10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 1-6686
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-1024020
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive
offices) (Zip Code)
(212) 704-1200
(Registrants telephone number, including area code)
(Former name, former address and
former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of shares of the registrants common stock
outstanding as of October 15, 2007 was 471,380,833.
INDEX
INFORMATION
REGARDING FORWARD-LOOKING DISCLOSURE
This quarterly report on
Form 10-Q
contains forward-looking statements. Statements in this report
that are not historical facts, including statements about
managements beliefs and expectations, constitute
forward-looking statements. These statements are based on
current plans, estimates and projections, and are subject to
change based on a number of factors, including those outlined
under Item 1A, Risk Factors, in our most recent annual
report on
Form 10-K,
and any updated risk factors we include in our quarterly reports
on
Form 10-Q
and other filings with the SEC. Forward-looking statements speak
only as of the date they are made, and we undertake 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, the following:
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risks arising from material weaknesses in our internal control
over financial reporting, including material weaknesses in our
control environment;
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our ability to attract new clients and retain existing clients;
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our ability to retain and attract key employees;
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risks associated with assumptions we make in connection with our
critical accounting estimates;
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potential adverse effects if we are required to recognize
impairment charges or other adverse accounting-related
developments;
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potential adverse developments in connection with the ongoing
Securities and Exchange Commission (SEC)
investigation;
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potential downgrades in the credit ratings of our securities;
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risks associated with the effects of global, national and
regional economic and political conditions, including
fluctuations in economic growth rates, interest rates and
currency exchange rates; and
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developments from changes in the regulatory and legal
environment for advertising and marketing and communications
services companies around the world.
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Investors should carefully consider these factors and the
additional risk factors outlined in more detail under
Item 1A, Risk Factors, in our 2006 Annual Report on
Form 10-K
and other filings with the SEC.
Part I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2007
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2006
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2007
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2006
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REVENUE
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$
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1,559.9
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$
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1,453.8
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$
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4,571.7
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$
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4,313.7
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OPERATING EXPENSES:
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Salaries and related expenses
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1,034.7
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960.7
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3,033.2
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2,856.5
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Office and general expenses
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468.9
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466.0
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1,466.6
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1,506.1
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Restructuring and other reorganization-related charges
(reversals)
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5.2
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6.2
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(0.6
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)
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12.9
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Total operating expenses
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1,508.8
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1,432.9
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4,499.2
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4,375.5
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OPERATING INCOME (LOSS)
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51.1
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20.9
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72.5
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(61.8
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)
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EXPENSES AND OTHER INCOME:
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Interest expense
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(60.1
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)
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(57.0
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)
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(172.0
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)
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(155.1
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)
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Interest income
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30.2
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25.1
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86.8
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77.4
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Other (expense) income
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(4.8
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)
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22.6
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1.7
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47.5
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Total (expenses) and other income
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(34.7
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)
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(9.3
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)
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(83.5
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)
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(30.2
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)
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Income (loss) from continuing operations before income
taxes
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16.4
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11.6
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(11.0
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)
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(92.0
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)
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Provision for (benefit of) income taxes
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35.8
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10.5
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(1.3
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)
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6.7
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(Loss) income from continuing operations of consolidated
companies
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(19.4
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1.1
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(9.7
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)
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(98.7
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)
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Income applicable to minority interests, net of tax
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(3.7
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)
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(3.8
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)
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(5.7
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)
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(9.8
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)
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Equity in net income of unconsolidated affiliates, net of tax
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1.2
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1.4
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4.6
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2.7
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Loss from continuing operations
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(21.9
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)
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(1.3
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)
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(10.8
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)
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(105.8
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)
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Income from discontinued operations, net of tax
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5.0
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5.0
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NET (LOSS) INCOME
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(21.9
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)
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3.7
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(10.8
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)
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(100.8
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)
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Dividends on preferred stock
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6.9
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11.9
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20.7
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35.7
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NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
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$
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(28.8
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)
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$
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(8.2
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)
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$
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(31.5
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)
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$
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(136.5
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)
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Loss per share of common stock basic and diluted
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Continuing operations
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$
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(0.06
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)
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$
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(0.03
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)
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$
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(0.07
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)
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$
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(0.33
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)
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Discontinued operations
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0.01
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0.01
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|
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Total
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$
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(0.06
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)
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|
$
|
(0.02
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)
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$
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(0.07
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)
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$
|
(0.32
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)
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Weighted-average number of common shares outstanding
basic and diluted
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458.6
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427.2
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457.3
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426.6
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The accompanying notes are an integral part of these financial
statements.
2
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
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September 30,
|
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December 31,
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2007
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2006
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ASSETS:
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Cash and cash equivalents
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$
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1,430.1
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$
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1,955.7
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Marketable securities
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103.8
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|
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1.4
|
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Accounts receivable, net of allowance of $80.6 and $81.3
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3,679.8
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3,934.9
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Expenditures billable to clients
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1,325.1
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1,021.4
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Other current assets
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331.2
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295.4
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Total current assets
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6,870.0
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7,208.8
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Furniture, equipment and leasehold improvements, net of
accumulated depreciation of $1,106.7 and $1,017.0
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615.6
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624.0
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Deferred income taxes
|
|
|
508.7
|
|
|
|
476.5
|
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Goodwill
|
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|
3,196.0
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|
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3,067.8
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Other assets
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|
475.4
|
|
|
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487.0
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|
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TOTAL ASSETS
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$
|
11,665.7
|
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$
|
11,864.1
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LIABILITIES:
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Accounts payable
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$
|
3,866.6
|
|
|
$
|
4,124.1
|
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Accrued liabilities
|
|
|
2,431.8
|
|
|
|
2,426.7
|
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Short-term debt
|
|
|
475.4
|
|
|
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82.9
|
|
|
|
|
|
|
|
|
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Total current liabilities
|
|
|
6,773.8
|
|
|
|
6,633.7
|
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Long-term debt
|
|
|
1,841.2
|
|
|
|
2,248.6
|
|
Deferred compensation and employee benefits
|
|
|
598.1
|
|
|
|
606.3
|
|
Other non-current liabilities
|
|
|
398.3
|
|
|
|
434.9
|
|
|
|
|
|
|
|
|
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TOTAL LIABILITIES
|
|
|
9,611.4
|
|
|
|
9,923.5
|
|
|
|
|
|
|
|
|
|
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Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
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TOTAL STOCKHOLDERS EQUITY
|
|
|
2,054.3
|
|
|
|
1,940.6
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
11,665.7
|
|
|
$
|
11,864.1
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these financial
statements.
3
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Millions)
(Unaudited)
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Nine Months Ended
|
|
|
|
September 30,
|
|
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|
2007
|
|
|
2006
|
|
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CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10.8
|
)
|
|
$
|
(100.8
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
(5.0
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets and intangible
assets
|
|
|
127.6
|
|
|
|
127.0
|
|
Provision for bad debt
|
|
|
7.1
|
|
|
|
9.0
|
|
Amortization of restricted stock and other non-cash compensation
|
|
|
55.3
|
|
|
|
37.1
|
|
Amortization of bond discounts and deferred financing costs
|
|
|
23.4
|
|
|
|
22.2
|
|
Deferred income tax benefit
|
|
|
(36.7
|
)
|
|
|
(81.9
|
)
|
Losses (gains) on sales of businesses and investments
|
|
|
15.4
|
|
|
|
(35.5
|
)
|
Income applicable to minority interests, net of tax
|
|
|
5.7
|
|
|
|
9.8
|
|
Other
|
|
|
(8.6
|
)
|
|
|
13.0
|
|
Change in assets and liabilities, net of acquisitions and
dispositions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
409.3
|
|
|
|
690.8
|
|
Expenditures billable to clients
|
|
|
(242.7
|
)
|
|
|
(134.2
|
)
|
Prepaid expenses and other current assets
|
|
|
4.6
|
|
|
|
(6.7
|
)
|
Accounts payable
|
|
|
(424.3
|
)
|
|
|
(886.3
|
)
|
Accrued liabilities
|
|
|
(140.7
|
)
|
|
|
(244.4
|
)
|
Other non-current assets and liabilities
|
|
|
(4.4
|
)
|
|
|
|
|
Net change in assets and liabilities related to discontinued
operations
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(219.8
|
)
|
|
|
(580.9
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisitions, including deferred payments, net of cash acquired
|
|
|
(122.5
|
)
|
|
|
(13.9
|
)
|
Capital expenditures
|
|
|
(96.4
|
)
|
|
|
(69.8
|
)
|
Maturities of short-term marketable securities
|
|
|
622.1
|
|
|
|
749.7
|
|
Purchases of short-term marketable securities
|
|
|
(715.6
|
)
|
|
|
(841.2
|
)
|
Proceeds from sales of businesses and investments, net of cash
sold
|
|
|
28.6
|
|
|
|
87.6
|
|
Purchases of investments
|
|
|
(16.9
|
)
|
|
|
(34.1
|
)
|
Other investing activities
|
|
|
4.3
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(296.4
|
)
|
|
|
(120.7
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (decrease) increase in short-term bank borrowings
|
|
|
(9.3
|
)
|
|
|
14.3
|
|
Issuance costs and consent fees
|
|
|
|
|
|
|
(41.8
|
)
|
Call spread transactions in connection with ELF Financing
|
|
|
|
|
|
|
(29.2
|
)
|
Distributions to minority interests
|
|
|
(14.2
|
)
|
|
|
(21.1
|
)
|
Preferred stock dividends
|
|
|
(20.7
|
)
|
|
|
(35.1
|
)
|
Other financing activities
|
|
|
1.3
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(42.9
|
)
|
|
|
(115.4
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
33.5
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(525.6
|
)
|
|
|
(812.4
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,955.7
|
|
|
|
2,075.9
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,430.1
|
|
|
$
|
1,263.5
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
4
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive
Income (Loss)
(Amounts in Millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
NET (LOSS) INCOME
|
|
$
|
(21.9
|
)
|
|
$
|
3.7
|
|
|
$
|
(10.8
|
)
|
|
$
|
(100.8
|
)
|
Foreign currency translation adjustment
|
|
|
54.8
|
|
|
|
(7.1
|
)
|
|
|
93.5
|
|
|
|
9.2
|
|
Reclassification of investment gain to net earnings
|
|
|
|
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
(17.0
|
)
|
Adjustments to pension and other postretirement plans, net of tax
|
|
|
7.8
|
|
|
|
|
|
|
|
9.0
|
|
|
|
|
|
Net adjustment for minimum pension liability
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
0.1
|
|
Unrealized holding gains (losses) on securities, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains
|
|
|
0.8
|
|
|
|
2.3
|
|
|
|
3.0
|
|
|
|
8.8
|
|
Unrealized holding losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
Reclassification of gain to net earnings
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) on securities, net of tax
|
|
|
0.3
|
|
|
|
2.3
|
|
|
|
1.2
|
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
|
$
|
41.0
|
|
|
$
|
(18.2
|
)
|
|
$
|
92.9
|
|
|
$
|
(116.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
5
Notes
to Consolidated Financial Statements
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 1:
|
Basis of
Presentation
|
The unaudited consolidated financial statements have been
prepared by The Interpublic Group of Companies, Inc. (together
with its subsidiaries, the Company,
Interpublic, we, us or
our) in accordance with accounting principles
generally accepted in the United States of America and pursuant
to the rules and regulations of the Securities and Exchange
Commission (the SEC or the Commission)
and, in the opinion of management, include all adjustments of a
normal and recurring nature necessary for a fair statement of
the information for each period contained therein. Certain
reclassifications have been made to prior periods to conform to
the current period presentation. The consolidated results for
interim periods are not necessarily indicative of results for
the full year, as historically our consolidated revenue is
higher in the second half of the year than in the first half.
These financial results should be read in conjunction with our
2006 Annual Report on
Form 10-K.
Starting with the first quarter of 2007 we have included our
$400.0 4.50% Convertible Senior Notes due 2023 in
short-term debt because holders of this debt may require us to
repurchase these Notes on March 15, 2008 for cash at par.
|
|
Note 2:
|
Restructuring
and Other Reorganization-Related Charges (Reversals)
|
The components of restructuring and other reorganization-related
charges (reversals) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Restructuring charges (reversals):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination and other exit costs
|
|
$
|
(0.3
|
)
|
|
$
|
1.2
|
|
|
$
|
(5.3
|
)
|
|
$
|
1.6
|
|
Severance and termination costs
|
|
|
4.8
|
|
|
|
0.1
|
|
|
|
4.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
|
|
1.3
|
|
|
|
(1.1
|
)
|
|
|
1.7
|
|
Other reorganization-related charges
|
|
|
0.7
|
|
|
|
4.9
|
|
|
|
0.5
|
|
|
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5.2
|
|
|
$
|
6.2
|
|
|
$
|
(0.6
|
)
|
|
$
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
Charges (Reversals)
Restructuring charges (reversals) relate to the 2003 and 2001
restructuring programs and a restructuring program entered into
at Lowe Worldwide (Lowe) during the third quarter of
2007. Due to changes in the business environment that have
occurred during the year, we committed to and began implementing
a restructuring program to realign resources with our strategic
business objectives within Lowe. This plan includes reducing and
restructuring Lowes workforce both domestically and
internationally, and terminating certain lease agreements. We
recognized expenses related to severance and termination costs
of $4.8 during the third quarter of 2007 and expect to incur
additional charges related to severance and termination costs of
approximately $6.0 and lease termination and other exit costs of
approximately $7.0 over the next two to three quarters. Cash
payments are expected to be made through December 31, 2008.
In addition, included in the restructuring reversals for the
nine months ended September 30, 2007 are net reversals for
the 2003 and 2001 restructuring programs primarily consisting of
reversals due to the utilization of previously vacated property
by an agency at Draftfcb and adjustments to estimates primarily
relating to our severance and lease termination costs.
6
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Net restructuring charges for the three months ended
September 30, 2007 was comprised of net charges of $5.1 at
Integrated Agency Networks (IAN) partially offset by
net reversals of $0.6 at Constituency Management Group
(CMG). For the nine months ended September 30,
2007, net restructuring reversals was comprised of net reversals
of $1.3 at CMG partially offset by net charges of $0.2 at IAN.
A rollforward of the remaining liability for the restructuring
programs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2003
|
|
|
2001
|
|
|
|
|
|
|
Program
|
|
|
Program
|
|
|
Program
|
|
|
Total
|
|
|
Liability at December 31, 2006
|
|
$
|
|
|
|
$
|
12.6
|
|
|
$
|
19.2
|
|
|
$
|
31.8
|
|
Net charges (reversals) and adjustments
|
|
|
4.8
|
|
|
|
(0.6
|
)
|
|
|
(5.3
|
)
|
|
|
(1.1
|
)
|
Payments and other
|
|
|
(1.6
|
)
|
|
|
(1.9
|
)
|
|
|
(4.2
|
)
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at September 30, 2007
|
|
$
|
3.2
|
|
|
$
|
10.1
|
|
|
$
|
9.7
|
|
|
$
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 the current portion of the
restructuring liability is $15.3.
Other
Reorganization-Related Charges
Other reorganization-related charges primarily represent
severance charges directly associated with two significant
strategic business decisions in 2006 that are substantially
complete: the merger of Draft Worldwide and Foote, Cone and
Belding Worldwide to create a global integrated marketing
organization called Draftfcb; and our realignment of our media
business, involving our two global media operations.
During the nine months ended September 30, 2007, we made
six acquisitions, of which the most significant were: a) a
full-service advertising agency in Latin America,
b) Reprise Media, which is a full-service search engine
marketing firm in North America, and c) the remaining
interests in two full-service advertising agencies in India in
which we previously held 49% and 51% interests. Total cash
consideration for the six acquisitions was $112.8. There is a
contingent purchase obligation for the remaining equity interest
in Reprise Media, which is based on future financial
performance. If the contingent obligation is met and
consideration for this interest is determinable and
distributable, we will record the fair value of this
consideration as additional goodwill.
For companies acquired during the first nine months of 2007, we
made estimates of the fair values of the assets and liabilities
for consolidation. The purchase price in excess of the estimated
fair value of the tangible net assets acquired was allocated to
goodwill and identifiable intangible assets. These acquisitions
do not have significant amounts of tangible assets, therefore a
substantial portion of the total consideration has been
allocated to goodwill and identifiable intangible assets
(approximately $99.0). The purchase price allocations for our
acquisitions are substantially complete, however certain of
these allocations are based on estimates and assumptions and are
subject to change. All acquisitions during the first nine months
of 2007 are included in the IAN operating segment. Pro forma
information related to these acquisitions is not presented
because the impact of these acquisitions, either individually or
in the aggregate, on the Companys consolidated results of
operations is not significant.
During the three months ended September 30, 2006, we made
payments in the form of our common stock related to acquisitions
initiated in prior years of $6.0. During the nine months ended
September 30, 2007 and 2006, we made payments in the form
of our common stock related to acquisitions initiated in prior
years of $0.3 and $11.0, respectively.
7
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Details of cash paid for current and prior years
acquisitions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Cash paid for current year acquisitions
|
|
$
|
32.5
|
|
|
$
|
|
|
|
$
|
112.8
|
|
|
$
|
|
|
Cash paid for prior year acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of investment
|
|
|
1.6
|
|
|
|
3.7
|
|
|
|
13.5
|
|
|
|
13.9
|
|
Compensation expense related payments
|
|
|
|
|
|
|
0.4
|
|
|
|
1.4
|
|
|
|
6.4
|
|
Less: cash acquired
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash paid for acquisitions
|
|
$
|
34.0
|
|
|
$
|
4.1
|
|
|
$
|
123.9
|
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, for the nine months ended September 30, 2007,
we acquired $8.1 of marketable securities held by one of our
current year acquisitions.
|
|
Note 4:
|
Supplementary
Data
|
Accrued
Liabilities
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Media and production expenses
|
|
$
|
1,801.1
|
|
|
$
|
1,690.7
|
|
Salaries, benefits and related expenses
|
|
|
392.1
|
|
|
|
460.6
|
|
Office and related expenses
|
|
|
81.6
|
|
|
|
99.2
|
|
Professional fees
|
|
|
28.7
|
|
|
|
46.1
|
|
Restructuring and other reorganization-related
|
|
|
15.3
|
|
|
|
18.0
|
|
Interest
|
|
|
26.1
|
|
|
|
30.0
|
|
Taxes
|
|
|
6.6
|
|
|
|
7.3
|
|
Other
|
|
|
80.3
|
|
|
|
74.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,431.8
|
|
|
$
|
2,426.7
|
|
|
|
|
|
|
|
|
|
|
2004
Restatement Liabilities
As part of the restatement set forth in our 2004 Annual Report
on
Form 10-K
filed in September 2005 (the 2004 Restatement), we
recognized liabilities related to vendor discounts and credits
where we had a contractual or legal obligation to rebate such
amounts to our clients or vendors. Reductions to these
liabilities are primarily achieved through settlements with
clients and vendors, but also may occur if the applicable
statute of limitations has lapsed. For the nine months ended
September 30, 2007, we satisfied $19.6 of these liabilities
through cash payments of $7.8 and reductions of certain client
receivables of $11.8. Also, as part of the 2004 Restatement, we
recognized liabilities related to internal investigations and
international compensation arrangements. Liabilities related to
international compensation arrangements primarily decreased
during the third quarter as a result of changes in the tax codes
in certain jurisdictions. A summary of these
8
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
and the vendor discounts and credits liabilities, which are
primarily included in accounts payable, is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Vendor discounts and credits
|
|
$
|
188.7
|
|
|
$
|
211.2
|
|
Internal investigations (includes asset reserves)
|
|
|
15.8
|
|
|
|
19.5
|
|
International compensation arrangements
|
|
|
21.6
|
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
226.1
|
|
|
$
|
263.0
|
|
|
|
|
|
|
|
|
|
|
Other
(Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(Losses) gains on sales of businesses and investments
|
|
$
|
(7.1
|
)
|
|
$
|
15.2
|
|
|
$
|
(15.4
|
)
|
|
$
|
35.5
|
|
Vendor discounts and credit adjustments
|
|
|
3.5
|
|
|
|
5.4
|
|
|
|
11.5
|
|
|
|
9.3
|
|
Other income
|
|
|
(1.2
|
)
|
|
|
2.0
|
|
|
|
5.6
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4.8
|
)
|
|
$
|
22.6
|
|
|
$
|
1.7
|
|
|
$
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of businesses and investments During the
three months ended September 30, 2007, included in the loss
of $7.1, we had charges of $8.1 as a result of the realization
of cumulative translation adjustment balances from the
liquidation of several businesses, as well as charges from the
partial disposition of a business in South Africa at Lowe. In
addition to the third quarter charges, during the first nine
months of 2007, we sold several businesses within Draftfcb and
Lowe for a loss of approximately $10.0, partially offset by the
sale of our remaining ownership interests in two agencies for a
gain of $2.8.
During the three months ended September 30, 2006, we sold
our interest in a German advertising agency and accordingly
recognized the related remaining cumulative translation
adjustment balance. This resulted in a non-cash benefit of
$17.0. In addition, during the first nine months of 2006, we
sold an investment located in Asia Pacific for a gain of $18.4
and sold our remaining ownership interest in an agency within
Lowe for a gain of $2.5.
Vendor discounts and credit adjustments We
are in the process of settling our liabilities related to vendor
discounts and credits primarily established as part of the 2004
Restatement. These adjustments reflect the reversal of certain
liabilities as a result of settlements with clients and vendors
or where the statute of limitations has lapsed.
Loss per basic common share equals net loss applicable to common
stockholders divided by the weighted average number of common
shares outstanding for the applicable period.
9
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
The following sets forth basic and diluted loss per common share
applicable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Loss from continuing operations
|
|
$
|
(21.9
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(10.8
|
)
|
|
$
|
(105.8
|
)
|
Preferred stock dividends
|
|
|
6.9
|
|
|
|
11.9
|
|
|
|
20.7
|
|
|
|
35.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28.8
|
)
|
|
|
(13.2
|
)
|
|
|
(31.5
|
)
|
|
|
(141.5
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(28.8
|
)
|
|
$
|
(8.2
|
)
|
|
$
|
(31.5
|
)
|
|
$
|
(136.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
basic and diluted
|
|
|
458.6
|
|
|
|
427.2
|
|
|
|
457.3
|
|
|
|
426.6
|
|
Loss per share from continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.33
|
)
|
Earnings per share from discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted shares outstanding and loss per share are
equal for the three and nine months ended September 30,
2007 and 2006 because our potentially dilutive securities are
antidilutive as a result of the net loss applicable to common
stockholders in each period presented.
The following table presents the potential shares excluded from
diluted loss per share because the effect of including these
potential shares would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Stock Options and Non-vested Restricted Stock Awards
|
|
|
7.0
|
|
|
|
5.5
|
|
|
|
6.6
|
|
|
|
4.7
|
|
Capped Warrants
|
|
|
2.5
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
4.25% Convertible Senior Notes
|
|
|
32.2
|
|
|
|
|
|
|
|
32.2
|
|
|
|
|
|
4.50% Convertible Senior Notes
|
|
|
32.2
|
|
|
|
64.4
|
|
|
|
32.2
|
|
|
|
64.4
|
|
Series A Mandatory Convertible Preferred Stock
|
|
|
|
|
|
|
27.7
|
|
|
|
|
|
|
|
27.7
|
|
Series B Cumulative Convertible Perpetual Preferred Stock
|
|
|
38.4
|
|
|
|
38.4
|
|
|
|
38.4
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
112.3
|
|
|
|
136.0
|
|
|
|
114.3
|
|
|
|
135.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities excluded from the diluted loss per share calculation
because the exercise price was greater than the average market
price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options(1)
|
|
|
23.0
|
|
|
|
32.7
|
|
|
|
20.4
|
|
|
|
31.8
|
|
Warrants(2)
|
|
|
38.8
|
|
|
|
67.9
|
|
|
|
38.8
|
|
|
|
27.1
|
|
|
|
|
(1) |
|
These options are outstanding at the end of the respective
periods. In any period in which the exercise price is less than
the average market price, these options have the potential to be
dilutive and application of the treasury stock method would
reduce this amount. |
|
(2) |
|
The potential dilutive impact of the warrants is based upon the
difference between the market price of one share of our common
stock and the stated exercise prices of the warrants. |
10
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
There were an additional 5.7 and 8.1 of outstanding stock
options to purchase common shares for the three and nine months
ended September 30, 2007, respectively, with exercise
prices less than the average market price for the respective
period. However, these options are not included in the table
above presenting the potential shares excluded from diluted loss
per share due to the application of the treasury stock method
and the rules related to stock-based compensation arrangements.
For the three and nine months ended September 30, 2007, the
difference between the effective tax rate and the statutory rate
of 35% is primarily due to state and local taxes, losses
incurred in
non-U.S. jurisdictions
that receive no corresponding tax benefit, the revaluation of
deferred tax assets due to tax law changes and other
adjustments. During the third quarter of 2007, there were tax
law changes enacted in the United Kingdom, Germany and the state
of Michigan. The impact of these changes to the deferred tax
assets was a reduction of $9.1. In addition, for the nine months
ended September 30, 2007, the difference between the
effective tax rate and the statutory rate of 35% is also due to
the recognition of previously unrecognized tax benefits, which
is the primary reason for the improvement in the effective tax
rate as compared to the nine months ended September 30,
2006.
We adopted the provisions of Financial Accounting Standards
Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes,
(FIN 48) on January 1, 2007. As a result
of the implementation of FIN 48, we recorded a $9.5
increase in the net liability for unrecognized tax positions,
which was recorded as an adjustment to retained earnings
effective January 1, 2007. The total amount of unrecognized
tax benefits at January 1, 2007 was $271.8, including
$242.6 of tax benefits that, if recognized, would impact the
effective tax rate and $29.2 of tax benefits that, if
recognized, would result in adjustments to other tax accounts,
primarily deferred taxes. The total amount of accrued interest
and penalties at January 1, 2007 was $30.2. In accordance
with our accounting policy, interest and penalties accrued on
unrecognized tax benefits are classified as income taxes in the
statement of operations. We have not elected to change this
classification with the adoption of FIN 48.
The total unrecognized tax benefits at September 30, 2007
were $190.6, including $143.0 of tax benefits that, if
recognized, would impact the effective tax rate. The gross
amount of increases in unrecognized tax benefits during the
three and nine months ended September 30, 2007 was $21.2
and $39.4, respectively. The gross amount of decreases in
unrecognized tax benefits during the three and nine months ended
September 30, 2007 was $16.0 and $120.6, respectively.
With respect to all tax years open to examination by
U.S. federal and various state, local, and
non-U.S. tax
authorities, we currently anticipate that the total unrecognized
tax benefits will decrease by an amount between $80.0 and $90.0
in the next twelve months, a portion of which will affect the
effective tax rate, primarily as a result of the settlement of
tax examinations and the lapsing of statutes of limitation. This
net decrease is related to various items of income and expense,
including transfer pricing adjustments, restatement adjustments
and thin capitalization adjustments. In 2006, the IRS completed
its field audit of the years 1997 through 2002 and has proposed
additions to our taxable income. We have appealed a number of
these proposed additions and expect to complete our discussions
with the IRS in the next twelve months.
On May 1, 2007, the IRS completed its examination of our
2003 and 2004 income tax returns and proposed a number of
adjustments to our taxable income. We have appealed a number of
these items. In addition, during the second quarter of 2007,
there were net reversals of tax reserves, primarily related to
previously unrecognized tax benefits related to various items of
income and expense, including approximately $80.0 for certain
worthless securities deductions associated with investments in
consolidated subsidiaries, which was a result of the completion
of a tax examination.
11
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
With limited exceptions, we are no longer subject to
U.S. income tax audits for years prior to 1997, state and
local income tax audits for years prior to 1999, or
non-U.S. income
tax audits for years prior to 2000.
|
|
Note 7:
|
Employee
Benefits
|
The components of net periodic cost for the domestic pension
plans, the principal foreign pension plans and the
postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
Three Months Ended September
30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.2
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest cost
|
|
|
2.0
|
|
|
|
2.2
|
|
|
|
6.4
|
|
|
|
5.8
|
|
|
|
0.9
|
|
|
|
0.6
|
|
Expected return on plan assets
|
|
|
(2.6
|
)
|
|
|
(2.5
|
)
|
|
|
(6.2
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
Unrecognized actuarial losses
|
|
|
1.7
|
|
|
|
1.9
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$
|
1.1
|
|
|
$
|
1.9
|
|
|
$
|
5.2
|
|
|
$
|
7.1
|
|
|
$
|
1.2
|
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
Nine Months Ended September
30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
12.1
|
|
|
$
|
12.4
|
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
Interest cost
|
|
|
6.1
|
|
|
|
6.6
|
|
|
|
18.4
|
|
|
|
16.7
|
|
|
|
2.7
|
|
|
|
2.6
|
|
Expected return on plan assets
|
|
|
(7.7
|
)
|
|
|
(7.0
|
)
|
|
|
(18.2
|
)
|
|
|
(13.3
|
)
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Prior service cost (credit)
|
|
|
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Unrecognized actuarial losses
|
|
|
5.1
|
|
|
|
5.0
|
|
|
|
2.4
|
|
|
|
4.8
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$
|
3.5
|
|
|
$
|
5.3
|
|
|
$
|
15.2
|
|
|
$
|
20.9
|
|
|
$
|
3.7
|
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2007,
we made contributions of $4.7 and $21.3, respectively, to our
foreign pension plans. During the fourth quarter of 2007, we
expect to contribute approximately $8.0 to our foreign pension
plans. We do not anticipate making contributions to our domestic
pension plans.
12
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 8:
|
Stock-Based
Compensation
|
During the nine months ended September 30, 2007 we granted
the following stock-based compensation awards under our 2006
performance incentive plan:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2007
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date Fair
|
|
|
|
Awards
|
|
|
Value (Per Award)
|
|
|
Stock Options
|
|
|
2.5
|
|
|
$
|
4.90
|
|
Stock-Settled Awards
|
|
|
4.8
|
|
|
$
|
11.78
|
|
Cash-Settled Awards
|
|
|
0.9
|
|
|
$
|
11.61
|
|
Performance-Based Awards
|
|
|
2.9
|
|
|
$
|
11.71
|
|
Stock-settled awards include restricted stock and restricted
stock units (RSUs) expected to be settled in stock.
Cash-settled awards include RSUs expected to be settled in cash.
As of December 31, 2006, all of our RSUs granted were
expected to be settled in cash. During the nine months ended
September 30, 2007, we granted RSUs that we expect to
settle in stock in addition to RSUs that we expect to settle in
cash. We adjust our fair value measurement for RSUs that are
expected to be settled in cash quarterly based on our share
price and we amortize stock-based compensation expense related
to these awards over the vesting period based upon the
quarterly-adjusted fair value. RSUs that are expected to be
settled in stock and restricted stock are amortized over the
vesting period based on the grant date fair value of the awards.
See Note 14 to the consolidated financial statements in our
2006 Annual Report on
Form 10-K
for additional information regarding general terms and methods
of valuation for stock options, restricted stock awards,
performance-based awards, and restricted stock units.
The Interpublic Group of Companies Employee Stock Purchase Plan
(2006) (the 2006 Plan) became active April 1,
2007. Under the 2006 Plan, eligible employees may purchase our
common stock through payroll deductions not exceeding 10% of
their base compensation or 900 (actual number) shares each
offering period. The price an employee pays for a share of
common stock under the 2006 Plan is 90% of the lesser of the
average market price of a share on the first business day of the
offering period or the average market price of a share on the
last business day of the offering period of three months. An
aggregate of 15.0 shares are reserved for issuance under
the 2006 Plan, of which 0.2 shares were issued for the nine
months ended September 30, 2007. Total compensation expense
associated with the issued shares was $0.4 for the nine months
ended September 30, 2007.
13
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Note 9:
|
Segment
Information
|
We have two reportable segments: IAN, which is comprised of
Draftfcb, Lowe, McCann Worldgroup, our media services and our
fully integrated independent agencies, and CMG, which is
comprised of the bulk of our specialist marketing service
offerings. We also report results for the Corporate and other
group. Segment information is presented consistently with the
basis described in our 2006 Annual Report on
Form 10-K.
Summarized financial information concerning our reportable
segments is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
1,311.7
|
|
|
$
|
1,226.6
|
|
|
$
|
3,822.3
|
|
|
$
|
3,630.5
|
|
CMG
|
|
|
248.2
|
|
|
|
227.2
|
|
|
|
749.4
|
|
|
|
683.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,559.9
|
|
|
$
|
1,453.8
|
|
|
$
|
4,571.7
|
|
|
$
|
4,313.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
97.4
|
|
|
$
|
75.1
|
|
|
$
|
200.9
|
|
|
$
|
121.8
|
|
CMG
|
|
|
12.6
|
|
|
|
10.8
|
|
|
|
29.8
|
|
|
|
27.4
|
|
Corporate and other
|
|
|
(53.7
|
)
|
|
|
(58.8
|
)
|
|
|
(158.8
|
)
|
|
|
(198.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
56.3
|
|
|
|
27.1
|
|
|
|
71.9
|
|
|
|
(48.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other reorganization-related (charges)
reversals
|
|
|
(5.2
|
)
|
|
|
(6.2
|
)
|
|
|
0.6
|
|
|
|
(12.9
|
)
|
Interest expense
|
|
|
(60.1
|
)
|
|
|
(57.0
|
)
|
|
|
(172.0
|
)
|
|
|
(155.1
|
)
|
Interest income
|
|
|
30.2
|
|
|
|
25.1
|
|
|
|
86.8
|
|
|
|
77.4
|
|
Other (expense) income
|
|
|
(4.8
|
)
|
|
|
22.6
|
|
|
|
1.7
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
$
|
16.4
|
|
|
$
|
11.6
|
|
|
$
|
(11.0
|
)
|
|
$
|
(92.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets and intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
32.6
|
|
|
$
|
30.5
|
|
|
$
|
93.7
|
|
|
$
|
92.2
|
|
CMG
|
|
|
4.4
|
|
|
|
4.3
|
|
|
|
13.6
|
|
|
|
14.0
|
|
Corporate and other
|
|
|
6.7
|
|
|
|
7.1
|
|
|
|
20.3
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43.7
|
|
|
$
|
41.9
|
|
|
$
|
127.6
|
|
|
$
|
127.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
25.6
|
|
|
$
|
18.3
|
|
|
$
|
79.2
|
|
|
$
|
47.4
|
|
CMG
|
|
|
2.4
|
|
|
|
2.8
|
|
|
|
6.2
|
|
|
|
6.9
|
|
Corporate and other
|
|
|
1.9
|
|
|
|
8.2
|
|
|
|
11.0
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29.9
|
|
|
$
|
29.3
|
|
|
$
|
96.4
|
|
|
$
|
69.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
9,716.9
|
|
|
$
|
9,359.5
|
|
CMG
|
|
|
945.2
|
|
|
|
908.3
|
|
Corporate and other
|
|
|
1,003.6
|
|
|
|
1,596.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,665.7
|
|
|
$
|
11,864.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10:
|
Commitments
and Contingencies
|
SEC
Investigation
Since January 2003, the SEC has been conducting a formal
investigation in response to the restatement we first announced
in August 2002, and in 2005 the investigation expanded to
encompass the 2004 Restatement. We have also responded to
inquiries from the SEC staff (the Staff) concerning
the restatement of the first three quarters of 2005 that we made
in our 2005 Annual Report on
Form 10-K.
We continue to cooperate with the investigation. We expect that
the investigation will result in monetary liability, but as
settlement discussions have not yet commenced, we cannot
reasonably estimate the amount, range of amounts or timing of a
resolution. Accordingly, we have not yet established any
provision relating to these matters.
The Staff has informed us that it intends to seek approval from
the Commission to enter into settlement discussions with us and,
failing a settlement, to commence an action charging the Company
with various violations of the federal securities laws. In that
connection, and as previously disclosed by the Company in a
current report on
Form 8-K
filed June 14, 2007, the Staff has sent the Company a
Wells notice, which invites us to make a responsive
submission before the Staff makes a final determination
concerning its recommendation to the Commission. We expect to
discuss settlement with the Staff once the Commission authorizes
the Staff to engage in such discussions. We cannot at this time
predict what the Commission will authorize or the outcome of any
settlement negotiations.
Other
Legal Matters
We are or have been involved in other legal and administrative
proceedings of various types. While any litigation contains an
element of uncertainty, we do not believe that the outcome of
such proceedings or claims will have a material adverse effect
on our financial condition.
Guarantees
As discussed in our 2006 Annual Report on
Form 10-K,
we have contingent obligations under guarantees of certain
obligations of our subsidiaries relating principally to credit
facilities, guarantees of certain media payables and operating
leases of certain subsidiaries. As of September 30, 2007
there have been no material changes to these guarantees.
|
|
Note 11:
|
Recent
Accounting Standards
|
In June 2007, the EITF ratified EITF Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
Under
EITF 06-11
a realized tax benefit from dividends or dividend equivalents
that are charged to retained earnings and paid to employees for
equity classified non-vested equity shares, non-vested equity
share units, and outstanding share options should be recognized
as an increase to additional
paid-in-capital.
EITF 06-11
is effective, prospectively, for fiscal years beginning after
15
Notes to
Consolidated Financial Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
December 15, 2007. We do not expect the adoption of
EITF 06-11
to have a material impact on our Consolidated Financial
Statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), which permits an
entity to measure certain financial assets and financial
liabilities at fair value. Under SFAS No. 159,
entities that elect the fair value option will report unrealized
gains and losses in earnings at each subsequent reporting date.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the
potential impact of SFAS No. 159 on our Consolidated
Financial Statements.
In January 2007 we adopted FIN 48. See Note 6 for
further information.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value in
U.S. GAAP, and expands disclosures about fair value
measurements. Under the standard, fair value refers to the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
in the market in which the reporting entity transacts. The
standard clarifies the principle that fair value should be based
on the assumptions market participants would use when pricing
the asset or liability. In support of this principle, the
standard establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. The fair value
hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for
example, the reporting entitys own data. Under the
standard, fair value measurements would be separately disclosed
by level within the fair value hierarchy. SFAS No. 157
is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the potential impact of
SFAS No. 157 on our Consolidated Financial Statements.
The adoption of the following accounting pronouncements during
2007 did not have a material impact on our Consolidated
Financial Statements:
|
|
|
|
|
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments
|
|
|
|
EITF Issue
No. 05-1,
Accounting for the Conversion of an Instrument That Becomes
Convertible Upon the Issuers Exercise of a Call Option
|
|
|
|
EITF Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should be Presented in the Income
Statement (That is, Gross versus Net Presentation)
|
|
|
|
EITF Issue
No. 06-5,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in
Accordance with FASB Technical
Bulletin No. 85-4,
Accounting for Purchases of Life Insurance
|
|
|
|
EITF Issue
No. 06-6,
Debtors Accounting for a Modification (or Exchange) of
Convertible Debt Instruments
|
16
Managements
Discussion and Analysis of Financial Condition
and Results of Operations
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) is intended to help you understand The
Interpublic Group of Companies, Inc. and subsidiaries (the
Company, Interpublic, we,
us or our). MD&A should be read in
conjunction with our financial statements and the accompanying
notes. Our MD&A includes the following sections:
EXECUTIVE SUMMARY provides an overview of our results of
operations.
RESULTS OF OPERATIONS provides an analysis of the consolidated
and segment results of operations for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash
flows and financing activities.
INTERNAL CONTROL OVER FINANCIAL REPORTING, by reference to our
2006 Annual Report on
Form 10-K,
provides a description of the status of our compliance with
Section 404 of the Sarbanes-Oxley Act of 2002.
CRITICAL ACCOUNTING ESTIMATES provides an update to the
discussion of our accounting policies that require critical
judgment, assumptions and estimates in our 2006 Annual Report on
Form 10-K.
RECENT ACCOUNTING STANDARDS, by reference to Note 11 to the
unaudited Consolidated Financial Statements, provides a
discussion of accounting standards that we have not yet been
required to implement, but which may affect us in the future, as
well as those accounting standards that have been adopted during
2007.
EXECUTIVE
SUMMARY
We are one of the worlds largest advertising and marketing
services companies, comprised of communication agencies around
the world that deliver custom marketing solutions on behalf of
our clients. Major global brands include Draftfcb, FutureBrand,
GolinHarris International, Initiative, Jack Morton Worldwide,
Lowe Worldwide, MAGNA Global, McCann Erickson, Momentum, MRM,
Octagon, Universal McCann and Weber Shandwick. Leading domestic
brands include Campbell-Ewald, Carmichael Lynch, Deutsch, Hill
Holliday, Mullen, The Martin Agency and R/GA. These agencies
cover the spectrum of marketing disciplines and specialties,
from traditional services such as consumer advertising and
direct marketing, to emerging services such as mobile and search
engine marketing. To meet the challenge of an increasingly
complex consumer culture, we create customized marketing
solutions for each of our clients. These solutions vary from
project-based work between one agency and its client to
long-term, fully-integrated campaigns involving several of our
companies working on behalf of a client. Furthermore, our
agencies cover all major markets geographically and can operate
in a single region or align work globally across many markets.
Our strategy is focused on improving our organic revenue growth
and operating income. We are working to achieve significant
improvements in our organic revenue growth and operating
margins, with our ultimate objective to be fully competitive
with our industry peer group on both measures. We analyze
period-to-period changes in our operating performance by
determining the portion of the change that is attributable to
foreign currency rates and the change attributable to the net
effect of acquisitions and divestitures, with the remainder
considered the organic change. For purposes of analyzing this
change, acquisitions and divestitures are treated as if they
occurred on the first day of the quarter during which the
transaction occurred.
17
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
We have strategically realigned a number of our capabilities to
promote revenue growth. For example, we have combined
accountable marketing and consumer advertising and implemented a
differentiated approach to media. We continue to develop our
capacity in strategically critical areas, notably digital,
marketing services and media, that we expect will drive future
revenue growth. The digital component of our business is
evolving and, in order to grow with our clients, we have
accelerated professional and technological development in this
area. The resulting costs have been partially offset by
headcount reductions in slower growth areas.
To further improve our operating margin we focus on the
following areas:
|
|
|
|
|
Actively managing staff costs in non-revenue supporting roles.
|
|
|
|
Improving financial systems and back-office processing.
|
|
|
|
Reducing organizational complexity and rationalizing our
portfolio by divesting non-core and underperforming businesses.
|
|
|
|
Improving our real estate utilization.
|
Although the U.S. Dollar is our reporting currency, a
substantial portion of our revenues is generated in foreign
currencies. Therefore, our reported results are affected by
fluctuations in the currencies in which we conduct our
international businesses. During the three and nine months ended
September 30, 2007, the U.S. Dollar was generally
weaker against the Euro and Pound Sterling as compared to the
respective periods in 2006. The third quarter impact was also
due to the strength of the Canadian Dollar and Brazilian Real as
compared to the respective period in 2006. As a result, the net
effect of foreign currency changes from the comparable
prior-year periods was an increase in revenues and operating
expenses in 2007.
As discussed in more detail in this MD&A:
|
|
|
|
|
Total revenue increased 7.3% and 6.0% for the three and nine
months ended September 30, 2007, respectively.
|
|
|
|
Organic revenue increase was 5.7% and 4.8% for the three and
nine months ended September 30, 2007, respectively.
|
|
|
|
Operating margin was 3.3% and 1.6% for the three and nine months
ended September 30, 2007, compared to 1.4% and (1.4%) for
the three and nine months ended September 30, 2006.
Salaries and related expenses as a percentage of revenue was
66.3% for the three and nine months ended September 30,
2007, compared with 66.1% and 66.2% for the three and nine
months ended September 30, 2006. Office and general
expenses as a percentage of revenue was 30.1% and 32.1% for the
three and nine months ended September 30, 2007, compared
with 32.1% and 34.9% for the three and nine months ended
September 30, 2006.
|
|
|
|
Operating expenses increased by $75.9 and $123.7 for the three
and nine months ended September 30, 2007.
|
|
|
|
Total salaries and related expenses increased 7.7% and 6.2% for
the three and nine months ended September 30, 2007. The
organic increase was 5.5% and 4.6% for the three and nine months
ended September 30, 2007.
|
|
|
|
Total office and general expenses increased 0.6% and decreased
(2.6%) for the three and nine months ended September 30,
2007. The organic increase was 0.1% and the organic decrease was
(2.9%) for the three and nine months ended September 30,
2007.
|
18
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
RESULTS
OF OPERATIONS
Consolidated
Results of Operations Three and Nine Months Ended
September 30, 2007 compared to Three and Nine Months Ended
September 30, 2006
REVENUE
The components of the change in consolidated revenue for the
third quarter of 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Components of Change
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
1,453.8
|
|
|
|
43.4
|
|
|
|
(19.8
|
)
|
|
|
82.5
|
|
|
$
|
1,559.9
|
|
|
|
5.7
|
%
|
|
|
7.3
|
%
|
Domestic
|
|
|
832.1
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
56.9
|
|
|
|
886.3
|
|
|
|
6.8
|
%
|
|
|
6.5
|
%
|
International
|
|
|
621.7
|
|
|
|
43.4
|
|
|
|
(17.1
|
)
|
|
|
25.6
|
|
|
|
673.6
|
|
|
|
4.1
|
%
|
|
|
8.3
|
%
|
United Kingdom
|
|
|
139.5
|
|
|
|
11.1
|
|
|
|
(11.6
|
)
|
|
|
(6.7
|
)
|
|
|
132.3
|
|
|
|
(4.8
|
)%
|
|
|
(5.2
|
)%
|
Continental Europe
|
|
|
215.3
|
|
|
|
16.6
|
|
|
|
(4.7
|
)
|
|
|
(2.8
|
)
|
|
|
224.4
|
|
|
|
(1.3
|
)%
|
|
|
4.2
|
%
|
Latin America
|
|
|
74.4
|
|
|
|
5.3
|
|
|
|
(4.9
|
)
|
|
|
9.4
|
|
|
|
84.2
|
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
Asia Pacific
|
|
|
126.9
|
|
|
|
7.5
|
|
|
|
5.0
|
|
|
|
8.3
|
|
|
|
147.7
|
|
|
|
6.5
|
%
|
|
|
16.4
|
%
|
Other
|
|
|
65.6
|
|
|
|
2.9
|
|
|
|
(0.9
|
)
|
|
|
17.4
|
|
|
|
85.0
|
|
|
|
26.5
|
%
|
|
|
29.6
|
%
|
During the third quarter of 2007, revenue increased $106.1, or
$82.5 on an organic basis, due to domestic organic revenue
growth and changes in foreign currency exchange rates at both
the Integrated Agency Networks (IAN) and
Constituency Management Group (CMG) segments and
international organic revenue growth at IAN. Domestic organic
growth was primarily driven by expanding business with existing
clients, winning new business in advertising and public
relations, and the completion of several projects within the
events marketing business. The international organic increase at
IAN was primarily driven by higher revenue from existing
clients, predominantly in Latin America. The increase in other
international revenue was primarily due to higher revenues in
South Africa and the Middle East.
The components of the change in consolidated revenue for the
first nine months of 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Components of Change
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
4,313.7
|
|
|
|
115.7
|
|
|
|
(62.8
|
)
|
|
|
205.1
|
|
|
$
|
4,571.7
|
|
|
|
4.8
|
%
|
|
|
6.0
|
%
|
Domestic
|
|
|
2,475.0
|
|
|
|
|
|
|
|
(7.9
|
)
|
|
|
182.0
|
|
|
|
2,649.1
|
|
|
|
7.4
|
%
|
|
|
7.0
|
%
|
International
|
|
|
1,838.7
|
|
|
|
115.7
|
|
|
|
(54.9
|
)
|
|
|
23.1
|
|
|
|
1,922.6
|
|
|
|
1.3
|
%
|
|
|
4.6
|
%
|
United Kingdom
|
|
|
403.8
|
|
|
|
38.4
|
|
|
|
(32.0
|
)
|
|
|
(0.6
|
)
|
|
|
409.6
|
|
|
|
(0.1
|
)%
|
|
|
1.4
|
%
|
Continental Europe
|
|
|
680.3
|
|
|
|
54.3
|
|
|
|
(15.5
|
)
|
|
|
(25.0
|
)
|
|
|
694.1
|
|
|
|
(3.7
|
)%
|
|
|
2.0
|
%
|
Latin America
|
|
|
200.7
|
|
|
|
9.9
|
|
|
|
(6.7
|
)
|
|
|
9.8
|
|
|
|
213.7
|
|
|
|
4.9
|
%
|
|
|
6.5
|
%
|
Asia Pacific
|
|
|
347.2
|
|
|
|
14.2
|
|
|
|
1.5
|
|
|
|
19.9
|
|
|
|
382.8
|
|
|
|
5.7
|
%
|
|
|
10.3
|
%
|
Other
|
|
|
206.7
|
|
|
|
(1.1
|
)
|
|
|
(2.2
|
)
|
|
|
19.0
|
|
|
|
222.4
|
|
|
|
9.2
|
%
|
|
|
7.6
|
%
|
During the first nine months of 2007, revenue increased $258.0,
or $205.1 on an organic basis, due to domestic organic revenue
growth and changes in foreign currency exchange rates at both
IAN and CMG, partially offset by net divestitures, primarily at
IAN. Domestic organic growth was driven by factors similar to
those noted above for the third quarter of 2007. The
international organic increase was driven by greater
19
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
revenue from existing clients, primarily in the Asia Pacific
region at IAN and CMG, partially offset by decreases primarily
related to lower revenue from existing clients in Continental
Europe at IAN, primarily France, and CMG. Other international
revenue increased due to factors similar to those noted above
for the third quarter of 2007.
Refer to the segment discussion later in this MD&A for more
detailed information on changes in revenue by segment.
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
Salaries and related expenses
|
|
$
|
1,034.7
|
|
|
|
66.3
|
%
|
|
$
|
960.7
|
|
|
|
66.1
|
%
|
|
$
|
3,033.2
|
|
|
|
66.3
|
%
|
|
$
|
2,856.5
|
|
|
|
66.2
|
%
|
Office and general expenses
|
|
|
468.9
|
|
|
|
30.1
|
%
|
|
|
466.0
|
|
|
|
32.1
|
%
|
|
|
1,466.6
|
|
|
|
32.1
|
%
|
|
|
1,506.1
|
|
|
|
34.9
|
%
|
Restructuring and other reorganization-related charges
(reversals)
|
|
|
5.2
|
|
|
|
|
|
|
|
6.2
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
1,508.8
|
|
|
|
|
|
|
$
|
1,432.9
|
|
|
|
|
|
|
$
|
4,499.2
|
|
|
|
|
|
|
$
|
4,375.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Related Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Three months ended September 30,
|
|
$
|
960.7
|
|
|
|
27.0
|
|
|
|
(6.0
|
)
|
|
|
53.0
|
|
|
$
|
1,034.7
|
|
|
|
5.5
|
%
|
|
|
7.7
|
%
|
Nine months ended September 30,
|
|
|
2,856.5
|
|
|
|
76.7
|
|
|
|
(31.5
|
)
|
|
|
131.5
|
|
|
|
3,033.2
|
|
|
|
4.6
|
%
|
|
|
6.2
|
%
|
The following table details our salary and related expenses as a
percentage of consolidated revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Base salaries, benefits and tax
|
|
|
54.5
|
%
|
|
|
54.9
|
%
|
|
|
55.3
|
%
|
|
|
55.9
|
%
|
Incentive expense
|
|
|
4.5
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
2.8
|
%
|
Severance expense
|
|
|
1.3
|
%
|
|
|
0.7
|
%
|
|
|
1.0
|
%
|
|
|
0.9
|
%
|
Temporary help
|
|
|
3.6
|
%
|
|
|
3.8
|
%
|
|
|
3.7
|
%
|
|
|
3.7
|
%
|
All other salaries and related expenses
|
|
|
2.4
|
%
|
|
|
3.1
|
%
|
|
|
2.7
|
%
|
|
|
2.9
|
%
|
During the third quarter of 2007, salaries and related expenses
increased $74.0, or $53.0 on an organic basis, primarily due to
an increase in base salaries, benefits and temporary help of
$52.3, cash bonus accruals and long-term incentive stock
compensation expense of $17.8 and severance expense of $10.4.
Changes in foreign currency rates affect our base salaries and
benefits since a large portion of our workforce is located
outside of the United States. Excluding the effect of foreign
currency and net divestitures, base salaries, benefits and
temporary help grew on an organic basis by $33.9 primarily to
support growth in certain of our businesses, predominantly at
McCann Worldgroup. Cash bonus accruals and long-term incentive
stock expense increased primarily due to improved operating
performance versus financial targets at certain operating units
20
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
in 2007 and timing as compared to 2006. Long-term incentive
awards are tied to our financial performance generally for three
year periods beginning with the grant year with the achievement
of performance targets required for these awards. Changes can
occur in both short-term and long-term compensation awards based
on projected results and could affect trends between various
periods in the future. Severance expense increased mainly due to
reductions in staff, including overhead positions and those
related to lost business and shifting of business to other
agencies.
During the first nine months of 2007, salaries and related
expenses increased $176.7, or $131.5 on an organic basis, mostly
for the same reasons as noted above for the third quarter. Base
salaries, benefits and temporary help increased by $124.8 and
cash bonus accruals and long-term incentive stock compensation
expense increased by $43.6. Excluding the effect of foreign
currency and net divestitures, base salaries, benefits and
temporary help grew on an organic basis by $85.8. Long-term
stock compensation incentive expense also increased due to the
effect of equity-based awards granted in June 2006 and a higher
accrual related to a one-time performance-based equity award
granted in 2006 to certain executives.
Office
and General Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Three months ended September 30,
|
|
$
|
466.0
|
|
|
|
15.1
|
|
|
|
(12.7
|
)
|
|
|
0.5
|
|
|
$
|
468.9
|
|
|
|
0.1
|
%
|
|
|
0.6
|
%
|
Nine months ended September 30,
|
|
|
1,506.1
|
|
|
|
42.4
|
|
|
|
(37.9
|
)
|
|
|
(44.0
|
)
|
|
|
1,466.6
|
|
|
|
(2.9
|
)%
|
|
|
(2.6
|
%)
|
The following table details our office and general expenses as a
percentage of consolidated revenue. All other office and general
expenses includes production expenses, depreciation and
amortization, bad debt expense, foreign currency gains (losses)
and other expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Professional fees
|
|
|
2.0
|
%
|
|
|
2.6
|
%
|
|
|
2.6
|
%
|
|
|
4.1
|
%
|
Occupancy expense (excluding depreciation and amortization)
|
|
|
8.4
|
%
|
|
|
8.7
|
%
|
|
|
8.5
|
%
|
|
|
9.0
|
%
|
Travel & entertainment, office supplies and telecom
|
|
|
4.6
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
5.0
|
%
|
All other office and general expenses
|
|
|
15.1
|
%
|
|
|
16.0
|
%
|
|
|
16.2
|
%
|
|
|
16.8
|
%
|
Office and general expenses for the third quarter of 2007
increased slightly primarily due to the net effect of foreign
currency changes and an increase in production expenses,
partially offset by net divestitures and continued reductions in
professional fees. The increase in production expenses primarily
related to the pass-through costs involved in the completion of
several projects at IAN and CMG. The decrease in professional
fees was mainly attributable to reduced costs associated with
projects related to internal control compliance, primarily at
Corporate.
Office and general expenses for the first nine months of 2007
decreased primarily due to continued reductions in professional
fees and net divestitures, partially offset by the net effect of
foreign currency changes and an increase in production expenses
primarily due to the events marketing business at CMG completing
several projects during the quarter. We expect professional fees
to continue to decrease in 2008.
21
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Restructuring
and Other Reorganization-Related Charges (Reversals)
Restructuring charges (reversals) relate to the 2003 and 2001
restructuring programs and a restructuring program entered into
at Lowe Worldwide (Lowe) during the third quarter of
2007. Due to changes in the business environment that have
occurred during the year, we committed to and began implementing
a restructuring program to realign resources with our strategic
business objectives within Lowe. This plan includes reducing and
restructuring Lowes workforce both domestically and
internationally, and terminating certain lease agreements. We
recognized expenses related to severance and termination costs
of $4.8 during the third quarter of 2007 and expect to incur
additional charges related to severance and termination costs of
approximately $6.0 and lease termination and other exit costs of
approximately $7.0 over the next two to three quarters. Cash
payments are expected to be made through December 31, 2008.
In addition, included in the restructuring reversals for the
nine months ended September 30, 2007 are net reversals for
the 2003 and 2001 restructuring programs primarily consisting of
reversals due to the utilization of previously vacated property
by an agency at Draftfcb and adjustments to estimates primarily
relating to our severance and lease termination costs.
EXPENSES
AND OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Interest expense
|
|
$
|
(60.1
|
)
|
|
$
|
(57.0
|
)
|
|
$
|
(172.0
|
)
|
|
$
|
(155.1
|
)
|
Interest income
|
|
|
30.2
|
|
|
|
25.1
|
|
|
|
86.8
|
|
|
|
77.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(29.9
|
)
|
|
|
(31.9
|
)
|
|
|
(85.2
|
)
|
|
|
(77.7
|
)
|
Other (expense) income
|
|
|
(4.8
|
)
|
|
|
22.6
|
|
|
|
1.7
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(34.7
|
)
|
|
$
|
(9.3
|
)
|
|
$
|
(83.5
|
)
|
|
$
|
(30.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net interest expense during the third quarter of
2007 is largely due to higher interest income. The increase in
net interest expense during the first nine months of 2007 is
primarily attributable to higher interest expense on increased
short-term debt, partially offset by interest income on higher
cash balances. Additionally, the change in non-cash interest
expense from prior year was minimal due to higher amortization
of issuance costs and deferred warrants costs from the ELF
Financing transaction, impacting the first six months of 2007,
offset by the amortization of the loss on extinguishment of
$400.0 of our 4.50% Convertible Senior Notes.
Other
(Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(Losses) gains on sales of businesses and investments
|
|
$
|
(7.1
|
)
|
|
$
|
15.2
|
|
|
$
|
(15.4
|
)
|
|
$
|
35.5
|
|
Vendor discounts and credit adjustments
|
|
|
3.5
|
|
|
|
5.4
|
|
|
|
11.5
|
|
|
|
9.3
|
|
Other income
|
|
|
(1.2
|
)
|
|
|
2.0
|
|
|
|
5.6
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4.8
|
)
|
|
$
|
22.6
|
|
|
$
|
1.7
|
|
|
$
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Sale of businesses and investments
During the three months ended
September 30, 2007, included in the loss of $7.1, we had
charges of $8.1 as a result of the realization of cumulative
translation adjustment balances from the liquidation of several
businesses, as well as charges from the partial disposition of a
business in South Africa at Lowe. In addition to the third
quarter charges, during the first nine months of 2007, we sold
several businesses within Draftfcb and Lowe for a loss of
approximately $10.0, partially offset by the sale of our
remaining ownership interests in two agencies for a gain of $2.8.
During the three months ended September 30, 2006, we sold
our interest in a German advertising agency and accordingly
recognized the related remaining cumulative translation
adjustment balance. This resulted in a non-cash benefit of
$17.0. In addition, during the first nine months of 2006, we
sold an investment located in Asia Pacific for a gain of $18.4
and sold our remaining ownership interest in an agency within
Lowe for a gain of $2.5.
Vendor discounts and credit adjustments
We are in the process of settling our
liabilities related to vendor discounts and credits primarily
established as part of the 2004 Restatement. These adjustments
reflect the reversal of certain liabilities as a result of
settlements with clients and vendors or where the statute of
limitations has lapsed. In addition to these adjustments, for
the nine months ended September 30, 2007, we satisfied
approximately $20.0 of these liabilities through cash payments
of approximately $8.0 and reductions of certain client
receivables of approximately $12.0.
INCOME
TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
16.4
|
|
|
$
|
11.6
|
|
|
$
|
(11.0
|
)
|
|
$
|
(92.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (benefit of) income taxes continuing
operations
|
|
|
35.8
|
|
|
|
10.5
|
|
|
|
(1.3
|
)
|
|
|
6.7
|
|
Benefit of income taxes discontinued operations
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit of) income taxes
|
|
$
|
35.8
|
|
|
$
|
5.5
|
|
|
$
|
(1.3
|
)
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2007, the
difference between the effective tax rate and the statutory rate
of 35% is primarily due to state and local taxes, losses
incurred in
non-U.S. jurisdictions
that receive no corresponding tax benefit, the revaluation of
deferred tax assets due to tax law changes in certain
U.S. states and
non-U.S. jurisdictions
and other adjustments. The impact of these changes to the
deferred tax assets was a reduction of $9.1. In addition, for
the nine months ended September 30, 2007, the difference
between the effective tax rate and the statutory rate of 35% is
also due to the recognition of previously unrecognized tax
benefits of approximately $80.0, which is the primary reason for
the improvement in the effective tax rate as compared to the
nine months ended September 30, 2006.
23
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Segment
Results of Operations Three and Nine Months Ended
September 30, 2007 compared to Three and Nine Months Ended
September 30, 2006
As discussed in Note 9 to the unaudited Consolidated
Financial Statements, we have two reportable segments as of
September 30, 2007: IAN and CMG. We also report results for
the Corporate and other group.
IAN
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Components of Change
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
1,226.6
|
|
|
|
37.2
|
|
|
|
(11.9
|
)
|
|
|
59.8
|
|
|
$
|
1,311.7
|
|
|
|
4.9
|
%
|
|
|
6.9
|
%
|
Domestic
|
|
|
692.1
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
33.2
|
|
|
|
722.6
|
|
|
|
4.8
|
%
|
|
|
4.4
|
%
|
International
|
|
|
534.5
|
|
|
|
37.2
|
|
|
|
(9.2
|
)
|
|
|
26.6
|
|
|
|
589.1
|
|
|
|
5.0
|
%
|
|
|
10.2
|
%
|
The revenue increase in the third quarter of 2007 was a result
of organic increases and net changes in foreign currency
exchange rates, partially offset by net divestitures, primarily
from the sale of several non-strategic businesses at Draftfcb
and Lowe in the current and prior year. The domestic increase
was a result of higher revenue from existing clients and net
client wins, primarily at McCann Worldgroup, Draftfcb,
Initiative and Hill Holliday, one of our independent agencies,
partially offset by net client losses and decreased revenue from
existing clients at Lowe. International revenues increased as
the third quarter of 2007 primarily benefited from the favorable
effect of changes in foreign currency exchange rates and an
organic increase due to higher revenue from existing clients and
net client wins at McCann Worldgroup across most international
regions. This increase was partially offset by net divestitures
of non-strategic businesses, primarily at Draftfcb and Lowe, and
decreases at Lowe due to net client losses and decreased
spending by existing clients in the Asia Pacific region and in
Continental Europe.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Components of Change
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
3,630.5
|
|
|
|
97.1
|
|
|
|
(43.0
|
)
|
|
|
137.7
|
|
|
$
|
3,822.3
|
|
|
|
3.8
|
%
|
|
|
5.3
|
%
|
Domestic
|
|
|
2,043.2
|
|
|
|
|
|
|
|
(7.9
|
)
|
|
|
115.6
|
|
|
|
2,150.9
|
|
|
|
5.7
|
%
|
|
|
5.3
|
%
|
International
|
|
|
1,587.3
|
|
|
|
97.1
|
|
|
|
(35.1
|
)
|
|
|
22.1
|
|
|
|
1,671.4
|
|
|
|
1.4
|
%
|
|
|
5.3
|
%
|
The revenue increase in the first nine months of 2007 was a
result of organic increases and changes in foreign currency
exchange rates, partially offset by net divestitures, primarily
from the sale of several non-strategic businesses at Draftfcb
and Lowe in the current and prior year. The domestic increase
was driven by factors similar to those noted above for the third
quarter of 2007. International revenues increased as the first
nine months of 2007 primarily benefited from the favorable
effect of changes in foreign currency exchange rates and
increased spending from existing clients in the Asia Pacific
region and Continental Europe at McCann Worldgroup. This was
partially offset by net divestitures of non-strategic businesses
at Draftfcb and Lowe as well as lower client spending at Lowe,
primarily in Continental Europe.
24
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
SEGMENT
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Segment operating income
|
|
$
|
97.4
|
|
|
$
|
75.1
|
|
|
|
29.7
|
%
|
|
$
|
200.9
|
|
|
$
|
121.8
|
|
|
|
64.9
|
%
|
Operating margin
|
|
|
7.4
|
%
|
|
|
6.1
|
%
|
|
|
|
|
|
|
5.3
|
%
|
|
|
3.4
|
%
|
|
|
|
|
Operating income increased during the third quarter of 2007 due
to an increase in revenue of $85.1, partially offset by
increases in salaries and related expenses and office and
general expenses. Higher salaries and related expenses were
primarily due to the impact of changes in foreign currency
exchange rates, increased base salaries, benefits and temporary
help to support growth, increases in cash bonus awards due to
improved operating performance in 2007 compared to 2006, and
increased severance expense mainly due to reductions in staff,
including overhead positions and those related to lost business
and shifting of business to other agencies. This was partially
offset by net divestitures primarily from the sale of several
non-strategic businesses at Draftfcb and Lowe in the current and
prior year.
Operating income increased during the first nine months of 2007
due to an increase in revenue of $191.8 and a decrease in office
and general expenses, partially offset by an increase in
salaries and related expenses. Salaries and related expenses
increased due to factors similar to those noted above for the
third quarter.
CMG
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Components of Change
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
227.2
|
|
|
|
6.2
|
|
|
|
(7.9
|
)
|
|
|
22.7
|
|
|
$
|
248.2
|
|
|
|
10.0
|
%
|
|
|
9.2
|
%
|
Domestic
|
|
|
140.0
|
|
|
|
|
|
|
|
|
|
|
|
23.7
|
|
|
|
163.7
|
|
|
|
16.9
|
%
|
|
|
16.9
|
%
|
International
|
|
|
87.2
|
|
|
|
6.2
|
|
|
|
(7.9
|
)
|
|
|
(1.0
|
)
|
|
|
84.5
|
|
|
|
(1.1
|
)%
|
|
|
(3.1
|
%)
|
Revenue growth in the third quarter of 2007 was primarily a
result of higher domestic revenue in the events marketing and
public relations businesses. The domestic organic revenue
increase was primarily due to the events marketing business
completing several projects with existing clients during the
quarter, and client wins in the public relations business.
Revenues in the events marketing business can fluctuate due to
the timing of completing projects, as revenue is typically
recognized when the project is complete. Furthermore, we
generally act as principal for these projects and as such record
the gross amount billed to the client as revenue and the related
costs incurred as pass-through costs in office and general
expenses. International revenues decreased primarily due to a
divestiture of a sports marketing business in 2006 and a
decrease in client spending in Europe primarily due to
project-based events in 2006 that did not recur in the third
quarter of 2007. This was partially offset by increased client
spending in the Asia Pacific region, primarily in the events
marketing and the public relations businesses, and favorable
changes in foreign currency exchange rates.
25
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Components of Change
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
683.2
|
|
|
|
18.6
|
|
|
|
(19.8
|
)
|
|
|
67.4
|
|
|
$
|
749.4
|
|
|
|
9.9
|
%
|
|
|
9.7
|
%
|
Domestic
|
|
|
431.8
|
|
|
|
|
|
|
|
|
|
|
|
66.4
|
|
|
|
498.2
|
|
|
|
15.4
|
%
|
|
|
15.4
|
%
|
International
|
|
|
251.4
|
|
|
|
18.6
|
|
|
|
(19.8
|
)
|
|
|
1.0
|
|
|
|
251.2
|
|
|
|
0.4
|
%
|
|
|
(0.1
|
%)
|
Revenue growth in the first nine months of 2007 was primarily a
result of higher domestic revenue in the public relations,
events marketing and sports marketing businesses. The domestic
organic revenue increase was driven by factors similar to those
noted above for the third quarter as well as expanding business
with existing clients in the public relations and sports
marketing businesses. International revenues decreased slightly
primarily due to a divestiture of a sports marketing business in
2006 and a decrease in client spending due to project-based
events in 2006 that did not recur in the first nine months of
2007. This was partially offset by favorable foreign currency
exchange rate changes and increased revenue from existing
clients in the public relations businesses in Europe and the
Asia Pacific region.
SEGMENT
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Segment operating income
|
|
$
|
12.6
|
|
|
$
|
10.8
|
|
|
|
16.7
|
%
|
|
$
|
29.8
|
|
|
$
|
27.4
|
|
|
|
8.8
|
%
|
Operating margin
|
|
|
5.1
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
Operating income for the third quarter of 2007 increased as a
result of an increase in revenues of $21.0, partially offset by
increases in office and general expenses and salaries and
related expenses. Higher salaries and related expenses primarily
related to the hiring of additional staff in the public
relations businesses to support their revenue growth. Office and
general expenses increased primarily due to production expenses
related to the completion of several projects in the events
marketing and sports marketing businesses.
Operating income for the first nine months of 2007 increased as
a result of an increase in revenues of $66.2, partially offset
by increases in office and general expenses and salaries and
related expenses. Salaries and related expenses and office and
general expenses increased due to factors similar to those noted
above for the third quarter.
CORPORATE
AND OTHER
Corporate and other expenses includes corporate office expenses
and shared service center expenses, as well as certain other
centrally managed expenses that are not fully allocated to
operating divisions. Salaries and related expenses include
salaries, pension, bonus and medical and dental insurance
expenses for corporate office employees. Office and general
expenses primarily includes professional fees related to
internal control compliance, financial statement audits, legal,
information technology and other consulting services, which are
engaged and managed through the corporate office. In addition,
office and general expenses also includes rental expense and
depreciation of leasehold improvements for properties occupied
by corporate office employees. We allocate amounts to operating
divisions based on a formula that uses the revenues of the
operating unit. Amounts allocated also include specific charges
for information technology-related projects, which are allocated
based on utilization.
26
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Corporate and other expenses decreased by $5.1 and $39.3 to
$53.7 and $158.8 for the three and nine months ended
September 30, 2007, respectively. Expenses for the third
quarter of 2007 decreased compared to the prior year primarily
due to reduced professional fees attributable to reduced costs
associated with projects related to internal control compliance
and external audit fees. Expenses for the first nine months of
2007 decreased compared to the prior year primarily due to
reduced professional fees of $51.7 attributable to reduced costs
associated with projects related to financial and compliance
matters, including internal control compliance, legal
consultation and certain accounting projects.
LIQUIDITY
AND CAPITAL RESOURCES
CASH
FLOW OVERVIEW
Cash, cash equivalents and marketable securities decreased by
$423.2 to $1,533.9 during the first nine months of 2007
primarily due to working capital usage and acquisitions. Of this
change, marketable securities increased by $102.4, primarily as
a result of our net purchases of auction rate securities in the
first nine months of 2007. A summary of our cash flow activities
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net cash used in operating activities
|
|
$
|
(219.8
|
)
|
|
$
|
(580.9
|
)
|
Net cash used in investing activities
|
|
|
(296.4
|
)
|
|
|
(120.7
|
)
|
Net cash used in financing activities
|
|
|
(42.9
|
)
|
|
|
(115.4
|
)
|
Operating
Activities
During the first nine months of 2007, we used working capital of
$393.8, a significant improvement compared to working capital
usage of $580.8 in the prior year period. Working capital
reflects changes in accounts receivable, expenditures billable
to clients, prepaid expenses and other current assets, accounts
payable and accrued liabilities. During the first nine months of
2007, reductions in accounts payable of $424.3 and increases in
expenditures billable to clients of $242.7 were partially offset
by a reduction in accounts receivable of $409.3. Accounts
payable decreased primarily due to the timing of vendor payments
and expenditures billable to clients increased due to higher
pass-through costs, primarily as a result of new client wins,
and unbilled fees to clients. Accounts receivable decreased
primarily due to higher cash collections.
The timing of media buying on behalf of our clients affects our
working capital and operating cash flow. In most of our
businesses, we collect funds from our clients that we use, on
their behalf, to pay production costs and media costs. The
amounts involved substantially exceed our revenues, and
primarily affect the level of accounts receivable, expenditures
billable to clients, accounts payable and accrued media and
production liabilities. Our assets include both cash received
and accounts receivable from clients for these pass-through
arrangements, while our liabilities include amounts owed on
behalf of clients to media and production suppliers. Generally,
we pay production and media charges after we have received funds
from our clients, and our risk from client nonpayment has
historically not been significant.
The net loss of $10.8 during the first nine months of 2007
includes non-cash items that are not expected to generate cash
or require the use of cash. Net non-cash expense items of $189.2
primarily include depreciation of fixed assets, amortization of
intangible assets, restricted stock awards, non-cash
compensation, bond discounts and deferred financing costs and
the deferred income tax benefit.
27
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Investing
Activities
Cash used in investing activities during the first nine months
of 2007 primarily reflects net purchases of short-term
marketable securities, acquisitions and capital expenditures.
Net purchases of marketable securities were from purchases of
auction rate securities, which are classified as short-term
marketable securities based upon our evaluation of the maturity
dates associated with the underlying bonds. The cash flows
attributable to short-term marketable securities vary from one
period to another because of changes in the maturity profile of
our treasury investments.
Payments for acquisitions relate to purchases of agencies and
deferred payments on prior acquisitions. During the nine months
ended September 30, 2007, we made six acquisitions, of
which the most significant were: a) a full-service
advertising agency in Latin America, b) Reprise Media,
which is a full-service search engine marketing firm in North
America, and c) the remaining interests in two full-service
advertising agencies in India in which we previously held 49%
and 51% interests. Total cash consideration for the six
acquisitions was $112.8. Subsequent to September 30, 2007,
we acquired a professional healthcare services business in the
United Kingdom and a branded entertainment business in the
United States for total cash consideration of approximately
$28.0.
Capital expenditures of $96.4 primarily related to leasehold
improvements and computer hardware.
Financing
Activities
Cash used in financing activities during the first nine months
of 2007 primarily reflects dividend payments of $20.7 on our
Series B Preferred Stock, distributions to minority
interests and a decrease in short-term borrowings.
LIQUIDITY
OUTLOOK
We expect our cash and cash equivalents and marketable
securities to be sufficient to meet our anticipated operating
requirements at a minimum for the next twelve months.
We believe that a conservative approach to liquidity is
appropriate for our Company, in view of the cash requirements
resulting from, among other things, high professional fees,
liabilities to our clients for vendor discounts and credits, any
potential penalties or fines that may have to be paid in
connection with the ongoing SEC investigation, the normal cash
variability inherent in our operations and other unanticipated
requirements. In addition, until our margins consistently
improve in connection with our turnaround, cash generation from
operations could be challenged in certain periods.
A reduction in our liquidity in future periods as a result of
the above items or other business objectives could lead us to
seek new or additional sources of liquidity to fund our working
capital needs. From time to time we evaluate market conditions
and financing alternatives for opportunities to raise additional
financing or otherwise improve our liquidity profile and enhance
our financial flexibility. There can be no guarantee that we
would be able to access new sources of liquidity on commercially
reasonable terms, or at all.
Funding
Requirements
Our most significant funding requirements include: our
operations, non-cancelable operating lease obligations, capital
expenditures, payments related to vendor discounts and credits,
debt service, preferred stock dividends, contributions to
pension and postretirement plans, acquisitions and taxes.
28
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
On March 15, 2008 holders of our $400.0
4.50% Convertible Senior Notes due 2023 may require us
to repurchase these Notes for cash at par. The remainder of our
debt profile is primarily long-term, with maturities scheduled
from 2009 to 2023.
Of the liabilities recognized as part of the 2004 Restatement,
we estimate that we will pay approximately $75.0 related to
vendor discounts and credits, internal investigations and
international compensation arrangements over the next
12 months.
We continue to evaluate strategic opportunities to grow the
business and increase our ownership interests in current
investments, particularly to develop the digital and marketing
services components of our business and to expand our presence
in faster growing markets, including Brazil, Russia, India and
China.
We have various tax years under examination in various countries
in which we have significant business operations. We do not know
whether these examinations will, in the aggregate, result in our
paying additional income taxes, which we believe are adequately
reserved for.
FINANCING
AND SOURCES OF FUNDS
Substantially all of our operating cash flow is generated by our
agencies. Our liquid assets are held primarily at the holding
company level, and to a lesser extent at our largest
subsidiaries.
In recent years, we have obtained long-term financing in the
capital markets by issuing debt securities, convertible debt
securities and convertible preferred stock. In connection with
the ELF Financing, we issued two series of equity warrants and
have entered into call spread transactions in connection with
one of the series of equity warrants.
Credit
Facilities
Our principal credit facility is our $750.0 Three-Year Credit
Agreement (the Credit Agreement), which we can
utilize for cash advances and for letters of credit up to
$600.0. This is a revolving facility under which amounts
borrowed may be repaid and borrowed again, and the aggregate
available amount of letters of credit may decrease or increase,
subject to the overall limit of $750.0 and the $600.0 limit on
letters of credit. We have not drawn on the Credit Agreement or
our previous committed credit agreements since late 2003.
In addition to the Credit Agreement, we have uncommitted credit
facilities with various banks that permit borrowings at variable
interest rates. We use our uncommitted credit lines for working
capital needs at some of our operations outside the United
States and the amount outstanding as of September 30, 2007
was $72.8. If we lose access to these credit lines we would have
to provide funding directly to some overseas operations. The
weighted-average interest rate on this outstanding balance was
approximately 6%.
Letters
of Credit
We are required from time to time to post letters of credit,
primarily to support our commitments, or those of our
subsidiaries, to purchase media placements, mostly in locations
outside the United States, or to satisfy other obligations.
These letters of credit are generally backed by letters of
credit issued under the Credit Agreement. As of
September 30, 2007, the aggregate amount of outstanding
letters of credit issued for our account under the Credit
Agreement was $222.9. These letters of credit have historically
not been drawn upon.
29
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Cash
Pooling
We aggregate our net domestic cash position on a daily basis.
Outside the United States, we use cash pooling arrangements with
banks to help manage our liquidity requirements. In these
pooling arrangements, several Interpublic agencies agree with a
single bank that the cash balances of any of the agencies with
the bank will be subject to a full right of setoff against
amounts the other agencies owe the bank, and the bank provides
overdrafts as long as the net balance for all the agencies does
not exceed an
agreed-upon
level. Typically each agency pays interest on outstanding
overdrafts and receives interest on cash balances. Our
consolidated balance sheets reflect cash net of overdrafts for
each pooling arrangement. As of September 30, 2007 a gross
amount of $1,162.9 in cash was netted against an equal gross
amount of overdrafts under pooling arrangements.
CREDIT
AGENCY RATINGS
Our long-term debt credit ratings as of September 30, 2007
were Ba3 with stable outlook, B with positive outlook and
BB− with stable outlook, as reported by Moodys
Investors Service, Standard & Poors and Fitch
Ratings, respectively. A downgrade in our credit ratings could
adversely affect our ability to access capital and could result
in more stringent covenants and higher interest rates under the
terms of any new indebtedness.
INTERNAL
CONTROL OVER FINANCIAL REPORTING
Our internal control over financial reporting is described in
detail in Managements Assessment of Internal Control Over
Financial Reporting located in Item 8, Financial Statements
and Supplementary Data, and in Item 9A, Controls and
Procedures, in our 2006 Annual Report on
Form 10-K.
CRITICAL
ACCOUNTING ESTIMATES
Our significant accounting policies are described in Note 1
to the Consolidated Financial Statements for the year ended
December 31, 2006 included in our 2006 Annual Report on
Form 10-K.
As summarized in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations, in
our 2006 Annual Report on
Form 10-K,
we believe that certain of these policies are critical because
they are important to the presentation of our financial
condition and results of operations and they require
managements most difficult, subjective or complex
judgments, often as a result of the need to estimate the effect
of matters that are inherently uncertain. We base our estimates
on historical experience and on other factors that we consider
reasonable under the circumstances. Estimation methodologies are
applied consistently from year to year, and there have been no
significant changes in the application of critical accounting
estimates since December 31, 2006 except as noted below in
regards to income taxes. Actual results may differ from these
estimates under different assumptions or conditions.
On January 1, 2007 we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes,
(FIN 48) which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position that an entity
takes or expects to take in a tax return. Additionally,
FIN 48 provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods,
disclosure, and transition. The assessment of recognition and
measurement requires critical estimates and the use of complex
judgments. We evaluate our tax positions using a more
likely than not recognition threshold and then we apply a
measurement assessment to those positions that meet the
recognition threshold. We have established tax reserves that we
believe to be adequate in relation to the potential for
additional assessments in each of the jurisdictions in which we
are subject to taxation. We regularly assess the likelihood of
additional tax assessments in those jurisdictions and adjust our
reserves as additional information or events require.
30
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
RECENT
ACCOUNTING STANDARDS
Please refer to Note 11 to our unaudited Consolidated
Financial Statements for a discussion of recent accounting
standards that we have not yet been required to implement, but
which may affect us in the future, as well as those accounting
standards that have been adopted during 2007.
31
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|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
There has been no significant change in our exposure to market
risk during the nine months ended September 30, 2007. For a
discussion of our exposure to market risk, refer to
Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, in our 2006 Annual Report on
Form 10-K.
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We have carried out an evaluation under the supervision of, and
with the participation of, our management, including our Chief
Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of September 30, 2007. We
continue to have numerous material weaknesses in our internal
control over financial reporting as noted in Managements
Assessment of Internal Control over Financial Reporting located
in Item 8, Financial Statements and Supplementary Data, in
our 2006 Annual Report on
Form 10-K.
Based on an evaluation of these material weaknesses, our Chief
Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures are not effective to
provide reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time periods
specified in the applicable rules and forms, and that it is
accumulated and communicated to our management, including our
Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.
Changes
in internal control over financial reporting
There has been no change in internal control over financial
reporting in the quarter ended September 30, 2007 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. We are
continuing to implement the remedial actions outlined in Ongoing
Remediation of Material Weaknesses in Internal Control over
Financial Reporting as of December 31, 2006 located in
Item 8, Financial Statements and Supplementary Data, in our
2006 Annual Report on
Form 10-K.
32
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Information about our legal proceedings is set forth in
Note 10 to the unaudited consolidated financial statements
included in this report.
In the third quarter of 2007, there have been no material
changes in the risk factors we have previously disclosed. See
Item 1A, Risk Factors, in our 2006 Annual Report on
Form 10-K
and Item 1A, Risk Factors, in Part II of our Quarterly
Report on
Form 10-Q
for the period ended June 30, 2007.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
(c) The following table provides information regarding our
purchases of our equity securities during the period from
July 1, 2007 to September 30, 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (or
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value) of
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|
|
|
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|
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Total Number of Shares
|
|
|
Shares (or Units)
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|
|
|
|
|
|
|
|
(or Units) Purchased as
|
|
|
that May Yet Be
|
|
|
|
Total Number of
|
|
|
Average Price
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|
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Part of Publicly
|
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Purchased Under
|
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Shares (or Units)
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Paid per Share
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|
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Announced Plans
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the Plans or
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Purchased
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(or
Unit)(2)
|
|
|
or Programs
|
|
|
Programs
|
|
|
July 1-31
|
|
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6,543 shares
|
|
|
$
|
11.42
|
|
|
|
|
|
|
|
|
|
August 1-31
|
|
|
19,239 shares
|
|
|
$
|
10.51
|
|
|
|
|
|
|
|
|
|
September 1-30
|
|
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16,528 shares
|
|
|
$
|
10.57
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total(1)
|
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42,310 shares
|
|
|
$
|
10.67
|
|
|
|
|
|
|
|
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|
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(1) |
|
Consists of restricted shares of our common stock, par value
$.10 per share, withheld under the terms of grants under
employee stock-based compensation plans to offset tax
withholding obligations that occurred upon vesting and release
of restricted shares during each month of the third quarter of
2007 (the Withheld Shares). |
|
(2) |
|
The average price per month of the Withheld Shares was
calculated by dividing the aggregate value of the tax
withholding obligations for each month by the aggregate number
of shares of common stock withheld each month. |
(d) The terms of our outstanding series of preferred stock
do not permit us to pay dividends on our common stock unless all
accumulated and unpaid dividends on our preferred stock have
been or contemporaneously are declared and paid or provision for
the payment thereof has been made.
33
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(1)
|
|
The Interpublic Senior Executive Retirement Income Plan
(SERIP), Amended and Restated, Effective
January 1, 2007.
|
10(iii)(A)(2)
|
|
Form of The Interpublic SERIP Restated Participation Agreement.
|
10(iii)(A)(3)
|
|
Form of The Interpublic SERIP Participation Agreement
(Form For New Participants).
|
10(iii)(A)(4)
|
|
The Interpublic Capital Accumulation Plan (CAP),
Amended and Restated, Effective January 1, 2007.
|
10(iii)(A)(5)
|
|
Form of The Interpublic CAP Restated Participation Agreement.
|
10(iii)(A)(6)
|
|
Form of The Interpublic CAP Participation Agreement
(Form For New Participants).
|
10(iii)(A)(7)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 13, 2004, between The
Interpublic Group of Companies, Inc. (Interpublic)
and Michael Roth.
|
10(iii)(A)(8)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Michael
Roth.
|
10(iii)(A)(9)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 18, 2005, between Interpublic
and Frank Mergenthaler.
|
10(iii)(A)(10)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Frank
Mergenthaler.
|
10(iii)(A)(11)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and John J.
Dooner.
|
10(iii)(A)(12)
|
|
Executive Change of Control Agreement, dated as of
September 30, 2007, by and between Interpublic and Steve
Gatfield.
|
10(iii)(A)(13)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of January 1, 2006, between Interpublic
and Philippe Krakowsky.
|
10(iii)(A)(14)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Philippe
Krakowsky.
|
10(iii)(A)(15)
|
|
Amendment, dated September 12, 2007, to an Executive
Special Benefit Agreement, dated February 1, 2002, between
Interpublic and Philippe Krakowsky.
|
10(iii)(A)(16)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 6, 2004, between Interpublic and
Timothy A. Sompolski.
|
10(iii)(A)(17)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Timothy
A. Sompolski.
|
12.1
|
|
Computation of Ratios of Earnings to Fixed Charges.
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
32
|
|
Certification of the Chief Executive Officer and the Chief
Financial Officer furnished pursuant to 18 U.S.C.
Section 1350 and
Rule 13a-14(b)
under the Securities Exchange Act of 1934, as amended.
|
34
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.
Michael I. Roth
Chairman and Chief Executive Officer
Date: November 1, 2007
|
|
|
|
By
|
/s/ Christopher
F. Carroll
|
Christopher F. Carroll
Senior Vice President, Controller
and Chief Accounting Officer
(Principal Accounting Officer)
Date: November 1, 2007
35
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(1)
|
|
The Interpublic Senior Executive Retirement Income Plan
(SERIP), Amended and Restated, Effective
January 1, 2007.
|
10(iii)(A)(2)
|
|
Form of The Interpublic SERIP Restated Participation Agreement.
|
10(iii)(A)(3)
|
|
Form of The Interpublic SERIP Participation Agreement
(Form For New Participants).
|
10(iii)(A)(4)
|
|
The Interpublic Capital Accumulation Plan (CAP),
Amended and Restated, Effective January 1, 2007.
|
10(iii)(A)(5)
|
|
Form of The Interpublic CAP Restated Participation Agreement.
|
10(iii)(A)(6)
|
|
Form of The Interpublic CAP Participation Agreement
(Form For New Participants).
|
10(iii)(A)(7)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 13, 2004, between The
Interpublic Group of Companies, Inc. (Interpublic)
and Michael Roth.
|
10(iii)(A)(8)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Michael
Roth.
|
10(iii)(A)(9)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 18, 2005, between Interpublic
and Frank Mergenthaler.
|
10(iii)(A)(10)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Frank
Mergenthaler.
|
10(iii)(A)(11)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and John J.
Dooner.
|
10(iii)(A)(12)
|
|
Executive Change of Control Agreement, dated as of
September 30, 2007, by and between Interpublic and Steve
Gatfield.
|
10(iii)(A)(13)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of January 1, 2006, between Interpublic
and Philippe Krakowsky.
|
10(iii)(A)(14)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Philippe
Krakowsky.
|
10(iii)(A)(15)
|
|
Amendment, dated September 12, 2007, to an Executive
Special Benefit Agreement, dated February 1, 2002, between
Interpublic and Philippe Krakowsky.
|
10(iii)(A)(16)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 6, 2004, between Interpublic and
Timothy A. Sompolski.
|
10(iii)(A)(17)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Interpublic and Timothy
A. Sompolski.
|
12.1
|
|
Computation of Ratios of Earnings to Fixed Charges.
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
32
|
|
Certification of the Chief Executive Officer and the Chief
Financial Officer furnished pursuant to 18 U.S.C.
Section 1350 and
Rule 13a-14(b)
under the Securities Exchange Act of 1934, as amended.
|
36