Exhibit 99.1
The
Interpublic
Group of Companies, Inc.
Second Quarter 2002
Conference Call Notes
August 13, 2002
Conference Call Agenda
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I. Introduction
II. Accounting Issue and Restatement
III. Second Quarter Financials
IV. Outlook and Guidance
V. Questions and Answers
Overview
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Chronology
o New procedures put in place in 1H 02 gave rise to findings
o Issues largely concentrated in one agency in one region
o Evaluated the extent of problem, and the size of problem, and what steps
were necessary to prevent recurrence
What Is It?
o Imbalance in intercompany accounts, arising when one office does work on
behalf of another
o In providing service to multinational clients, numerous coordination
centers generate thousands of small dollar transactions within the company
o In any given period, amounts involved were not material. However,
cumulative effect of these imbalances over multiple years required this
restatement
Overview (continued)
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Findings
o While the $68.5 million restatement is the total charge, the review of
procedures and personnel will continue
o Accounting effects are final
o No impact on cash flow or future performance
o New management in place in this region since January 1
o Further personnel or procedural changes, if necessary, will be made at
completion of the review
Restated Earnings (1997-2002)
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($ Millions)
Impact of Restatement
---------------------------------------------
A. Years 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------
Net income (loss) - as reported $(505.3) $420.3 $359.4 $374.2 $168.7
Adjustments (5.9) (6.8) (5.6) (4.8) (4.0)
Net income (loss) - as restated (511.2) 413.5 353.8 369.4 164.7
Earnings (loss) per share - as reported $ (1.37) $ 1.14 $0.99 $1.04 $0.49
Earnings (loss) per share - as restated $ (1.39) $ 1.12 $0.97 $1.03 $0.48
2001 2002
------------------- --------
B. Quarters Q1 Q2 Q1
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Net income (loss) - as reported $ (28.8) $(110.2) $ 66.7
Adjustments (0.6) (2.9) (0.8)
Net income - as restated (29.4) (113.1) 65.9
Earnings (loss) per share - as reported $ (0.08) $ (0.30) $ 0.18
Earnings (loss) per share - as restated $ (0.08) $ (0.31) $ 0.17
Second Quarter 2002
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o EPS $.31 vs. pro forma $.30
- FAS 142 adjusted 2Q `01 was $.39
- Octagon/other impacted EPS by ($0.05) per share
o Organic operating costs decline $135 million
- Cost reductions on schedule
o Revenue down 8.4% to $1,613 MM
- Sequential improvement over 1Q `02
- Constant dollar revenue down 10.7%
- Q2 revenue environment weaker than planned
o Revenue remains volatile
o New Business performance excellent
- Strong start in third quarter
Summary
Second Quarter Results
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(Restated; excludes restructuring charges and other unusual items)
($ Millions)
Adjusted
FAS 142
2002 2001 Change % 2Q '01
--------- --------- -------- --------
Revenue $ 1,613.0 $ 1,760.4 (8.4%) $1,760.4
Operating Costs 1,322.2 1,424.2 (7.2%) 1,424.2
EBITDA 290.8 336.2 (13.5%) 336.2
Margin % 18.0% 19.1% 19.1%
Depreciation 50.0 52.3 (4.4%) 52.3
Amortization of Intangibles 2.3 42.2 (94.5%) 1.0
Income from Operations 238.5 241.7 (1.3%) 282.9
Margin % 14.8% 13.7% 16.1%
Net Income 117.0 114.1 2.5% 149.2
Diluted EPS .31 .30 3.3% .39
Summary
First Half Results
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(Restated; excludes restructuring charges and other unusual items)
($ Millions)
Adjusted
FAS 142
2002 2001 Change % 2Q '01
--------- --------- -------- --------
Revenue $ 3,033.1 $ 3,435.6 (11.7%) 3,435.6
Operating Costs 2,553.3 2,852.2 (10.5%) 2,852.2
EBITDA 479.8 583.4 (17.8%) 583.4
Margin % 15.8% 17.0% 17.0%
Depreciation 98.7 104.1 (5.2%) 104.1
Amortization of Intangibles 3.8 84.1 (95.5%) 1.9
Income from Operations 377.3 395.2 (4.5%) 477.4
Margin % 12.4% 11.5% 13.9%
Net Income 182.9 190.0 (3.7%) 260.4
Diluted EPS .48 .50 (4.0%) .69
Second Quarter 2002:
Components of Revenue Change
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Effects of: Growth %
--------
Organic (9.5%)
Merger-Related Losses (0.7%)
Currency Translation 2.3%
Net Dispositions (0.5%)
------
(8.4%)
======
First Half 2002:
Components of Revenue Change
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Effects of: Growth %
--------
Organic (10.9%)
Merger-Related Losses (0.9%)
Currency Translation 0.7%
Net Dispositions (0.6%)
------
(11.7%)
======
Second Quarter 2002:
Components of Change
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(Restated; before Non-Recurring Items)
($ Millions)
2001 Pro Loss of
Forma Chrysler/
FAS Net Pepsi Octagon/ 2002
2ND QTR 141/142 Currency Dispositions Brands Organic Other Results
- --------------------------------------------------------------------------------------------------------
Revenue $1,760.4 $45.1 $(11.9) $(13.9) $(154.1) $(12.6) $1,613.0
Operating
Expenses 1,477.5 42.2 (10.7) (9.3) (135.2) 10.0 1,374.5
Operating
Income 282.9 2.9 (1.2) (4.6) (18.9) (22.6) 238.5
Operating Margin
Change - (0.3%) 0.1% (0.2)% 0.4% (1.3)% -
Operating
Margin 16.1% 15.8% 15.9% 15.7% 16.1% 14.8% 14.8%
- ----------- ------ ------
Diluted EPS 0.39 - - (0.01) (0.02) (0.05) 0.31
- ----------- ------ ------
June YTD 2002:
Components of Change
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(Restated; before Non-Recurring Items)
($ Millions)
2001 Pro Loss of
Forma Chrysler/
FAS Net Pepsi Octagon/ 2002
JUNE YTD 141/142 Currency Dispositions Brands Organic Other Results
- --------------------------------------------------------------------------------------------------------
Revenue $3,435.6 $26.4 $ (30.0) $ (32.6) $(351.8) $(14.5) $3,033.1
Operating
Expenses 2,958.2 24.6 (30.3) (18.4) (286.7) 8.4 2,655.8
Operating
Income 477.4 1.8 0.3 (14.2) (65.1) (22.9) 377.3
Operating
Margin Change - (0.1%) 0.2% (0.3%) (0.6%) (0.7)% -
Operating
Margin 13.9% 13.8% 14.0% 13.7% 13.1% 12.4% 12.4%
- ----------- ------ ------
Diluted EPS 0.69 - - (0.02) (0.10) (0.09) 0.48
- ----------- ------ ------
Octagon
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Before non-recurring costs
2Q'02 2Q'01 Variance
------ ------ --------
Revenue $ 57.2 $ 69.8 $ (12.6)
Operating Expense 66.7 56.7 (10.0)
Operating Income (9.5) 13.1 (22.6)
Operating Margin (16.5%) 18.8% -
Other Income (Expense) (16.4) - (16.4)
Pretax Income (25.9) 13.1 (39.0)
Net Income (17.1) 9.9 (27.0)
EPS (.04) .03 (.07)
Diluted EPS Calculation
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(Restated)
($ Millions)
1Q02 2Q02 2QYTD
------------------------------
Net Income $ 65.9 $ 117.0 $ 182.9
Add-Backs:
Interest & Discount on
Convertible Notes (1.80%) N/A 2.0 N/A
------ ------- -------
Net Income Including Add-Backs $ 65.9 $ 119.0 $ 182.9
====== ======= =======
Basic Shares 373.0 375.7 374.3
Add-Backs:
Conversion of 1.80% Notes N/A 6.7 N/A
Stock Options and Restricted Stock 6.8 6.7 6.8
------ ------- -------
Total Shares (MM) 379.8 389.1 381.1
====== ======= =======
Diluted EPS $ .17 $ .31 $ .48
N/A = Anti Dilutive
Pro Forma EBITDA Margin Trend
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Restated
'00 '01 '02
---- ---- ----
Third Quarter 17.7% 14.4%
Fourth Quarter 20.1% 19.1%
First Quarter 14.8% 13.3%
Second Quarter 19.1% 18.0%*
*Excluding Octagon, pro forma EBITDA Margin is 19.1%
Selected Cash Flow Items
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($ Millions)
Six Months Ended
-------------------------------
June 30, 2002 June 30, 2001
------------- -------------
Depreciation and Amortization
of Fixed Assets $ 98.7 $104.1
Amortization of Intangible Assets 3.8 84.1
Acquisitions 206.5 142.4
Capital Expenditures 81.9 124.7
Revenue by Discipline
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($ Millions)
Second Quarter
Revenue
-------------------------------------------------
% of % of %
2002 Rev 2001 Rev Change
- -------------------------------------------------------------------------------
Marketing Communications $ 420.8 26.0% $ 462.2 26.3% (9.0%)
Marketing Intelligence 124.0 7.7% 113.4 6.4% 9.4%
Marketing Services 110.8 6.9% 129.6 7.4% (14.5%)
------ ----- ------- ----- ----
Total Marketing and
Communication Services 655.6 40.6% 705.2 40.1% (7.0%)
Advertising & Media 957.4 59.4% 1,055.2 59.9% (9.3%)
------ ----- ------- ----- ----
Total Revenue $1,613.0 100.0% $1,760.4 100.0% (8.4%)
======== ===== ======== ===== ====
Revenue by Discipline
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($ Millions)
First Half
Revenue
-------------------------------------------------
% of % of %
2002 Rev 2001 Rev Change
- -------------------------------------------------------------------------------
Marketing Communications $ 805.5 26.5% $ 908.2 26.4% (11.3%)
Marketing Intelligence 226.4 7.5% 218.9 6.4% 3.4 %
Marketing Services 200.2 6.6% 233.2 6.8% (14.1%)
------- ----- ------- ----- ----
Total Marketing and
Communication Services 1,232.1 40.6% 1,360.3 39.6% (9.4%)
Advertising & Media 1,801.0 59.4% 2,075.3 60.4% (13.2%)
------- ----- ------- ----- ----
Total Revenue $3,033.1 100.0% $3,435.6 100.0% (11.7%)
======== ===== ======== ===== ====
Revenue by Region
Second Quarter 2002
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($ Millions)
% % Change % Change
Revenue % Total Change Constant $ Organic
-----------------------------------------------------
Europe $ 497.1 30.8% 4.0% (8.2%) (7.4%)
Latin America 63.2 3.9% (22.4%) (0.2%) (2.7%)
Asia/Other 146.7 9.1% (5.2%) (5.4%) (4.1%)
Canada 40.0 2.5% (5.3%) (4.4%) (0.4%)
-------- ------ ------- ------- -------
Total International 747.0 46.3% (1.3%) (6.8%) (6.1%)
Total Domestic 866.0 53.7% (13.7%) (13.7%) (12.3%)
-------- ------ ------- ------- -------
Total Revenue $1,613.0 100.0% (8.4%) (10.7%) (9.5%)
======== ====== ======= ======= =======
Trend Q1 `02: Domestic - (18%); International - (10%) (-8%) constant
Q4 `01: Domestic - (19%); International - (12%) (-7%) constant
Revenue by Region
Year-to-Date 2002
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($ Millions)
% % Change % Change
Revenue % Total Change Constant $ Organic
-----------------------------------------------------
Europe $ 869.3 28.7% (2.5%) (8.6%) (8.2%)
Latin America 128.3 4.2% (16.9%) - (2.5%)
Asia/Other 263.7 8.7% (7.9%) (6.2%) (5.4%)
Canada 75.7 2.5% (8.0%) (6.6%) (2.6%)
-------- ------ ------- ------- -------
Total International 1,337.0 44.1% (5.5%) (7.2%) (6.8%)
Total Domestic 1,696.1 55.9% (16.1%) (16.1%) (13.9%)
-------- ------ ------- ------- -------
Total Revenue $3,033.1 100.0% (11.7%) (12.4%) (10.9%)
======== ====== ======= ======= =======
2002 Net New Business
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($ Millions)
Key Wins
--------
Burger King Conoco
De Vry University Glaxo Smithkline
Ricoh American Standard
H&R Block Eli Lilly
CVS Thomas Cook
Marriott Mars
Total Wins $1,131.4
Total Losses - 257.8
--------
Net New Business $ 873.6
Selected Balance Sheet Items
- ----------------------------------------------------
(Restated)
($ Millions)
June 30, March 31, December 31, September 30,
2002 2002 2001 2001
-------- -------- ----------- -------------
Cash & Cash Equivalents $ 537.3 $ 575.1 $ 935.2 $ 685.6
Total Debt 2,976.3 2,893.9 2,933.7 3,125.9
Debt as % of Capital 56.6% 59.1% 60.2% 63.1%
Stockholders' Equity 2,283.7 2,000.5 1,940.0 1,826.4
Outlook and Guidance - 2002
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o Revenue outlook remains volatile
o Full year EPS estimated at $1.25 - 1.35
o Third quarter revenue estimated to decline 5 - 7%
Restructuring Update
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($ Millions)
Cash Paid
Total -------------------------
Approved Non-Cash Q4 `01 Q1 `02 Q2 `02 Accrual
------------------ ------------------------- -------
Severance $297.5 - $143.5 $59.6 $34.6 $ 59.8
Lease Termination 180.1 - 41.4 17.7 15.6 105.4
Leasehold Improvement 77.5 77.5 - - - -
Transaction costs 37.2 5.7 31.5 - -
Other costs 53.3 21.1 13.8 4.0 2.1 12.3
--------------- ------ ----- ----- ------
Total $645.6 $104.3 $230.2 $81.3 $52.3 $177.5
====== ====== ====== ===== ===== ======
Cautionary Statement
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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.
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.
One of Interpublic's business strategies is to acquire businesses that
complement and expand Interpublic's current business capabilities.
Accordingly, Interpublic is usually engaged in evaluating potential
acquisition candidates. Interpublic is frequently engaged in a number of
preliminary discussions that may result in one or more substantial
acquisitions. These acquisition opportunities require confidentiality and
from time to time give rise to bidding scenarios that require quick responses
by Interpublic. Although there is uncertainty that any of these discussions
will result in definitive agreements or the completion of any transactions,
the announcement of any such transaction may lead to increased volatility in
the trading price of Interpublic's securities.
Moreover, the success of recent or contemplated future acquisitions will
depend on the effective integration of newly-acquired businesses into
Interpublic's current operations. Important factors for integration include
realization of anticipated synergies and cost savings and the ability to
retain and attract new personnel and clients.
This document also contains financial information calculated on a "pro forma"
basis, such as results before taking into account certain types of items. In
addition, Interpublic's representatives may from time to time refer to "pro
forma" financial information. Because "pro forma" financial information by
its very nature departs from traditional accounting conventions, this
information should not be viewed as a substitute for the information prepared
by Interpublic in accordance with Generally Accepted Accounting Principles,
including the balance sheets and statements of income and cash flow contained
in Interpublic's quarterly and annual reports filed with the SEC on Forms
10-Q and 10-K.
Investors should evaluate any statements made by Interpublic in light of
these important factors.
Appendix: 2001 Quarterly Results
Restated for FAS 142
- ----------------------------------------------------
(Excludes one time charges and restructuring items)
1Q 2Q 3Q 4Q Year
----------------------------------------------------
Revenue $1,675.2 $1,760.4 $1,622.7 $1,736.5 $6,794.9
EBITDA 247.2 336.2 233.5 331.7 1,148.6
Margin % 14.8% 19.1% 14.4% 19.1% 16.9%
Depreciation 51.8 52.3 52.2 53.6 209.9
Amortization of Intangibles 0.9 1.0 1.0 1.0 3.9
Income from Operations 194.5 282.9 180.3 277.1 934.8
Margin % 11.6% 16.1% 11.1% 16.0% 13.8%
Net Income 111.2 149.2 89.4 148.2 498.0
EPS .30 .39 .24 .39 1.32