UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
OR
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
Commission File Number: 1 -6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware incorporation or organization) |
13 -1024020 Identification No.) |
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1271 Avenue of the Americas, New York, New York |
10020 |
Registrant's telephone number, including area code (212) 399 -8000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Executive Act Rule 12b-2) Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock outstanding at July 31, 2003: 391,399,332 shares.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
I N D E X
PART I. FINANCIAL INFORMATION
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Page No. |
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Item 1. |
Financial Statements |
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Consolidated Statement of Operations |
3 |
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Three months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Operations |
4 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Balance Sheet |
5 |
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June 30, 2003 and |
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December 31, 2002 (unaudited) |
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Consolidated Statement of Comprehensive Income |
7 |
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Three months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Comprehensive Income |
8 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Consolidated Statement of Cash Flows |
9 |
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Six months ended June 30, 2003 |
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and 2002 (unaudited) |
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Notes to Consolidated Financial Statements (unaudited) |
10 |
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Item 2. |
Management's Discussion and Analysis of |
25 |
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Financial Condition and Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
37 |
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Item 4. |
Controls and Procedures |
38 |
PART II. OTHER INFORMATION
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Item 1. |
Legal Proceedings |
40 |
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Item 2. |
Changes in Securities and Use of Proceeds |
42 |
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Item 4. |
Submission of Matters to a Vote of Securities Holders |
46 |
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Item 6. |
Exhibits and Reports on Form 8-K |
47 |
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SIGNATURES |
49 |
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INDEX TO EXHIBITS |
50 |
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Item 1. |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENT OF OPERATIONS |
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THREE MONTHS ENDED JUNE 30, |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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2003 |
2002 |
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REVENUE |
$1,499.4 |
$1,490.4 |
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OPERATING EXPENSES: |
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Salaries and related expenses |
878.4 |
839.2 |
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Office and general expenses |
459.6 |
435.9 |
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Amortization of intangible assets |
4.1 |
2.6 |
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Restructuring charges |
94.4 |
-- |
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Long-lived asset impairment |
11.0 |
-- |
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Total operating expenses |
1,447.5 |
1,277.7 |
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OPERATING INCOME |
51.9 |
212.7 |
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OTHER INCOME (EXPENSE): |
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Interest expense |
(46.1) |
(36.9) |
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Interest income |
10.2 |
8.1 |
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Other income |
0.3 |
6.6 |
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Investment impairment |
(9.8 ) |
(16.2 ) |
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Total other income (expense) |
(45.4 ) |
(38.4 ) |
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Income before provision for income taxes |
6.5 |
174.3 |
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Provision for income taxes |
22.4 |
67.3 |
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INCOME (LOSS) OF CONSOLIDATED COMPANIES |
(15.9) |
107.0 |
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Income applicable to minority interests |
(8.4) |
(10.9) |
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Equity in net income of unconsolidated affiliates |
1.3 |
2.5 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS |
(23.0) |
98.6 |
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INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES) |
9.5 |
10.4 |
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NET INCOME (LOSS) |
$ (13.5 ) |
$ 109.0 |
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Earnings (loss) per share: |
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Basic: |
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Continuing operations |
$ (0.06) |
$ 0.26 |
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Discontinued operations |
$ 0.02 |
$ 0.03 |
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Total |
$ (0.04 ) |
$ 0.29 |
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Diluted: |
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Continuing operations |
$ (0.06) |
$ 0.26 |
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Discontinued operations |
$ 0.02 |
$ 0.03 |
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Total |
$ (0.04 ) |
$ 0.29 |
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Weighted average shares: |
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Basic |
384.3 |
375.7 |
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Diluted |
384.3 |
382.4 |
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Cash dividends per share |
$ -- |
$ 0.095 |
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The accompanying notes are an integral part of these consolidated financial statements.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENT OF OPERATIONS |
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SIX MONTHS ENDED JUNE 30, |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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2003 |
2002 |
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REVENUE |
$2,815.1 |
$2,809.4 |
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OPERATING EXPENSES: |
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Salaries and related expenses |
1,733.1 |
1,660.9 |
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Office and general expenses |
885.5 |
809.4 |
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Amortization of intangible assets |
7.3 |
4.4 |
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Restructuring charges |
94.4 |
-- |
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Long-lived asset impairment |
22.1 |
-- |
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Total operating expenses |
2,742.4 |
2,474.7 |
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OPERATING INCOME |
72.7 |
334.7 |
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OTHER INCOME (EXPENSE): |
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Interest expense |
(84.9) |
(72.2) |
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Interest income |
18.1 |
15.0 |
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Other income |
0.1 |
6.9 |
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Investment impairment |
(12.5 ) |
(16.2 ) |
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Total other income (expense) |
(79.2 ) |
(66.5 ) |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
(6.5) |
268.2 |
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Provision for income taxes |
16.8 |
102.6 |
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INCOME (LOSS) OF CONSOLIDATED COMPANIES |
(23.3) |
165.6 |
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Income applicable to minority interests |
(9.0) |
(14.2) |
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Equity in net income (loss) of unconsolidated affiliates |
(1.9 ) |
3.3 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS |
(34.2) |
154.7 |
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INCOME FROM DISCONTINUED OPERATIONS (NET OF TAXES) |
12.1 |
14.1 |
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NET INCOME (LOSS) |
$ ( 22.1 ) |
$ 168.8 |
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Earnings (loss) per share: |
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Basic: |
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Continuing operations |
$ (0.09) |
$ 0.41 |
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Discontinued operations |
0.03 |
0.04 |
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Total |
$ (0.06 ) |
$ 0.45 |
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Diluted: |
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Continuing operations |
$ (0.09) |
$ 0.41 |
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Discontinued operations |
0.03 |
0.04 |
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Total |
$ (0.06 ) |
$ 0.44 (a) |
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Weighted average shares: |
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Basic |
383.1 |
374.3 |
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Diluted |
383.1 |
381.1 |
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Cash dividends per share |
-- |
$ 0.190 |
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The accompanying notes are an integral part of these consolidated financial statements.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEET |
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(Amounts in Millions, Except Per Share Amounts) |
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(Unaudited) |
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June 30, |
December 31, |
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2003 |
2002 |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ 700.1 |
$ 933.0 |
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Accounts receivable (net of allowance for doubtful |
4,681.4 |
4,517.6 |
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Expenditures billable to clients |
414.8 |
407.6 |
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Deferred taxes on income |
69.4 |
37.0 |
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Prepaid expenses and other current assets |
452.5 |
427.1 |
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Assets held for sale |
452.2 |
-- |
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Total current assets |
6,770.4 |
6,322.3 |
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FIXED ASSETS, AT COST: |
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Land and buildings |
148.2 |
168.2 |
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Furniture and equipment |
1,063.6 |
1,125.1 |
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Leasehold improvements |
496.8 |
487.8 |
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1,708.6 |
1,781.1 |
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Less: accumulated depreciation |
(968.6 ) |
(955.4 ) |
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Total fixed assets |
740.0 |
825.7 |
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OTHER ASSETS: |
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Investment in less than majority-owned affiliates |
352.2 |
357.3 |
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Deferred taxes on income |
516.3 |
509.9 |
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Other assets |
274.9 |
319.8 |
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Intangible assets (net of accumulated |
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amortization: 2003-$993.3; 2002-$1,038.5) |
3,442.9 |
3,458.7 |
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Total other assets |
4,586.3 |
4,645.7 |
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TOTAL ASSETS |
$12,096.7 |
$11,793.7 |
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEET |
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(Amounts in Millions, Except Per Share Amounts) |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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(Unaudited) |
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June 30, |
December 31, |
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2003 |
2002 |
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CURRENT LIABILITIES: |
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Accounts payable |
$ 5,282.7 |
$5,125.5 |
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Accrued expenses |
1,019.3 |
1,110.8 |
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Accrued income taxes |
17.3 |
33.2 |
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Loans payable |
128.5 |
239.3 |
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Zero-coupon convertible senior notes |
1.0 |
581.0 |
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Liabilities held for sale |
149.0 |
-- |
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Total current liabilities |
6,597.8 |
7,089.8 |
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NON-CURRENT LIABILITIES: |
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Long-term debt |
1,214.1 |
1,253.1 |
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Convertible subordinated notes |
573.0 |
564.6 |
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Convertible senior notes |
800.0 |
-- |
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Deferred compensation |
494.1 |
470.5 |
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Accrued postretirement benefits |
53.3 |
55.6 |
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Other non-current liabilities |
75.9 |
189.7 |
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Minority interests in consolidated subsidiaries |
63.0 |
70.4 |
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Total non-current liabilities |
3,273.4 |
2,603.9 |
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Commitments and contingencies (Note 12) |
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STOCKHOLDERS' EQUITY: |
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Preferred stock, no par value, |
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shares authorized: 20.0, shares issued: none |
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Common stock, $0.10 par value, |
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shares authorized: 800.0, |
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shares issued: 2003 - 391.1; 2002 - 389.3 |
39.1 |
38.9 |
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Additional paid-in capital |
1,742.9 |
1,797.0 |
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Retained earnings |
835.9 |
858.0 |
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Accumulated other comprehensive loss, net of tax |
(297.5 ) |
(373.6 ) |
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2,320.4 |
2,320.3 |
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Less: |
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Treasury stock, at cost: 2003- 0.1 shares; 2002 - 3.1 shares |
(11.3) |
(119.2) |
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Unamortized deferred compensation |
(83.6 ) |
(101.1 ) |
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Total stockholders' equity |
2,225.5 |
2,100.0 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$12,096.7 |
$11,793.7 |
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The accompanying notes are an integral part of these consolidated financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30,
(Amounts In Millions)
(Unaudited)
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2003 |
2002 |
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Net Income (Loss) |
$(13.5 ) |
$109.0 |
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Foreign Currency Translation Adjustments |
47.0 |
107.7 |
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Adjustment for Minimum Pension Liability |
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Adjustment for minimum pension liability |
(0.5) |
-- |
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Unrealized Holding Gains (Losses) on Securities |
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Unrealized holding gains |
5.3 |
-- |
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Tax expense |
(2.2) |
-- |
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Unrealized holding losses |
-- |
(5.5) |
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Tax benefit |
-- |
2.3 |
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Unrealized Holding Gains (Losses) on Securities |
3.1 |
(3.2 ) |
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Comprehensive Income |
$ 36.1 |
$213.5 |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30,
(Amounts In Millions)
(Unaudited)
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2003 |
2002 |
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Net Income (Loss) |
$(22.1 ) |
$168.8 |
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Foreign Currency Translation Adjustments |
76.7 |
89.2 |
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Adjustment for Minimum Pension Liability |
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Adjustment for minimum pension liability |
(5.2) |
-- |
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Tax benefit |
2.0 |
-- |
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Adjustment for Minimum Pension Liability |
(3.2 ) |
-- |
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Unrealized Holding Gains (Losses) on Securities |
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Unrealized holding gains |
5.3 |
0.9 |
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Tax expense |
(2.2) |
(0.4) |
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Unrealized holding losses |
(0.8) |
(5.5) |
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Tax benefit |
0.3 |
2.3 |
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Unrealized Holding Gains (Losses) on Securities |
2.6 |
(2.7 ) |
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Comprehensive Income |
$54.0 |
$255.3 |
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CONSOLIDATED STATEMENT OF CASH FLOWS |
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SIX MONTHS ENDED JUNE 30, |
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(Amounts in Millions) |
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(Unaudited) |
|||
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2003 |
2002 |
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CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Net income (loss) from continuing operations |
$(34.2) |
$ 154.7 |
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Adjustments to reconcile net income (loss) to |
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cash used in operating activities: |
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Depreciation and amortization of fixed assets |
86.9 |
92.1 |
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Amortization of intangible assets |
7.3 |
4.4 |
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Amortization of restricted stock awards and bond discounts |
39.9 |
39.4 |
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Provision for (benefit of) deferred income taxes |
(24.7) |
60.0 |
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Undistributed equity earnings |
1.9 |
(3.3) |
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Income applicable to minority interests |
9.0 |
14.2 |
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Restructuring charges - non cash |
5.8 |
-- |
|
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Long-lived asset impairment |
22.1 |
-- |
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Investment impairment |
12.5 |
16.2 |
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Other |
4.6 |
(9.9) |
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Change in assets and liabilities, net of acquisitions: |
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Accounts receivable |
(72.2) |
(39.9) |
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Expenditures billable to clients |
(32.0) |
(102.1) |
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Prepaid expenses and other current assets |
(23.1) |
(28.6) |
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Accounts payable and accrued expenses |
34.9 |
(185.8) |
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Accrued income taxes |
(38.5) |
(45.1) |
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Other non-current assets and liabilities |
(37.0 ) |
32.4 |
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Net cash used in operating activities from continuing operations |
(36.8) |
(1.3) |
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CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Acquisitions, net of cash acquired |
(141.3) |
(199.6) |
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Capital expenditures |
(72.1) |
(77.8) |
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Proceeds from sales of businesses |
2.0 |
0.2 |
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Proceeds from sales of long-term investments |
21.3 |
39.3 |
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Purchases of long-term investments |
(11.0) |
(38.5) |
|
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Maturities of short-term marketable securities |
17.2 |
23.5 |
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Purchases of short-term marketable securities |
(27.8) |
(9.3) |
|
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Other investments and miscellaneous assets |
(34.6 ) |
(56.4) |
|
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Net cash used in investing activities from continuing operations |
(246.3 ) |
(318.6 ) |
|
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CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS: |
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Increase (decrease) in short-term debt |
(209.1) |
90.3 |
|
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Payments of zero-coupon convertible senior notes |
(580.0) |
-- |
|
|
Proceeds from long-term debt |
22.9 |
1.5 |
|
|
Proceeds from 4.5% convertible senior notes |
778.0 |
-- |
|
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Payments of long-term debt |
(1.4) |
(132.1) |
|
|
Treasury stock acquired |
-- |
(7.7) |
|
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Issuance of common stock |
8.0 |
44.2 |
|
|
Distributions to minority interests |
(7.4) |
(72.5) |
|
|
Contributions from minority interests |
0.5 |
-- |
|
|
Net cash provided by (used in) financing activities from continuing operations |
11.5 |
(76.3 ) |
|
|
Effect of exchange rates on cash and cash equivalents |
52.1 |
(9.6 ) |
|
|
Net cash (used in) provided by discontinued operations |
(13.4 ) |
7.9 |
|
|
Decrease in cash and cash equivalents |
(232.9) |
(397.9) |
|
|
Cash and cash equivalents at beginning of year |
933.0 |
935.2 |
|
|
Cash and cash equivalents at end of period |
$ 700.1 |
$ 537.3 |
|
The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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1. |
Basis of Presentation In the opinion of management, the financial statements included herein contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position, results of operations and cash flows at June 30, 2003 and for all periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Interpublic Group of Companies, Inc.'s (the "Company" or "Interpublic") annual report on Form 10-K for the year ended December 31, 2002. The operating results for the first six months of the year are not necessarily indicative of the results for the year or other interim periods. As discussed in Note 10, on July 10, 2003, the Company completed the sale of its NFO WorldGroup ("NFO") research unit to Taylor Nelson Sofres PLC ("TNS"). The results of NFO are classified as discontinued operations in accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" and, accordingly, the results of operations and cash flows of NFO have been removed from the Company's results of continuing operations and cash flows for all periods presented in this document. Additionally, the assets and liabilities of NFO have been presented as held for sale in the accompanying balance sheet as of June 30, 2003. |
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2. |
Earnings (Loss) Per Share |
|
Three Months Ended June 30, |
||||
|
2003 |
2002 |
|||
|
Basic |
||||
|
Income (loss) from continuing operations |
$(23.0) |
$ 98.6 |
||
|
Income from discontinued operations |
9.5 |
10.4 |
||
|
Net Income (loss) |
$(13.5 ) |
$109.0 |
||
|
Weighted average number of common shares outstanding |
384.3 |
375.7 |
||
|
Earnings (loss) per share from continuing operations |
$(0.06) |
$ 0.26 |
||
|
Earnings per share from discontinued operations |
0.02 |
0.03 |
||
|
Earnings (loss) per share - basic |
$(0.04 ) |
$ 0.29 |
||
|
Diluted (a) |
||||
|
Income (loss) from continuing operations - diluted |
$(23.0) |
$ 98.6 |
||
|
Income from discontinued operations |
9.5 |
10.4 |
||
|
Net Income (loss) - diluted |
$(13.5 ) |
$109.0 |
||
|
Weighted average number of common shares outstanding |
384.3 |
375.7 |
||
|
Weighted average number of incremental shares in connection with |
||||
|
restricted stock and assumed exercise of stock options |
-- |
6.7 |
||
|
Weighted average number of common shares outstanding - diluted |
384.3 |
382.4 |
||
|
Earnings (loss) per share from continuing operations |
$(0.06) |
$ 0.26 |
||
|
Earnings per share from discontinued operations |
0.02 |
0.03 |
||
|
Earnings (loss) per share - diluted |
$(0.04 ) |
$ 0.29 |
||
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
|
Six Months Ended June 30, |
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|
2003 |
2002 |
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|
Basic |
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|
Income (loss) from continuing operations |
$(34.2) |
$154.7 |
||
|
Income from discontinued operations |
12.1 |
14.1 |
||
|
Net Income (loss) |
$(22.1 ) |
$168.8 |
||
|
Weighted average number of common shares outstanding |
383.1 |
374.3 |
||
|
Earnings (loss) per share from continuing operations |
$(0.09) |
$ 0.41 |
||
|
Earnings per share from discontinued operations |
0.03 |
0.04 |
||
|
Earnings (loss) per share - basic |
$(0.06 ) |
$ 0.45 |
||
|
Diluted (a) |
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|
Income (loss) from continuing operations - diluted |
$(34.2) |
$154.7 |
||
|
Income from discontinued operations |
12.1 |
14.1 |
||
|
Net Income (loss) - diluted |
$(22.1 ) |
$168.8 |
||
|
Weighted average number of common shares outstanding |
383.1 |
374.3 |
||
|
Weighted average number of incremental shares in connection with |
||||
|
restricted stock and assumed exercise of stock options |
-- |
6.8 |
||
|
Weighted average number of common shares outstanding - diluted |
383.1 |
381.1 |
||