executive, regional and account management, administrative, creative and media production personnel. Approximately half of the headcount reductions relate to the U.S., one third relate to Europe (principally the UK, France and Germany), with the remainder relating to Latin America and Asia Pacific. | |||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. The Company plans to downsize or vacate approximately 180 locations and expects that all leases will have been terminated or the premises vacated or subleased by September 30, 2002. The cash portion of the charge will be paid out over a period of up to five years. The geographical distribution of offices to be vacated is similar to the geographical distribution of the severance charges. Lease termination and related costs include write-offs related to the abandonment of leasehold improvements as part of the office vacancies. | |
Other exit costs relate principally to the impairment loss on sale or closing of certain business units in the U.S. and Europe. In the aggregate, the businesses being sold or closed represent an immaterial portion of the revenue and operating profit of the Company. 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. The sales and closures had been completed by June 30, 2002. | |
5. | Goodwill Impairment and Other Charges |
6. | Investment Impairment |
7. | New Accounting Standards |
During the first quarter of 2002, the Company performed the required impairment tests of goodwill and determined that there was no impairment required to be recognized upon adoption. The Company estimates that, based on its current intangible assets, amortization expense will be approximately $6.0 to $8.0 in each of the next five years. | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||||
In connection with SFAS 142, goodwill amortization ceased effective January 1, 2002. The following analysis shows the impact on the Company's statement of operations had SFAS 142 been effective for all periods presented: | ||||||||
Three Months Ended | Six Months Ended | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Reported net income (loss) | $117.0 | $(113.1) | $182.9 | $(142.4) | ||||
Add back: goodwill amortization, net of tax | -- | 35.0 | -- | 70.3 | ||||
Adjusted net income (loss) | $117.0 | $ (78.1) | $182.9 | $ (72.1) | ||||
Basic earnings (loss) per share: | ||||||||
Reported earnings (loss) | $0.31 | $(0.31) | $0.49 | $(0.39) | ||||
Add back: goodwill amortization, net of tax | -- | 0.10 | -- | 0.19 | ||||
Adjusted earnings (loss) | $0.31 | $(0.21) | $0.49 | $(0.20) | ||||
Diluted earnings (loss) per share: | ||||||||
Reported earnings (loss) | $0.31 | $(0.31) | $0.48 | $(0.39) | ||||
Add back: goodwill amortization, net of tax | -- | 0.10 | -- | 0.19 | ||||
Adjusted earnings (loss) | $0.31 | $(0.21) | $0.48 | $(0.20) | ||||
In June 2001, Statement of Financial Accounting Standards No. 143,Accounting for Asset RetirementObligations ("SFAS 143") was issued. SFAS 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, SFAS 143 requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the asset's useful life. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have an impact on the Company's financial position or results of operations. | ||||||||
In August 2001, Statement of Financial Accounting Standards No. 144,Accounting for the Impairment orDisposal of Long-lived Assets ("SFAS 144") was issued. SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,Accounting for the Impairment of Long-lived Assets to be Disposed of ("SFAS 121"), and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 also amends ARB (Accounting Research Bulletins) No. 51,ConsolidatedFinancial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
In November 2001, the Emerging Issues Task Force reached a consensus on Issue No. 01-14,Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred ("EITF 01-14"). EITF 01-14 establishes that reimbursements received for certain out-of-pocket expenses should be reported as revenue and operating expenses in the statement of operations. Historically, the Company classified reimbursed out-of-pocket expenses as a reduction of operating expenses. The Company has adopted this guidance effective the first quarter of fiscal year 2002. | |
8. | Derivative and Hedging Instruments |
Forward Contracts | |
Other | |
9. | Segment Information |
10. | Acquisitions and Deferred Payments |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | ||||||
During the first six months of 2002 the Company paid $165.9 in cash and $42.5 in stock as deferred payments on acquisitions that had closed in prior years. During the first six months of 2001 the Company paid $78.0 in cash and $29.7 in stock as deferred payments on acquisitions that had closed in prior years. | ||||||
As of June 30, 2002, the Company's estimated liability for earn-outs is as follows: | ||||||
2002 | 2003 | 2004 | 2005 and after | Total | ||
Cash | $46.9 | $120.4 | $72.1 | $66.6 | $306.0 | |
Stock | 30.6 | 26.5 | 10.1 | 19.4 | 86.6 | |
Total | $77.5 | $146.9 | $82.2 | $86.0 | $392.6 | |
The amounts above are estimates based on the current projections as to the amount that will be paid and are subject to revisions as the earn-out periods progress. | ||||||
In addition to the estimated liability for earn-outs, the Company has entered into agreements that require the Company to purchase additional equity interests in certain companies (put options). In many cases, the Company also has the option to purchase the additional equity interests (call options) in certain circumstances. The total amount of potential payments under put options is as follows: | ||||||
Exercisable | Not | Total | ||||
Cash | $12.4 | $167.4 | $179.8 | |||
Stock | 4.1 | 24.5 | 28.6 | |||
Total | $16.5 | $191.9 | $208.4 | |||
The expected maturity of the $208.4 is as follows: 2002 - $21.7; 2003 - $60.0; 2004 - $17.0; 2005 and thereafter - $109.7. The actual amount to be paid is contingent upon the achievement of projected operating performance targets and satisfying other conditions as specified in the relevant agreement. | ||||||
11. | Debt | |||||
12. | Commitments and Contingencies | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
The Internal Revenue Service (IRS) is currently examining the Company's federal income tax returns for 1994 to 1996. While the audit is not complete, the IRS has recently indicated its intention to challenge certain of the Company's tax positions. The Company believes that its tax positions comply with applicable tax law and intends to defend its positions vigorously. The ultimate disposition of these matters could require the Company to make additional payment to the IRS. Nonetheless, the Company believes that it has adequately provided for any foreseeable payments related to these matters and consequently does not anticipate any material earnings impact from the ultimate resolution of these matters. | |
Item 2
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
RESULTS OF OPERATIONS
As discussed in Note 2, the Company's financial statements have been restated for all prior periods presented to correctly reflect operating expenses and receivables related to one of the Company's agency networks. The following discussion relates to the results of the Company after giving effect to these adjustments.
All amounts discussed below are reported in accordance with generally accepted accounting principles ("GAAP") unless otherwise noted. In certain discussions below, the Company has provided comparative comments based on net income and expense amounts excluding non-recurring items (which are described in Non-Recurring Items below). Such amounts do not reflect GAAP; however, management believes they are a relevant and useful measure of financial performance.
The Company's results of operations are dependent upon: a) maintaining and growing its revenue, b) the ability to obtain new clients, c) the continuous alignment of its costs to its revenue and d) retaining key personnel. Revenue is also highly dependent on overall worldwide economic conditions.
The uncertain economic environment has kept the market for advertising services volatile in 2002 and made for uncertain visibility. Although many clients have increased their forward commitments for network advertising time, Interpublic's agencies have yet to see a related change in demand for their services. As a result, the Company now believes earnings for 2002 will be between $1.25 and $1.35 per share, compared to a restated $1.32 per share for 2001 excluding non-recurring items and amortization of goodwill. This new guidance reflects management's belief that the pace of recovery for advertising and marketing services remains slow. Third quarter 2002 revenue is expected to decline 5% to 7% relative to the same period in 2001.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
The Company reported net income of $117.0 or $0.31 diluted earnings per share and a net loss of $113.1 or $0.31 loss per share for the three months ended June 30, 2002 and 2001, respectively. Net income excluding non-recurring items was $114.1 or $0.30 diluted earnings per share for the three months ended June 30, 2001.
The following table sets forth net income (loss) as reported and excluding non-recurring items:
Three Months Ended | |||
2002 | 2001 | ||
Net Income (Loss) | |||
Net income (loss), as reported | $117.0 | $ (113.1) | |
Less non-recurring items: | |||
Restructuring and other merger related costs | -- | (51.3) | |
Goodwill impairment and other charges | -- | (221.4) | |
Tax effect of above items | -- | 45.5 | |
Total non-recurring items | -- | (227.2) | |
Net income, excluding non-recurring items | $117.0 | $ 114.1 | |
Revenue
Worldwide revenue for the three months ended June 30, 2002 was $1,613.0, a decrease of $147.4 or 8.4% from the three months ended June 30, 2001. Domestic revenue, which represented 54% of revenue in the three months ended June 30, 2002, decreased $137.8 or 13.7% from the same period in 2001. International revenue, which represented 46% of revenue in the three months ended June 30, 2002, decreased $9.6 or 1.3% from the same period in 2001.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
International revenue would have decreased 6.8% excluding the effects of changes in foreign currency. The decrease in worldwide revenue was primarily a result of reduced demand for advertising and marketing services by current clients due to the weak economy, the loss of the Chrysler account in the fourth quarter of 2000 and the loss of accounts of Pepsi owned brands. The worldwide revenue decrease of (8.4)% was due to: net acquisitions/divestitures (0.5)%, impact of foreign currency changes 2.3%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.7)% and organic revenue decline (9.5)%. Organic changes in revenue are based on increases or decreases in net new business activity and increases or decreases in activity from existing client accounts.
The Company is a worldwide global marketing services company, providing clients with communications expertise in four broad areas: a) advertising and media management, b) marketing communications, which includes client relationship management (direct marketing), public relations, sales promotion, event marketing, on-line marketing and healthcare marketing, c) marketing intelligence, which includes custom marketing research, brand consultancy and database management and d) marketing services, which includes sports and entertainment marketing, corporate meetings and events, retail marketing and other marketing and business services.
The following table sets forth the estimated revenue breakdown by type of service offering. Management of the Company believes that this breakdown is a useful measure of the types of global marketing services provided. This presentation does not represent the way in which the Company is organized or managed since most of the services are offered by each of the Company's global operating groups:
Three Months Ended June 30, | |||
2002 | 2001 | ||
Advertising and Media Management | $ 957.4 | $1,055.2 | |
Marketing Communications | 420.8 | 462.2 | |
Marketing Intelligence | 124.0 | 113.4 | |
Marketing Services | 110.8 | 129.6 | |
Total Revenue | $1,613.0 | $1,760.4 | |
Operating Expenses
Worldwide operating expenses for the three months ended June 30, 2002 decreased $416.9 or 23.3% to $1,374.5 compared to the three months ended June 30, 2001. Worldwide operating expenses excluding non-recurring items for the three months ended June 30, 2002 decreased $144.2 or 9.5% compared to the three months ended June 30, 2001. The decrease in worldwide operating expenses reflects the benefit of the Company's 2001 restructuring plan and other operating cost reduction initiatives, and a decrease in amortization of intangible assets as a result of adoption of the new accounting pronouncement related to goodwill amortization (see Note 7). The decrease of (9.5)% was due to: net acquisitions/divestitures (0.4)%, impact of foreign currency changes 2.8%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.9)% and reductions in operating expenses from existing operations (11.0)%.
The Company's expenses related to employee compensation and various employee incentive and benefit programs amount to approximately 54.8% of revenue. Salaries and related expenses for the three months ended June 30, 2002 decreased $88.8 or 9.1% to $883.6 compared to the three months ended June 30, 2001. The decrease is primarily a result of lower headcount, which was reduced to 52,300 at June 30, 2002 compared with 59,500 at June 30, 2001 as a result of the Company's 2001 restructuring plan. The decrease of (9.1)% was due to: net acquisitions/divestitures (0.7)%, impact of foreign currency changes 2.8%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.6)% and reductions in salaries and related expenses from existing operations (10.6)%.
Office and general expenses decreased $15.5 or 3.1% in the three months ended June 30, 2002 to $488.6 compared to $504.1 in the three months ended June 30, 2001. The decrease was due primarily to the impact of foreign currency changes, the impact of the loss of the Chrysler and accounts of Pepsi owned brands and the benefit of the Company's 2001 restructuring plan initiatives, including reduced travel and entertainment costs and reduced office rental and supplies costs partially offset by an increase in bad debt expense. The decrease of (3.1)% was due to: net
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
acquisitions/divestitures (0.8)%, impact of foreign currency changes 2.9%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.8)% and reductions in office and general expenses from existing operations (4.4)%.
Amortization of intangible assets was $2.3 in the three months ended June 30, 2002 compared with $42.2 in the second quarter of 2001. The decrease is a result of the adoption of the new standard on accounting for goodwill and other intangible assets effective January 1, 2002. Although SFAS 142 does not require that previously reported numbers be restated, amortization of intangible assets would have been $1.0 million for the second quarter of 2001 under the new standard (see Note 7).
OTHER INCOME (EXPENSE)
Interest Expense
Interest expense was $36.9 in the second quarter of 2002 compared with $41.4 in the second quarter of 2001. The decrease was primarily due to lower interest rates paid on short-term borrowings, the benefit of interest rate swap agreements covering all of the $500.0, 7.875% notes and the issuance and sale of the Zero-Coupon Convertible Notes in December 2001. The Company used the net proceeds of $563.2 from the Zero-Coupon Convertible Notes to repay indebtedness under the Company's credit facilities.
Interest Income
Interest income was $8.1 for the second quarter of 2002 compared with $10.4 in the same period of 2001. The decrease in 2002 is primarily due to lower interest rates and lower average cash balances primarily resulting from the lower earnings levels.
Other Income
Other income primarily consists of investment income, gains from the sale of businesses and gains (losses) on investments, primarily marketable securities classified as available-for-sale. Other income was $10.3 for the second quarter of 2002 compared with $3.3 for the second quarter of 2001. The gain in 2002 reflects gains on the sale of an unconsolidated affiliate in Europe and a marketing services affiliate in the U.S. The prior year included a gain on the sale of an unconsolidated affiliate.
Investment Impairment
During the second quarter of 2002, the Company recorded investment impairment charges of $16.2, primarily relating to certain investments of Octagon, a sports marketing company.
OTHER ITEMS
The Company's effective income tax rate was 38.9% for the second quarter of 2002 and 78.9% for the second quarter of 2001. The 2001 effective tax rate was impacted by the restructuring and other merger related costs and the goodwill and other impairment charges, which resulted in a lower tax benefit rate. Excluding non-recurring items, the effective income tax rate was 38.9% for the second quarter of 2002 compared to 42.9% for the second quarter of 2001. The 2002 effective income tax rate was impacted by the reduced amount of nondeductible goodwill amortization. The primary difference between the effective tax rate and the statutory federal rate of 35% in 2002 is due to state and local taxes.
Income applicable to minority interests was $11.1 in the second quarter of 2002 compared to $10.5 in the second quarter of 2001. The slight increase in the second quarter of 2002 was due to increased ownership of certain majority-owned affiliates in the U.S., partially offset by the sale of a majority-owned affiliate.
Equity in net income of unconsolidated affiliates was $3.6 in the second quarter of 2002 compared to $2.4 in the second quarter of 2001. The increase is primarily due to increased earnings of unconsolidated affiliates in Latin America and the U.S.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
The Company reported net income of $182.9 or $0.48 diluted earnings per share and a net loss of $142.4 or $0.39 loss per share for the six months ended June 30, 2002 and 2001, respectively. Net income excluding non-recurring items was $190.0 or $0.50 diluted earnings per share for the six months ended June 30, 2001.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
The following table sets forth net income (loss) as reported and excluding non-recurring items:
Six Months Ended | |||
2002 | 2001 | ||
Net Income (Loss) | |||
Net income (loss), as reported | $182.9 | $ (142.4) | |
Less non-recurring items: | |||
Restructuring and other merger related costs | -- | (52.9) | |
Goodwill impairment and other charges | -- | (221.4) | |
Investment impairment | -- | (160.1) | |
Tax effect of above items | -- | 102.0 | |
Total non-recurring items | -- | (332.4) | |
Net income, excluding non-recurring items | $182.9 | $ 190.0 | |
Revenue
Worldwide revenue for the six months ended June 30, 2002 was $3,033.1, a decrease of $402.5 or 11.7% from the six months ended June 30, 2001. Domestic revenue, which represented 56% of revenue in the six months ended June 30, 2002, decreased $324.8 or 16.1% from the same period in 2001. International revenue, which represented 44% of revenue in the six months ended June 30, 2002, decreased $77.7 or 5.5% from the same period in 2001. International revenue would have decreased 7.2% excluding the effects of changes in foreign currency. The decrease in worldwide revenue was primarily a result of reduced demand for advertising and marketing services by current clients due to the weak economy, the loss of the Chrysler account in the fourth quarter of 2000 and the loss of accounts of Pepsi owned brands. The worldwide revenue decrease of (11.7)% was due to: net acquisitions/divestitures (0.6)%, impact of foreign currency changes 0.7%, impact of the loss of the Chrysler account and loss of accounts of Pepsi o wned brands (0.9)% and organic revenue decline (10.9)%. Organic changes in revenue are based on increases or decreases in net new business activity and increases or decreases in activity from existing client accounts.
The Company is a worldwide global marketing services company, providing clients with communications expertise in four broad areas: a) advertising and media management, b) marketing communications, which includes client relationship management (direct marketing), public relations, sales promotion, event marketing, on-line marketing and healthcare marketing, c) marketing intelligence, which includes custom marketing research, brand consultancy and database management and d) marketing services, which includes sports and entertainment marketing, corporate meetings and events, retail marketing and other marketing and business services.
The following table sets forth the estimated revenue breakdown by type of service offering. Management of the Company believes that this breakdown is a useful measure of the types of global marketing services provided. This presentation does not represent the way in which the Company is organized or managed since most of the services are offered by each of the Company's global operating groups:
Six Months Ended June 30, | |||
2002 | 2001 | ||
Advertising and Media Management | $1,801.0 | $2,075.3 | |
Marketing Communications | 805.5 | 908.2 | |
Marketing Intelligence | 226.4 | 218.9 | |
Marketing Services | 200.2 | 233.2 | |
Total Revenue | $3,033.1 | $3,435.6 | |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
Operating Expenses
Worldwide operating expenses for the six months ended June 30, 2002 decreased $658.9 or 19.9% to $2,655.8 compared to the six months ended June 30, 2001. Worldwide operating expenses excluding non-recurring items for the six months ended June 30, 2002 decreased $384.6 or 12.6% compared to the six months ended June 30, 2001. The decrease in worldwide operating expenses reflects the benefit of the Company's 2001 restructuring plan and other operating cost reduction initiatives, and a decrease in amortization of intangible assets as a result of adoption of the new accounting pronouncement related to goodwill amortization (see Note 7). The decrease of (12.6)% was due to: net acquisitions/divestitures (1.0)%, impact of foreign currency changes 0.8%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.5)% and reductions in operating expenses from existing operations (11.9)%.
The Company's expenses related to employee compensation and various employee incentive and benefit programs amount to approximately 57.5% of revenue. Salaries and related expenses for the six months ended June 30, 2002 decreased $225.8 or 11.5% to $1,745.4 compared to the six months ended June 30, 2001. The decrease is primarily a result of lower headcount, which was reduced to 52,300 at June 30, 2002 compared with 59,500 at June 30, 2001 as a result of the Company's 2001 restructuring plan. The decrease of (11.5)% was due to: net acquisitions/divestitures (0.9)%, impact of foreign currency changes 0.8%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.6)% and reductions in salaries and related expenses from existing operations (10.8)%.
Office and general expenses decreased $78.5 or 8.0% in the six months ended June 30, 2002 to $906.6 compared to $985.1 in the six months ended June 30, 2001. The decrease was due primarily to the impact of foreign currency changes, the impact of the loss of the Chrysler account and accounts of Pepsi owned brands and the benefit of the Company's 2001 restructuring plan initiatives, including reduced travel and entertainment costs and reduced office rental and supplies costs partially offset by an increase in bad debt expense. The decrease of (8.0)% was due to: net acquisitions/divestitures (1.2)%, impact of foreign currency changes 0.9%, impact of the loss of the Chrysler account and loss of accounts of Pepsi owned brands (0.9)% and reductions in office and general expenses from existing operations (6.8)%.
Amortization of intangible assets was $3.8 in the six months ended June 30, 2002 compared with $84.1 in the six months ended June 30, 2001. The decrease is a result of the adoption of the new standard on accounting for goodwill and other intangible assets effective January 1, 2002. Although SFAS 142 does not require that previously reported numbers be restated, amortization of intangible assets would have been $1.9 million for the six months ended June 30, 2001 under the new standard (see Note 7).
OTHER INCOME (EXPENSE)
Interest Expense
Interest expense was $72.2 in the first six months of 2002 compared with $78.9 in the first six months of 2001. The decrease was primarily due to lower interest rates paid on short-term borrowings, the benefit of interest rate swap agreements covering all of the $500.0, 7.875% notes and the issuance and sale of the Zero-Coupon Convertible Notes in December 2001. The Company used the net proceeds of $563.2 from the Zero-Coupon Convertible Notes to repay indebtedness under the Company's credit facilities.
Interest Income
Interest income was $15.0 for the first six months of 2002 compared with $23.3 in the same period of 2001. The decrease in 2002 is primarily due to lower interest rates and lower average cash balances primarily resulting from the lower earnings levels.
Other Income
Other income primarily consists of investment income, gains from the sale of businesses and gains (losses) on investments, primarily marketable securities classified as available-for-sale. Other income was $10.6 for the first six months of 2002 compared with $11.9 for the first six months of 2001. The gain in 2002 reflects gains on the sale of an unconsolidated affiliate in Europe and a marketing services affiliate in the U.S. The prior year included gains on the sale of a marketing services affiliate and an unconsolidated affiliate in Europe, and non-core marketing services affiliates in the U.S.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
Investment Impairment
During the second quarter of 2002, the Company recorded investment impairment charges of $16.2, primarily relating to certain investments of Octagon, a sports marketing company.
OTHER ITEMS
The Company's effective income tax rate was 38.6% for the first six months of 2002 and 55.7% for the first six months of 2001. The 2001 effective tax rate was impacted by the restructuring and other merger related costs, goodwill impairment and other charges and the investment impairment charge, which resulted in a lower tax benefit rate. Excluding non-recurring items, the effective income tax rate was 38.6% for the first six months of 2002 compared to 42.2% for the first six months of 2001. The 2002 effective income tax rate was impacted by the reduced amount of nondeductible goodwill amortization. The primary difference between the effective tax rate and the statutory federal rate of 35% in 2002 is due to state and local taxes.
Income applicable to minority interests was $14.7 in the first six months of 2002 compared to $17.4 in the first six months of 2001. The decrease in the first six months of 2002 was primarily due to lower operating results of certain operations in Europe and Asia Pacific and the sale of a majority-owned affiliate in the U.S.
Equity in net income of unconsolidated affiliates was $4.5 in the first six months of 2002 compared to $4.1 in the first six months of 2001. The increase is primarily due to increased earnings of unconsolidated affiliates in Latin America and the U.S. offset by reduced earnings of unconsolidated affiliates in Europe.
NON-RECURRING ITEMS
RESTRUCTURING AND OTHER MERGER RELATED COSTS
Following the completion of the True North acquisition in June 2001, the Company initiated a series of operational initiatives focusing on: a) the integration of the True North operations and the identification of synergies and savings, b) the realignment of certain Interpublic businesses and c) productivity initiatives to achieve higher operating margins. In connection with the operational initiatives, the Company executed a wide-ranging restructuring plan that included severance, lease terminations and other actions. The total amount of the charges incurred in 2001 in connection with the plan was $645.6.
A summary of the remaining liability for restructuring and other merger related costs is as follows:
Balance at | Cash paid | Liability | |||
TOTAL BY TYPE | |||||
Severance and termination costs | $154.0 | $ 94.2 | $ 59.8 | ||
Lease termination and other exit costs | 157.1 | 39.4 | 117.7 | ||
Total | $311.1 | $133.6 | $177.5 |
As of June 30, 2002, the Company expects that 7,500 employees will be terminated in connection with the restructuring plan. Of that total, the majority of severance actions have occurred with the remainder to occur by the end of September. A significant portion of severance liabilities are expected to be paid out over a period of up to one year.
The employee groups affected by the restructuring program include all levels and functions across the Company: executive, regional and account management, administrative, creative and media production personnel. Approximately half of the headcount reductions relate to the U.S., one third relate to Europe (principally the UK, France and Germany), with the remainder relating to Latin America and Asia Pacific.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
Lease termination costs, net of estimated sublease income, relate to the offices that have been or will be vacated as part of the restructuring. The Company plans to downsize or vacate approximately 180 locations and expects that all leases will have been terminated or the premises vacated or subleased by September 30, 2002. The cash portion of the charge will be paid out over a period of up to five years. The geographical distribution of offices to be vacated is similar to the geographical distribution of the severance charges. Lease termination and related costs include write-offs related to the abandonment of leasehold improvements as part of the office vacancies.
Other exit costs relate principally to the impairment loss on sale or closing of certain business units in the U.S. and Europe. In the aggregate, the businesses being sold or closed represent an immaterial portion of the revenue and operating profit of the Company. 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. The sales and closures had been completed by June 30, 2002.
GOODWILL IMPAIRMENT AND OTHER CHARGES
Following the completion of the True North acquisition, in connection with the Company's initiative on realignment of certain Interpublic businesses, the Company evaluated 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 $303.1 ($263.4, net of tax) had been recorded in 2001. Of the total write-off, $221.4 was recorded in the second quarter of 2001, with the remainder recorded in the third quarter of 2001. The largest components of the goodwill impairment and other charges were Capita Technologies, Inc. (approximately $145) and Zentropy Partners (approximately $16), both internet services businesses. The remaining amount primarily related to several other businesses including internet services, healthcare consulting, and certai n advertising offices in Europe and Asia Pacific.
INVESTMENT IMPAIRMENT
During the first quarter of 2001, the Company recorded a charge of $160.1 related to 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 adjusted the carrying value of investments to the estimated market value.
At June 30, 2002, the Company had approximately $134 of investments, of which approximately $48 represents less than 20% owned and are accounted for on the cost basis and approximately $86 represents available-for-sale securities.
DERIVATIVE AND HEDGING INSTRUMENTS
Interest Rate Swaps
At June 30, 2002, the Company had outstanding interest rate swap agreements covering all of the $500.0, 7.875% notes due October 2005. The fair value of the hedges at June 30, 2002 was an asset of approximately $19.9.
Hedges of Net Investments
The Company has repaid the Euro borrowings that, as of December 31, 2001, had been designated as a hedge of a net investment.
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
Forward Contracts
As of June 30, 2002, the Company had contracts covering approximately $34.8 of notional amount of currency. As of June 30, 2002, the fair value of the forward contracts was an asset of $3.0.
Other
The Company has two embedded derivative instruments under the terms of the offering of Zero-Coupon Convertible Notes. At June 30, 2002, the fair value of the two derivatives was negligible.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, cash and cash equivalents were $537.3, a decrease of $397.9 from the December 31, 2001 balance of $935.2. The June 30, 2002 cash position was impacted by the severance and lease termination costs paid in connection with the Company's restructuring plan in addition to payouts of prior year incentives accruals in the second quarter of 2002.
The Company collects funds from clients on behalf of media outlets resulting in cash receipts and disbursements at levels substantially exceeding its revenue. Therefore, the working capital amounts reported on its balance sheet and cash flows from operating activities reflect the "pass-through" of these items.
Cash flow provided from operating activities, supplemented by seasonal short-term borrowings and long-term credit facilities, finance the operating, acquisition and capital expenditure requirements of the Company, in addition to dividend payments and repurchases of common stock.
Operating Activities
Cash flow from operations and borrowings under existing credit facilities, and refinancings thereof, have been the primary sources of the Company's working capital, and management believes that they will continue to be so in the future.
Net cash provided by (used in) operating activities was a source of $19.6 compared to a use of $319.9 for the six months ended June 30, 2002 and 2001, respectively. The decrease in cash used for the first six months of 2002 was primarily attributable to the reduction of cash used for working capital including reduced payments of incentives in the second quarter of 2002 partially offset by payments made in connection with the Company's restructuring plan. The Company paid $133.6 related to severance, lease termination and other exit costs in connection with its restructuring plan. 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 acquisitions, capital expenditures, repurchase of the Company's common stock and payment of cash dividends.
Investing Activities
During the first six months of 2002 the Company has completed 8 acquisitions. The companies acquired included those in the U.S. and Europe and included healthcare, public relations, direct marketing and research companies. In connection with these acquisitions, the Company paid $43.1 in cash and issued shares with a value of $1.1. Additionally, the Company paid $2.0 in cash and $0.8 in stock for additional ownership interests in companies in which a previous investment had been made.
During the first six months of 2002 the Company paid $165.9 in cash and $42.5 in stock as deferred payments on acquisitions that had closed in prior years. During the first six months of 2001 the Company paid $78.0 in cash and $29.7 in stock as deferred payments on acquisitions that had closed in prior years.
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
The Company's capital expenditures in the first six months of 2002 were $81.9 compared to $124.7 in the first six months of 2001. The Company continues to expect that capital expenditures for 2002 will be lower than the prior year. The primary purposes of these expenditures were to upgrade computer and telecommunications systems and to modernize offices.
Financing Activities
Total debt at June 30, 2002 was $2,976.3, an increase of $42.6 from December 31, 2001. The Company's bank-provided revolving credit agreements include financial covenants that set maximum levels of debt as a function of EBITDA and minimum levels of EBITDA as a function of interest expense (as defined in these agreements). At June 30, 2002, the Company was in compliance with all of its financial covenants in the revolving credit agreements.
The Company's term loan agreements also contain financial covenants that set minimum levels for net worth and for cash flow as a function of borrowed funds and maximum levels of borrowed funds as a function of net worth (as defined in these agreements). During the three months ended June 30, 2002, as a result of decreased cash flows and certain non-recurring charges for past quarters, the Company required and received amendments related to its financial covenants in the term loan agreements. In connection with the amendments, the Company agreed to a 0.5% increase in interest rates pertaining to $148.8 outstanding under the term loans. The Company believes that the additional interest payable is not material to the Company's financial position. At June 30, 2002, the Company was in compliance with all of its financial covenants in the term loan agreements, as amended.
In addition, the Company has obtained waivers of certain other provisions (not including financial covenants) contained in its revolving credit agreements and term loan agreements relating to the restatement described in Note 2 to the Company's Consolidated Financial Statements.
The Company renewed its 364-day, $500.0 bank facility prior to its maturity in June 2002. At June 30, 2002, there were no borrowings under this facility.
The Company repaid its $100 floating rate notes on June 28, 2002, the date of maturity. In addition, subsequent to June 30, 2002, the Company repaid an aggregate amount of $16.7 to two lenders under a term loan agreement.
Other
During the first three months of 2001, the Company purchased approximately 1.1 million shares of its common stock. Since July 2001, the Company has not repurchased its common stock in the open market as its current holdings of treasury shares are sufficient to meet its needs for various compensation plans.
The Company has paid cash dividends at a quarterly rate of $0.095 per share since the second quarter of 2000, when it was increased from $0.085 per share. The determination of dividend payments is made by the Company's Board of Directors on a quarterly basis.
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
Based on current demand for the Company's services and the global economic environment, the Company believes that its cash flow from operations, together with its existing lines of credit and cash on hand, is sufficient to provide for the liquidity needs of its business. At June 30, 2002, the Company's committed credit facilities were $938.2 of which $106.8 was utilized at June 30, 2002. In addition, the Company has had success in the past accessing the debt markets for increased liquidity. Unanticipated decreases in cash flow from operations as a result of decreased demand for our services and other developments, including those described in the "Cautionary Statement" below, may require the Company to seek other sources of liquidity and modify its operating strategies.
As of June 30, 2002, the Company's estimated liability for earn-outs is as follows:
2002 | 2003 | 2004 | 2005 and after | Total | ||
Cash | $46.9 | $120.4 | $72.1 | $66.6 | $306.0 | |
Stock | 30.6 | 26.5 | 10.1 | 19.4 | 86.6 | |
Total | $77.5 | $146.9 | $82.2 | $86.0 | $392.6 |
The amounts above are estimates based on the current projections as to the amount that will be paid and are subject to revisions as the earn-out periods progress.
In addition to the estimated liability for earn-outs, the Company has entered into agreements that require the Company to purchase additional equity interests in certain companies (put options). In many cases, the Company also has the option to purchase the additional equity interests (call options) in certain circumstances. The total amount of potential payments under put options is as follows:
Exercisable | Not | Total | ||
Cash | $12.4 | $167.4 | $179.8 | |
Stock | 4.1 | 24.5 | 28.6 | |
Total | $16.5 | $191.9 | $208.4 |
The expected maturity of the $208.4 is as follows: 2002 - $21.7; 2003 - $60.0; 2004 - $17.0; 2005 and thereafter - $109.7. The actual amount to be paid is contingent upon the achievement of projected operating performance targets and satisfying other conditions as specified in the relevant agreement.
The Company also has call options to acquire additional equity interests in companies in which it already has an ownership interest. The estimated amount that would be paid under such call options is $43.5 and, in the event of exercise, would be paid as follows: 2002 - $0.8; 2003 - $17.8; 2004 - $4.9; 2005 thereafter - $20.0. The actual amount to be paid is contingent upon the achievement of projected operating performance targets and satisfying other conditions as specified in the relevant agreement.
OTHER MATTERS
Argentina and Brazil
As a result of the devaluation of currencies in Argentina and Brazil in recent months, the Company's cumulative translation adjustment balance reflected a reduction in stockholders' equity of approximately $23.2 for the six months ended June 30, 2002. The Company expects to maintain its strategic investment in Argentina and Brazil for the long-term. Accordingly, the Company does not currently consider its investment in these countries to be permanently impaired.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141,Business Combinations("SFAS 141"), and No. 142,Goodwill and Other Intangible Assets ("SFAS 142"). These statements were effective for fiscal years beginning after December 15, 2001. Under the new standards, the purchase method of accounting is required for all business combinations initiated after June 30, 2001
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
and goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives.
During the first quarter of 2002, the Company performed the required impairment tests of goodwill and determined that there was no impairment required to be recognized upon adoption. The Company estimates that, based on its current intangible assets, amortization expense will be approximately $6.0 to $8.0 in each of the next five years.
In connection with SFAS 142, goodwill amortization ceased effective January 1, 2002. The following analysis shows the impact on the Company's statement of operations had SFAS 142 been effective for all periods presented:
Three Months Ended | Six Months Ended | ||||||
2002 | 2001 | 2002 | 2001 | ||||
Reported net income (loss) | $117.0 | $(113.1) | $182.9 | $(142.4) | |||
Add back: goodwill amortization, net of tax | -- | 35.0 | -- | 70.3 | |||
Adjusted net income (loss) | $117.0 | $ (78.1) | $182.9 | $ (72.1) | |||
Basic earnings (loss) per share: | |||||||
Reported earnings (loss) | $0.31 | $(0.31) | $0.49 | $(0.39) | |||
Add back: goodwill amortization, net of tax | -- | 0.10 | -- | 0.19 | |||
Adjusted earnings (loss) | $0.31 | $(0.21) | $0.49 | $(0.20) | |||
Diluted earnings (loss) per share: | |||||||
Reported earnings (loss) | $0.31 | $(0.31) | $0.48 | $(0.39) | |||
Add back: goodwill amortization, net of tax | -- | 0.10 | -- | 0.19 | |||
Adjusted earnings (loss) | $0.31 | $(0.21) | $0.48 | $(0.20) | |||
In June 2001, Statement of Financial Accounting Standards No. 143,Accounting for Asset Retirement Obligations ("SFAS 143") was issued. SFAS 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, SFAS 143 requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the assets' useful life. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The adoption of this statement is not expected to have an impact on the Company's financial position or results of operations.
In August 2001, Statement of Financial Accounting Standards No. 144,Accounting for the Impairment orDisposal of Long-lived Assets ("SFAS 144") was issued. SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,Accounting for the Impairment of Long-lived Assets to be Disposed of ("SFAS 121"), and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 also amends ARB (Accounting Research Bulletins) No. 51,ConsolidatedFinancial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary.
SFAS 144 retains the fundamental provisions of SFAS 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while resolving significant implementation issues associated with SFAS 121. Among other things, SFAS 144 provides guidance on how long-lived assets used as part of a group should be evaluated for impairment, establishes criteria for when long-lived assets are held for sale, and prescribes the accounting for long-lived assets that will be disposed of other than by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of this statement did not have an impact on the Company's financial position or results of operations.
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
In November 2001, the Emerging Issues Task Force reached a consensus on Issue No. 01-14,Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred ("EITF 01-14"). EITF 01-14 establishes that reimbursements received for certain out-of-pocket expenses should be reported as revenue and operating expenses in the statement of operations. Historically, the Company classified reimbursed out-of-pocket expenses as a reduction of operating expenses. The Company has adopted this guidance effective the first quarter of fiscal year 2002.
In June 2002, Statement of Financial Accounting Standards No. 146,Accounting for Costs Associated with Exit or Disposal Activities("SFAS 146") was issued. SFAS 146 changes the measurement and timing of recognition for exit costs, including restructuring charges, and is effective for any such activities initiated after December 31, 2002. It has no effect on charges recorded for exit activities begun prior to this date.
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to interest rates and foreign currencies.
Interest Rates
At June 30, 2002, a significant portion of the Company's debt obligations was at fixed interest rates. Accordingly, for the fixed rate debt, assuming the fixed rate debt is not refinanced, there would be no impact on interest expense or cash flow from either a 10% increase or decrease in market rates of interest. The fair market value of the debt obligations would decrease by approximately $31.0 on an annual basis if market rates were to increase by 10% and would increase by approximately $33.0 on an annual basis if market rates were to decrease by 10%. For that portion of the debt that is either maintained at variable rates or is swapped into variable rates, based on amounts and rates outstanding at June 30, 2002, the change in interest expense and cash flow from a 10% change in rates would be approximately $4.4 on an annual basis.
Foreign Currencies
The Company faces two risks related to foreign currency exchange: translation risk and transaction risk. Amounts invested in the Company's foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the stockholders' equity section of the balance sheet. The Company's foreign subsidiaries generally collect revenues and pay expenses in currencies other than the U.S. dollar. Since the functional currency of the Company's foreign operations is generally the local currency, foreign currency translation of the balance sheet is reflected as a component of stockholders' equity and does not impact operating results. Revenues and expenses in foreign currencies translate into varying amounts of U.S. dollars depending upon whether the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may negatively affect t he Company's consolidated revenues and expenses (as expressed in U.S. dollars) from foreign operations. Currency transaction gains or losses arising from transactions in currencies other than the functional currency are included in results of operations. The Company has generally not entered into a material amount of foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
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 integration of acquisitions and restructuring costs, constitute forward-looking statements. These statements are based on current plans, 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 or future events.
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions, Except Per Share Amounts)
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 national and regional economic 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.
PART II - OTHER INFORMATION | ||
Item 2(c). CHANGES IN SECURITIES | ||
(1) On April 1, 2002, the Registrant issued 46,026 shares of its Common Stock, par value $.10 per share (the "Interpublic Stock") and paid $3,619,815 in cash to the one former shareholder of a company which was acquired in the second quarter of 2000. This represented a deferred payment of the purchase price. The shares of Interpublic Stock were valued at $1,552,000.00 on the date of issuance. | ||
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS | ||
(a) | This item is answered in respect of the Annual Meeting of Stockholders held on May 20, 2002 (the "Annual Meeting"). | |
(b) | No response is required to Paragraph (b) because (i) proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; (ii) there was no solicitation in opposition to Management's nominees as listed in the proxy statement; and (iii) all such nominees were elected. | |
(c) | At the Annual Meeting, the following number of shares were cast with respect to each matter voted upon: | |
-- | Proposal to approved Management's nominees for director as follows: | |
NOMINEE | FOR | WITHHELD | BROKER |
Frank J. Borelli | 312,352,366 | 6,466,428 | 0 |
Reginald K. Brack | 312,318,706 | 6,500,088 | 0 |
Jill M. Considine | 312,271,006 | 6,547,788 | 0 |
John J. Dooner, Jr. | 314,113,258 | 4,705,536 | 0 |
Richard A. Goldstein | 257,025,723 | 61,793,071 | 0 |
H. John Greeniaus | 314,319,522 | 4,499,272 | 0 |
Sean F. Orr | 313,956,393 | 4,862,401 | 0 |
Michael I. Roth | 312,736,786 | 6,082,008 | 0 |
J. Phillip Samper | 314,301,819 | 4,516,975 | 0 |
-- | Proposal to approve The Interpublic Group of Companies, Inc. 2002 Performance Incentive Plan |
FOR | AGAINST | ABSTAIN | BROKER |
288,495,258 | 28,134,226 | 2,189,310 | 0 |
-- | Proposal to approve confirmation of independent accountants |
FOR | AGAINST | ABSTAIN | BROKER |
305,531,887 | 11,786,147 | 1,500,760 | 0 |
-- | Approval of Stockholder's Resolution on Adoption of MacBride Principles for Northern Ireland Subsidiaries |
FOR | AGAINST | ABSTAIN | BROKER |
30,946,661 | 246,537,707 | 10,217,647 | 31,116,779 |
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. | |||
(a) | EXHIBITS | ||
EXHIBIT NO. | DESCRIPTION | ||
10(i)(A) | 364-Day Credit Agreement, dated as of May 16, 2002 among Interpublic, the Initial Lenders named therein, Citibank, N.A. as Administrative Agent and Salomon Smith Barney Inc. as Lead Arranger and Book Manager (the "364 - Day Credit Agreement"). | ||
10(i)(B) | Amendment No. 3 dated May 16, 2002, to a 5-Year Credit Agreement (the "5 - Year Credit Agreement") among Interpublic, the Initial Lenders named therein, Citibank, N.A. as Administrative Agent and Salomon Smith Barney Inc., as Lead Arranger and Book Manager. | ||
10(i)(C) | Waiver and Amendment Letter, dated August 6, 2002 to the 364-Day Credit Agreement. | ||
10(i)(D) | Waiver and Amendment Letter, dated August 6, 2002 to the 5-Year Credit Agreement. | ||
10(iii)A(i) | Deferred Compensation Agreement, dated as of April 1, 2002 between Interpublic and Jill M. Considine. | ||
10(iii)(A)(ii) | Executive Severance Agreement, dated as of April 18, 2002 between Interpublic and Bruce Nelson. | ||
10(iii)(A)(iii) | The Interpublic Group of Companies, Inc. 2002 Performance Incentive Plan, incorporated herein by reference to Appendix A to Schedule 14A, filed April 17, 2002. | ||
(b) | REPORTS ON FORM 8-K. | ||
The following Reports on Form 8-K were filed during the quarter ended June 30, 2002. | |||
1) | Report, dated May 2, 2002. Item 5 Other Events and Item 7 Exhibits, Exhibit 99.1. Press Release. | ||
2) | Report, dated May 2, 2002. Item 9 Regulation FD Disclosure. | ||
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: August 14, 2002 | BY/S/ JOHN J. DOONER, JR. |
JOHN J. DOONER, JR | |
Chairman of the Board, President | |
and Chief Executive Officer | |
Date: August 14, 2002 | BY/S/ SEAN F. ORR |
SEAN F. ORR | |
Executive Vice President and | |
INDEX TO EXHIBITS | |
EXHIBIT NO. | DESCRIPTION |
10(i)(A) | 364-Day Credit Agreement, dated as of May 16, 2002 among Interpublic, the Initial Lenders named therein, Citibank, N.A. as Administrative Agent and Salomon Smith Barney Inc. as Lead Arranger and Book Manager (the "364 - Day Credit Agreement"). |
10(i)(B) | Amendment No. 3 dated May 16, 2002, to a 5-Year Credit Agreement (the "5 - Year Credit Agreement") among Interpublic, the Initial Lenders named therein, Citibank, N.A. as Administrative Agent and Salomon Smith Barney Inc., as Lead Arranger and Book Manager. |
10(i)(C) | Waiver and Amendment Letter, dated August 6, 2002 to the 364-Day Credit Agreement. |
10(i)(D) | Waiver and Amendment Letter, dated August 6, 2002 to the 5-Year Credit Agreement. |
10(iii)A(i) | Deferred Compensation Agreement, dated as of April 1, 2002 between Interpublic and Jill M. Considine. |
10(iii)(A)(ii) | Executive Severance Agreement, dated as of April 18, 2002 between Interpublic and Bruce Nelson. |
10(iii)(A)(iii) | The Interpublic Group of Companies, Inc. 2002 Performance Incentive Plan, incorporated herein by reference to Appendix A to Schedule 14A, filed April 17, 2002. |