The Interpublic Group of Companies Annual Report 2001

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FY2001 Annual Report · The Interpublic Group of Companies

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THE INTERPUBLIC GROUP, 2001

AS ALWAYS,

DIFFICULT TIMES REQUIRE

AN UNPRECEDENTED FOCUS

ON GETTING

THE FUNDAMENTALS

RIGHT.

2001 ANNUAL REPORT

Interpublic is one of the world’s largest marketing communications and marketing

services companies. Fundamentally, we are in the idea business. We provide

clients with customer-driven insights, strategic communications programs and other

marketing counsel that will help them build their business.

TABLE OF CONTENTS

FINANCIAL ANALYSIS

MESSAGE FROM THE CHAIRMAN

McCANN-ERICKSON WORLDGROUP

THE PARTNERSHIP

FCB GROUP

ADVANCED MARKETING SERVICES

THE INTERPUBLIC GROUP STRUCTURE

PROFESSIONAL ACHIEVEMENTS 2001

FINANCIAL STATEMENTS

FINANCIAL ANALYSIS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts and Number of Employees)

2001

2000

$ 6,726.8
(208.1)
$
-3.1%
(505.3)
369.0

$
935.2
$11,514.7
$ 2,933.7
59.7%
-22.6%

$ 7,182.7
849.1
$
11.8%
420.3
370.6

$
844.6
$12,362.0
$ 2,081.1
45.6%
18.2%

$
$

(1.37)
0.38

$
$

1.14
0.37

54,100

62,000

2001

2000

$ 6,726.8
776.0
$
11.5%
359.2
376.6

$ 7,182.7
$ 1,026.8
14.3%
570.3
377.3

13.1%

23.5%

$0.96

$1.53

Year Ended December 31

ACTUAL RESULTS

REVENUE AND INCOME
Revenue
Operating Income (loss)
As a % of Revenue
Net Income (loss)
Weighted Average Shares Outstanding (diluted)

FINANCIAL POSITION
Cash and Cash Equivalents
Total Assets
Total Debt
Debt as a % of Total Capital
Return on Average Stockholders’ Equity

PER SHARE DATA
Diluted EPS
Cash Dividends

OTHER
Number of Employees

Year Ended December 31

RESULTS EXCLUDING NON-RECURRING ITEMS

REVENUE AND INCOME
Revenue
Operating Income *
As a % of Revenue
Net Income *
Weighted Average Shares Outstanding (diluted) *

FINANCIAL POSITION
Return on Average Stockholders’ Equity *

PER SHARE DATA
Diluted EPS*

* Operating Income excluding non-recurring items excludes restructuring and other merger related costs (pre-tax costs of $645.6 and $177.7 in 2001 and 2000, respectively), goodwill

impairment and other charges (pre-tax charges of $303.1 in 2001), pre-tax charges of $85.4 in 2001 relating primarily to the impaired value of operating assets and a pre-tax credit of
$50 in 2001 resulting from reductions in previously established severance reserves.

Net Income excluding non-recurring items also excludes a pre-tax charge of $208.3 in 2001 reducing the carrying value of other investments and a $25.7 charge in 2000 related to
the Company’s portion of asset impairment and restructuring charges by an investment accounted for on the equity method. Actual reported net income including these costs was a loss
of $505.3 in 2001 and income of $420.3 in 2000.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 1

Financial Analysis

MESSAGE FROM THE CHAIRMAN

It almost goes without saying that 2001 was a challenging

year, for both our industry and our company. It does, however,

bear noting that these past twelve months were vital as we

refocused on the fundamentals and laid the groundwork for

a new Interpublic.

Like most every business, we felt the effects of the economic

downturn that began in the United States in the second

quarter and accelerated as a result of the tragic events of

September 11. For the media and marketing sector, the

implications were particularly stark. We found ourselves oper-

ating against the most adverse conditions in over 50 years.

Interpublic’s results are reﬂective of these difﬁculties. Our

performance was also affected by a major restructuring pro-

gram that has already begun to yield signiﬁcant cost savings

as of the fourth quarter. The beneﬁts of this restructuring

will continue to be felt. Barring a further economic reversal,

we believe that we can deliver double-digit earnings per

share growth in 2002 despite the current harsh environment.

Our 2001 results also reﬂect the challenges of integrating

a major strategic acquisition.

For the year, revenues were down 6%, to $6.7 billion. Exclu-

sive of the loss of the Chrysler account by True North Commu-

nications prior to our acquiring them, our revenues declined

4.8%. Pro forma net income, before restructuring and other

unusual charges, was $359.2 million, compared to $570.3

million in 2000. Pro forma earnings were $0.96 per diluted

share for 2001, as against $1.53 per diluted share in 2000.

These numbers, while sobering, do not tell the full story of

This puts a premium on business-building ideas. The kind

what was a signiﬁcant transitional year for our company. One

of ideas that set companies apart from their competition,

in which we substantially upgraded our ﬁnancial disciplines

or cement the relationships between consumers and brands.

and infrastructure, at both the corporate level and within

And that is what Interpublic is about.

all of our operating units. Obviously, this is an ongoing effort

and our goal is to stay vigilant and constantly keep costs in

In 2001, we took numerous steps to improve our ability to

line with anticipated revenues. I am satisﬁed that we now

deliver on behalf of clients in this evolving environment.

have the fundamental planning tools and processes to live

up to that obligation.

Chief among those steps was the acquisition of True North

Communications, which brought another quality marketing

2001 was also the year in which we added a third global

network into our portfolio of companies, thereby expanding

marketing services network, ﬁrmly securing our place within

the range of combined and integrated services we can offer

the top tier of our ever-consolidating industry. A year that

to our clients on a worldwide basis.

saw us undertake the most sweeping reorganization in the

company’s history, focused on delivering an integrated mar-

Another signiﬁcant initiative that strengthens our position for

keting offering to all of our clients while simultaneously

the future was the reorganization in which we grouped our

streamlining our operations. In short, a tough but productive

companies so they can better serve client needs, while simul-

period during which we poised ourselves for improved per-

taneously facilitating collaboration between our agencies and

formance and long-term growth.

streamlining our internal reporting relationships to promote

greater accountability.

While the signs of an imminent economic recovery remain

mixed, or seemingly distant, the future of our industry is

The new structure that emerged, organizes all of our com-

clearly bright. Media has never been more fragmented,

panies into four groups. Three—the McCann-Erickson

or consumers more powerful. New technologies are further

WorldGroup, The Partnership and the FCB Group—deliver

transforming the marketing landscape. As a result, our

a full range of interconnected marketing services to current

business is becoming increasingly complex and sophisti-

and prospective clients. A number of our independent

cated. For companies everywhere, differentiating their

advertising agency brands are allied with these three princi-

brands is more difﬁcult—yet more vital—than ever. Because

pal groups for access to an international network, or for

brands represent the best and most direct route to sustained,

additional capabilities.

profitable growth.

(continued on next page)

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 3
Message from the Chairman

MESSAGE FROM THE CHAIRMAN (continued)

All of our agencies tap into a fourth group, Advanced Mar-

Worldwide was named the experiential and event marketing

keting Services, for services and counsel in constituency

“Agency of the Year” on three continents, while interactive

management, marketing intelligence and specialized market-

agency Zentropy Partners won that coveted honor in the

ing services. Advanced Marketing Services is also charged

highly competitive U.K. market. Torre Lazur McCann Health-

with developing new, leading-edge offerings that can be made

care Worldwide won more top creative awards on a worldwide

available to all of the companies and clients of Interpublic.

basis than any of its competitors.

It’s a powerful model we believe will help us achieve many

Highlights at The Partnership agencies included a success-

of our key objectives. It allows us to focus on the fundamen-

ful management transition at Lowe & Partners Worldwide,

tals of client service and creativity. It makes the broadest

where Jerry Judge, a long-time Lowe executive, took over the

range of communications disciplines available to all of our

global CEO role from the company’s founder. Jerry’s new

clients. It allows each of our companies to retain its inde-

leadership team strengthened the relationships with and won

pendence and its culture. And it will pave Interpublic’s path

new business from key multinational clients. Lowe was also

to future growth.

recognized by local advertising publications as the “Agency

of the Year” in the United Kingdom, the Netherlands,

The past year saw our companies once again garner impor-

Argentina, Italy and Austria. DraftWorldwide maintained its

tant industry recognition, as well as over $5.5 billion in new

position as the number one global marketing services com-

business billings, around the world.

pany and the top direct marketer in the U.S.

McCann-Erickson Advertising won “Agency of the Year” honors

Within the newly-formed FCB Group, notable performers

in every region of the world, including its fourth consecutive

included FCB New Zealand, Ad Age’s “Asia Pacific Agency

such designation in the United States and its third in Europe.

of the Year,” and R/GA, Adweek’s “Interactive Agency of

McCann-Erickson Advertising was also the top winner among

the Year.”

all agencies at the international AME awards recognizing

effective communications.

Our independent agencies notched signiﬁcant accomplish-

ments and honors. For the fourth year in a row, Deutsch

In every discipline, the McCann-Erickson WorldGroup’s corri-

received “Agency of the Year” recognition from Adweek after

dor agencies also distinguished themselves. Direct Marketing

posting one of the strongest new business years of any U.S.

and CRM company, MRM Partners, became the international

agency. Carmichael Lynch won the coveted O’Toole Award

leader in custom publishing and branded content. Momentum

from the American Association of Advertising Agencies, given

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Message from the Chairman

by the industry to an agency in recognition of the total body

Magna Global will allow our agencies and their clients to get

of creative work done for its clients. Campbell-Ewald’s over-

best-in-class service without infringing on the individual agen-

all strong performance helped it garner Adweek regional

cies, or the proprietary interests of their clients.

honors as the Midwestern “Agency of the Year.”

At the end of the day, that is what it’s all about: Getting the

Advanced Marketing Services companies in every communi-

fundamentals right, for our clients and our shareholders.

cations discipline also shone in terms of industry recognition.

Weber Shandwick was a leading winner at the Public Relations

We have always had the companies and the capabilities to

Society of America awards, while Golin/Harris was responsi-

deliver. We have talented and dedicated employees around

ble for the “International Campaign of the Year” (according

the world who deserve our thanks for all their efforts, particu-

to PR Week) and the year’s “Best Cause-Related Marketing

larly these past twelve months. With the addition of True

Campaign” (at the SABRE Awards).

North and our new reorganization, we have more best-in-class

offerings than at any point in our company’s history—all

During 2001, we acquired DeVries as our third leading public

focused around the needs of clients in today’s increasingly

relations capability. And by joining True North agency BSMG

sophisticated marketing environment.

with Weber Shandwick, we created the world’s largest provider

of public relations and corporate communications counsel.

Together, our mix of services and our client-centric model will

drive growth. We now also have in place the corporate struc-

Our event marketing company, Jack Morton, our sport mar-

ture and the ﬁnancial systems to capture the beneﬁts of our

keting agency, Octagon, and our market research ﬁrm, NFO

success and better deliver value to our shareholders.

WorldGroup, all maintained their leadership positions and con-

tinued to produce the highest quality of thinking and work

I believe we will look back on 2001 as the year we refocused,

for clients. Global Hue, our multicultural U.S. marketing unit,

retooled and emerged revitalized for the challenges and the

saw continued success in this growing ﬁeld.

years ahead.

We also launched Magna Global, the world’s largest media

services operation. Housed within the Advanced Marketing

Thank you for your continued support,

Services group to ensure confidentiality, Magna Global will

represent the combined media negotiating interests of Inter-

public’s media entities. Like our new corporate structure,

JOHN J. DOONER, JR.
CHAIRMAN AND CEO, THE INTERPUBLIC GROUP

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 5
Message from the Chairman

McCANN-ERICKSON WORLDGROUP

The McCann-Erickson WorldGroup encompasses

a range of best-in-class, specialist, global market-

ing communications companies, anchored by the

strength and quality of McCann-Erickson Advertising

Worldwide. Member companies share a common

culture of leadership, accountability and creativity.

They are committed to achieving collaborative

solutions through shared operating principles and

strategic processes.

McCann-Erickson WorldGroup works with 25 multi-

national marketers in three or more disciplines

across multiple geographies. We are proud to operate

leading worldwide networks in all the key communi-

cations disciplines.

McCann-Erickson Worldwide Advertising is the

world’s largest global advertising agency network,

with operations in over 130 countries and 2001

billings of more than $27 billion. MRM Partners

Worldwide provides outstanding service to clients in

every aspect of relationship marketing, including

direct response advertising, loyalty marketing, data-

base management, custom publishing, telemarket-

ing and digital strategy through Zentropy Partners.

Momentum Worldwide is a recognized leader in

the emerging ﬁeld of experiential marketing and the

largest company in its industry. FutureBrand is

a leading global brand consultancy ﬁrm providing

comprehensive corporate and consumer branding

services. Torre Lazur McCann Healthcare WorldWide

ranks among the top three global healthcare com-

munications companies.

Recent results—measured by the effectiveness of

the work we do for our clients, new clients won,

or industry accolades—provide a stirring validation of

the McCann-Erickson WorldGroup’s strategic expan-

sion into global marketing communications activities.

BY ANY MEASURE,

WE HAVE SEEN

A STIRRING VALIDATION OF

OUR STRATEGIC FOCUS ON

BRINGING GLOBAL CAPABILITIES

TO EACH KEY AREA

OF MARKETING.

JAMES HEEKIN CHAIRMAN & CEO, McCANN-ERICKSON WORLDGROUP

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 7
McCann-Erickson WorldGroup

THE PARTNERSHIP

The Partnership—a powerful organizing principle

that allows us to bring together leading companies

across disciplines and geography.

Partner agencies are frequently selected by clients

on the basis of their culture and capabilities. The

Partnership structure allows them to retain that

independence. It also provides access to a new way

of working together for the beneﬁt of those clients

that require global reach or a full range of integrated

marketing services.

Among the companies that make up this new group,

Lowe & Partners Worldwide is the largest advertising

agency, with ofﬁces in 80 countries. In spite of its

size, Lowe has stayed true to its history and culture,

which accounts for the fact that it is one of the

most creatively awarded agencies in the world. Draft-

Worldwide is the number one direct marketing

company in the United States and the largest global

marketing services ﬁrm. Initiative Media regularly

partners with Lowe and Draft, bringing its power and

know how as the largest independent media com-

pany in the world.

Launched at mid-year 2001, The Partnership has

already allowed these stand-alone agencies to com-

bine their expertise and deliver a powerful intercon-

nected service offering. Other partner agencies,

which include a number of advertising’s leading mar-

quee creative brands, use The Partnership to access

international reach and tap into broader Interpublic

resources. As a result, clients get customized solu-

tions that incorporate the precise marketing services

required to address their business needs.

BY FOCUSING ON CONNECTING

BEST-IN-CLASS

COMMUNICATIONS COMPANIES

WITH DEEP,

SPECIALIZED CAPABILITIES,

WE HAVE CREATED

A NEW MODEL

FOR MARKETING COLLABORATION.

DAVID BELL VICE-CHAIRMAN, THE INTERPUBLIC GROUP

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 9

The Partnership

FCB GROUP

The FCB Group is a marketing communications net-

work made up of several of the largest companies

of True North Communications, which was acquired

by Interpublic in 2001.

At the heart of this network is Foote, Cone & Beld-

ing Worldwide, one of the largest U.S. advertising

agencies, with 2001 billings of nearly $8 billion and

more than 190 ofﬁces in 103 countries. The group’s

global database marketing and full-service CRM

arm, ANALYTICi helps clients manage their relation-

ship with customers at every touch point. Marketing

Drive Worldwide creates world-class promotional

marketing solutions internationally. The Hacker

Group specializes in all facets of direct marketing,

from strategic program design to sophisticated back

end analysis. Two top ten players in their respec-

tive sectors, direct and digital agency FCBi and FCB

Healthcare, round out the group.

Simply stated, FCB’s expertise—and our point of

difference—is our ability to both sell today and build

lasting brands. That is what drives our “Model of

One” operating strategy.

To every client, we assign one account leader for all

disciplines, worldwide. One senior management

team to oversee the business. An integrated account

team that works off a single strategy and executes

one broad creative idea across all channels of

customer contact. And one more thing: a single bot-

tom line—a most compelling argument for power-

ful collaboration.

This model is deployed seamlessly across all of FCB’s

disciplines. Our proprietary consumer research tools

and our commitment to measuring the effectiveness

of marketing communications further enhance the

odds of success.

By unifying and focusing all our efforts around cli-

ents’ needs, we create a whole far greater than the

sum of its parts.

BY UNIFYING

AND FOCUSING ALL OUR EFFORTS

AROUND CLIENTS’ NEEDS,

WE CREATE A WHOLE

FAR GREATER THAN THE SUM

OF ITS PARTS.

BRENDAN RYAN CEO, FCB GROUP

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 11

FCB Group

ADVANCED MARKETING SERVICES

Advanced Marketing Services combines the best

traditional resources and the most innovative

marketing offerings to provide clients with an array

of interconnected solutions. In 2001, the group

operated in 47 countries through leading companies

in public relations and strategic communications,

market research and specialized services. Advanced

Marketing Services is also charged with expanding

the Interpublic charter by developing next-genera-

tion marketing capabilities.

The group is at the forefront of constituency man-

agement through its three leading public relations

agency networks: Weber Shandwick Worldwide, Golin/

Harris International and DeVries Public Relations.

All three work in concert with Interpublic’s integrated

marketing communications groups—McCann-Erick-

son WorldGroup, FCB Group and The Partnership—

on clients’ total communications programs.

Marketing intelligence is largely the province of

NFO WorldGroup, one of the world’s largest custom

research organizations, offering a comprehensive

suite of research services and proprietary products.

Advanced Marketing Services is home to a number

of sector-leading companies that offer specialized

marketing services. These include: Jack Morton

Worldwide, the world’s largest event and experiential

marketing agency; Octagon, a leader in the sports

marketing arena; ISO Healthcare Consulting, a spe-

cialized strategic management consulting ﬁrm; and

Global Hue, a specialist in multicultural marketing.

Magna Global, Interpublic’s media negotiation entity,

is also housed within Advanced Marketing Services,

in order to ensure complete neutrality and conﬁden-

tiality. Magna leverages over $40 billion in media

billings to the beneﬁt of clients.

OUR CHARTER

HAS SUCCESSFULLY FOCUSED

ON DEVELOPING

NEXT-GENERATION CAPABILITIES

ACROSS THE TOTAL

MARKETING SPECTRUM.

LARRY WEBER CHAIRMAN & CEO, ADVANCED MARKETING SERVICES

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 13
Advanced Marketing Services

THE INTERPUBLIC GROUP

ORGANIZED FOR CLIENTS AND GROWTH …

2001 saw a signiﬁcant reorganization at Interpublic in which we grouped our companies so

that they can better serve client needs.

The new structure that emerged organizes all

of our companies into four groups. Three—the McCann-Erickson WorldGroup, the FCB Group

and The Partnership—deliver a full range of interconnected marketing services to current and

prospective clients. A number of our independent advertising agency brands are allied with

these three principal groups for access to an international network or for additional marketing

capabilities. All of our agencies tap into the Advanced Marketing Services group for service

offerings and counsel in three areas: constituency management, marketing intelligence and

specialized marketing services. Advanced Marketing Services also develops new leading-edge

offerings that are available to all of the companies and clients of Interpublic.

MORE THAN MEETS THE EYE …

Housed within many of our companies are additional resources that our clients can use to

their advantage.

Weber Shandwick agencies Rogers & Cowan and Bragman Nyman

Cafarelli are leaders in entertainment and lifestyle PR and marketing. PMK/BHB, a World-

Group company, is Hollywood’s largest public relations agency. Last year, the newly-launched

Magna Entertainment unit developed 11 hours of prime-time programming for Interpublic

clients, more than any other company in our industry.

NSA, part of Initiative Media

and The Partnership, is the largest newspaper supplement planner and newspaper space buyer

for U.S. retailers. OSI, also an Initiative Media company, is the largest independent buyer of

out of home media in the United States.

Interpublic companies also have a substantial

Washington D.C. presence. Golin/Harris agency Barbour Grifﬁth & Rogers is a company of

lawyers, policy specialists and other professionals who can assist clients as their advocates in

federal government relations or with their link to state governments. Within Weber Shandwick,

Cassidy & Associates provides government affairs and strategic communications counsel

to help clients achieve their legislative and regulatory goals. Powell Tate, also part of Weber

Shandwick, is a full service public relations agency specializing in public affairs commu-

nications. A third Weber Shandwick company, Rowan Blewitt, is a premier issue and crisis

management consulting ﬁrm.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Organized for Clients and Growth

McCANN-ERICKSON
WORLDGROUP

INDEPENDENT
AGENCIES

THE
PARTNERSHIP

FCB
GROUP

• McCANN-ERICKSON

ADVERTISING

• MRM PARTNERS

• CAMPBELL-
EWALD

• CARMICHAEL

LYNCH

• DEUTSCH

• GOTHAM

• UNIVERSAL McCANN

• HILL HOLLIDAY

• MOMENTUM

• TORRE LAZUR McCANN

HEALTHCARE

• FUTUREBRAND

• NAS

• CAMPBELL
MITHUN

• BOZELL

• MULLEN

• DAILEY &

ASSOCIATES

• THE MARTIN
AGENCY

• TEMERLIN
McCLAIN

• AVRETT FREE
& GINSBERG

• TIERNEY

COMMUNICATIONS

• FITZGERALD &
COMPANY

• SUISSA MILLER

• AUSTIN KELLEY

• HOWARD
MERRELL

• LOWE & PARTNERS

WORLDWIDE

• DRAFTWORLDWIDE

• INITIATIVE MEDIA
WORLDWIDE

• LOWE HEALTHCARE

• ZIPATONI

• FOOTE, CONE
& BELDING

• FCBi

• ANALYTICi

• FCB HEALTHCARE

• MARKETING DRIVE

WORLDWIDE

• R/GA

• HACKER GROUP

ADVANCED
MARKETING SERVICES
MARKET
RESEARCH

SPORTS
MARKETING

• NFO WORLDGROUP

• OCTAGON

MEETINGS
& EVENTS

PUBLIC
RELATIONS

HEALTHCARE
CONSULTING

MEDIA NEGOTIATION
& PROGRAMMING

• JACK MORTON
WORLDWIDE

• WEBER SHANDWICK

WORLDWIDE

• GOLIN/HARRIS
INTERNATIONAL

• DeVRIES

• ISO

• MAGNA GLOBAL

PROFESSIONAL ACHIEVEMENTS 2001

McCann-Erickson Advertising wins “Agency of the Year” honors in all regions of the world—
in Europe for the third consecutive year and in the United States for the fourth.

McCann-Erickson Advertising is the top winner of AME awards recognizing effective communications.

Zentropy Partners named “New Media Agency of the Year” in the U.K.

MRM Partners becomes the international leader in custom publishing and branded content.

Momentum Worldwide named “Agency of the Year” in its sector on three continents—in the United
States, Spain and Brazil.

Torre Lazur McCann Healthcare Worldwide wins more top creative awards on a worldwide basis
than any competitor.

Lowe & Partners Worldwide successfully completes management transition as Jerry Judge, a long-time
senior Lowe executive succeeds its founder as the agency’s CEO.

The power of The Partnership recognized by Verizon when it consolidates its business in the group.

Lowe adds multinational assignments from current clients including Best Foods/Unilever,
Coca-Cola and Nestlé.

Lowe wins “Agency of the Year” honors in the United Kingdom, The Netherlands, Argentina, Italy
and Austria.

DraftWorldwide maintains its position as the number one global marketing services company and the top
U.S. direct marketing company.

Initiative Media collaborates with another member of The Partnership, DraftWorldwide to create ID,
the United States’ largest direct response planning and buying organization.

Deutsch enjoys one of the strongest new business years of any agency in the United States. For the
fourth year in a row, it receives “Agency of the Year” recognition from Adweek.

Carmichael Lynch is awarded the AAAA’s O’Toole Award. The O’Toole Award is given by the industry
to an agency in recognition of the total body of creative work provided to all its clients.

Foote, Cone & Belding introduces the FCB Blueprint, a set of proprietary tools, including Mind & Mood,
Chess and Relationship Monitor, which dramatically increase the odds of success for clients.

FCB’s “Model of One” strategy embraced by key clients. Integrated wins include Circuit City, Eli Lilly
and GlaxoSmithKline in the United States, as well as Olympus, Weetabix and Iberia Airlines in Europe.

In Asia Paciﬁc, FCB wins its largest ever pan-regional assignment, demonstrating the growing strength
of its network in this important region.

FCB strengthens its senior ranks with the addition of Gene Bartley as President, FCB Worldwide and
the promotion of Jonathan Harries to Worldwide Creative Director.

FCB New Zealand named Ad Age Global’s “Asia Paciﬁc Agency of the Year.”

R/GA, the leading-edge digital marketing company, follows up its designation as Adweek’s “Best Creative
Interactive Agency” for 2000 with “Interactive Agency of the Year” honors for 2001.

The integration of BSMG into Weber Shandwick Worldwide creates the world’s largest and most power-
ful strategic communications and public relations ﬁrm. Throughout the process, Weber Shandwick
continues to garner industry honors. Among them, 10 Gold, Silver and Bronze Anvil awards from the
Public Relations Society of America, three IPR (UK) Awards of Excellence and a Public Relations
Consultants Association award.

Golin/Harris International’s industry honors include PR Week’s International Campaign of the Year,
SABRE Award for best Cause-Related Marketing Campaign and two PRSA Silver Anvils.

NFO’s industry awards include the EXPLOR Award for exemplary performance and leadership in online
research, sponsored by AC Nielsen Center for Marketing Research, the University of Wisconsin School
of Business and the American Marketing Association.

Jack Morton Worldwide wins three gold medals from the International Visual Communications Association,
nine New York Festivals Film and Video Awards, a gold medal for the Best Conference from the Incentive
Travel & Meetings Association, and its twelfth Emmy Award for Broadcast Set Design.

Octagon, the world’s second-largest sports marketing ﬁrm, consolidates its headquarters to New York,
with co-founder Les Delano becoming Chief Executive Ofﬁcer. Octagon also becomes the leader in
Olympic marketing programs, securing ﬁve key sponsors for the upcoming Olympic Games in Greece.

Magna Global launches its Magna Global Entertainment to create proprietary programming for Interpublic
clients and their brands.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 15

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Organized for Clients and Growth

Professional Achievements

FINANCIALS

MANAGEMENT’S DISCUSSION AND ANALYSIS

REPORT OF INDEPENDENT ACCOUNTANTS

CONSOLIDATED STATEMENT OF OPERATIONS

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SELECTED FINANCIAL DATA FOR FIVE YEARS

RESULTS BY QUARTER

REPORT OF MANAGEMENT

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 17

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

OVERVIEW OF SIGNIFICANT EVENTS

The year 2001 contained several signiﬁcant events for the
Company as it completed a major acquisition and implemented
a wide ranging restructuring plan. Further, the Company’s
operating results were negatively impacted by very weak demand
for its services and by the cost of the restructuring plan and
other asset impairment write-offs.

The signiﬁcant events that occurred during the year were

as follows:

ACQUISITION OF TRUE NORTH
On June 22, 2001, the Company acquired True North
Communications Inc. (“True North”), a global provider of adver-
tising and communication services, in a transaction accounted
for as a pooling of interests. The Company issued approximately
58.2 million shares in connection with the acquisition. The
acquisition increased the size of the Company’s operations by
approximately 25%. The acquisition precipitated a major
reorganization and restructuring (see below) and resulted in
some one-time revenue losses as client conﬂicts materialized.

REORGANIZATION AND RESTRUCTURING PLAN
Following the True North acquisition in June 2001, the Company
undertook a series of operational initiatives focusing on: a) the
integration of the True North operations and the identiﬁcation of
synergies and savings, b) the realignment of certain Interpublic
businesses and c) productivity initiatives to achieve higher
operating margins. As a result of these initiatives, the combined
Company has been organized into four global operating groups.
Three of these groups, McCann-Erickson WorldGroup, an
enhanced FCB Group and a new global marketing resource
called The Partnership, will provide a full complement of global
marketing services and marketing communication services.
The fourth group, Advanced Marketing Services, focuses on
expanding the Company’s operations in the areas of specialized
marketing communications and services.

In connection with these initiatives, the Company is executing

a wide-ranging restructuring plan that includes severance, lease
terminations and other actions. The total amount of the charges
recorded in connection with the plan was $645.6 which included
severance for approximately 6,800 employees and the downsizing
or closure of 180 ofﬁces.

ECONOMIC CONDITIONS
The year 2001 was challenging for both the Company and the
advertising and marketing communications industry as a
whole. The Company found itself operating against the most
adverse conditions in over 50 years. Demand for most of the
Company’s services dropped dramatically and this had a severe
impact on the Company’s proﬁtability. The drop in demand was
not limited to any one of the Company’s service offerings nor to
any geographical region. It has been estimated that media
spending in 2001 dropped by about 4% in the U.S. and by about
3% internationally compared to the prior year, with the drop
accelerating as the year progressed. The Company’s revenue in
the fourth quarter 2001 was severely impacted by the worsening
economic conditions as reﬂected in the 16% drop in its revenue
compared to the fourth quarter of the prior year.

CREDIT FACILITY AND OTHER BORROWINGS
During the year, the Company entered into the following
ﬁnancing transactions:

a) On June 26, 2001, the Company replaced its maturing
$375.0, 364-day syndicated revolving multi-currency credit
agreement with a substantially similar $500.0 facility. The new
facility bears interest at variable rates based on either LIBOR or
a bank’s base rate, at the Company’s option.

b) On August 22, 2001, the Company completed the issuance
and sale of $500.0 principal amount of senior unsecured notes
due 2011. The notes bear interest at a rate of 7.25% per annum.
The Company used the net proceeds of approximately $493
from the sale of the notes to repay outstanding indebtedness
under its credit facilities.

c) In December 2001, the Company completed the issuance and
sale of approximately $702 of aggregate principal amount of
Zero-Coupon Convertible Senior Notes due 2021. The yield to
maturity of the notes was 1%. The net proceeds from the offering
of approximately $563.5 were used to pay down short-term debt.

OTHER WRITE-OFFS
During the year, the Company performed a review of its assets
and identiﬁed certain items that had become impaired.
Accordingly, signiﬁcant charges were taken primarily for goodwill
(total charges of $303.1) and investment write-downs (total
charges of $208.3).

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

OUTLOOK

RESULTS OF OPERATIONS

The Company’s results of operations are dependent upon: a)
maintaining and growing its revenue, b) the ability to gain new
clients, c) the continuous alignment of its costs to its revenue
and d) retaining key personnel. Revenue is also highly dependent
on overall economic conditions. As discussed above, 2001 was a
very difﬁcult year for the Company. During the year, spending
by clients on most marketing services was reduced and the
reduction was felt worldwide. While most of the reduction was
due to general recessionary conditions, the marketing industry
was particularly hard hit as clients, many of whom seemed to
have been surprised by the suddenness of the recession, looked
to their advertising and marketing budgets for the quickest cuts.
Thus the drop in demand for services in our industry was more
severe than that noted in the overall economy.

On June 22, 2001, the Company acquired True North in a
transaction accounted for as a pooling of interests. The Company’s
financial statements have been restated for all prior periods to
reﬂect the results of True North. The following discussion
relates to the combined results of the Company after giving
effect to the pooling of interests with True North.

All amounts discussed below are reported in accordance
with generally accepted accounting principles (“GAAP”) unless
otherwise noted. In certain discussions below, the Company
has provided comparative comments based on net income and
expense amounts excluding non-recurring items (which are
described in Non-Recurring Items below). Such amounts do
not reﬂect GAAP; however, management believes they are a
relevant and useful measure of ﬁnancial performance.

Going into 2002, it is clear that any improvement is likely

The Company reported a net loss of $505.3 or $1.37

to be very gradual and will be off a very weak base. Industry
watchers have indicated that their current expectation for 2002
is that overall spending on media will grow in the 1% range.
The Company has taken steps to improve its operating

performance and to bring its cost structure in line with the
current revenue environment. The restructuring program
announced in the third quarter of 2001 has already begun to
yield signiﬁcant cost savings. The annualized savings from the
plan are expected to exceed $250. As of December 2001, the
Company’s headcount has been reduced from approximately
62,000 (at December 31, 2000) to 54,100 primarily due to the
restructuring program.

Barring a further economic downturn, the Company believes
that its 2002 earnings per share will reﬂect double-digit growth
over the 2001 earnings per share excluding non-recurring items.

NET INCOME (LOSS)

Net income (loss), as reported

Less non-recurring items:

Salaries and related expenses — (reduction in severance reserves)
Ofﬁce and general expenses — (write-off of operating assets)
Restructuring and other merger related costs
Goodwill impairment and other charges
Investment impairment
Tax effect of above items
Equity in net income of unconsolidated afﬁliates
(asset impairment and restructuring charges)

Total non-recurring items

Net income excluding non-recurring items

diluted loss per share, net income of $420.3 or $1.14 diluted
earnings per share and net income of $359.4 or $0.99 diluted
earnings per share for the years ended December 31, 2001, 2000
and 1999, respectively. Net income excluding non-recurring
items was $359.2 or $0.96 diluted earnings per share, $570.3 or
$1.53 diluted earnings per share and $460.4 or $1.26 diluted
earnings per share for the years ended December 31, 2001, 2000
and 1999, respectively.

The following table sets forth net income (loss) as reported

and excluding non-recurring items:

2001

2000

1999

$(505.3)

$ 420.3

$ 359.4

50.0
(85.4)
(645.6)
(303.1)
(208.3)
327.9

(864.5)

$ 359.2

(177.7)

(159.5)

53.4

58.5

(25.7)

(150.0)

$ 570.3

(101.0)

$ 460.4

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 19

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

REVENUE

OPERATING EXPENSES

Worldwide operating expenses for 2001 increased $601.3 to
$6,934.9. Operating expenses excluding non-recurring items
were $5,950.8, a decrease of 3.3% over 2000. Operating expenses
outside the United States increased 4.6%, while domestic
operating expenses decreased 6.5%. The decrease in worldwide
operating expenses reﬂected the beneﬁt of the Company’s
restructuring initiatives in the latter part of the year and other
operating cost reduction initiatives partially offset by an
increase in amortization of intangible assets due to the higher
level of acquisitions in the year 2000 over 1999. The components
of the total change of (3.3)% were: acquisitions net of divestitures
0.7%, impact of foreign currency changes (2.1)%, impact of the
loss of the Chrysler account (1.6)% and organic operating
expenses (0.3)%.

Worldwide operating expenses for 2000 increased $565.8
to $6,333.6. Operating expenses excluding non-recurring items
were $6,155.9, an increase of 9.8% over 1999, comprised of a
2.8% increase in international expenses and a 15.3% increase in
domestic expenses. The components of the total change of
9.8% were: acquisitions 3.4%, impact of foreign currency
changes (3.0)% and organic operating expenses 9.4%.

The Company’s expenses related to employee compensation

and various employee incentive and beneﬁt programs amount
to approximately 56% of revenue. The employee incentive
programs are based primarily upon operating results. Salaries
and related expenses for 2001 decreased $248.1 to $3,787.1.
Salaries and related expenses excluding non-recurring items
were $3,837.1, a decrease of 4.9%. The decrease is a result of
lower headcount, which was reduced to 54,100 or 12.7% at
December 31, 2001 from 62,000 at December 31, 2000, and
reduced incentive compensation commensurate with performance.
Of the total headcount reduction of 7,900, approximately 5,200
are a direct result of the Company’s 2001 restructuring plan.
The components of the total change of (4.9)% were: acquisitions
net of divestitures 0.8%, impact of foreign currency changes
(2.0)%, impact of the loss of the Chrysler account (1.4)% and
organic salaries and related expenses (2.3)%.

Salaries and related expenses were $4,035.2 in 2000 and

$3,617.4 in 1999, an increase of 11.5%. The increase was a
result of growth from acquisitions and new business gains. The
total headcount increased by 7,200 or 13.1% at December 31,
2000 from the prior year. The components of the total change
of 11.5% were: acquisitions 4.2%, impact of foreign currency
changes (2.0)% and organic salaries and related expenses 9.3%.

Worldwide revenue for 2001 was $6,726.8, a decrease of $455.9
or 6.3% from 2000. Domestic revenue, which represented
57% of revenue in 2001, decreased $438.4 or 10.3% from 2000.
International revenue, which represented 43% of revenue in
2001, decreased $17.5 or 0.6% from 2000. International revenue
would have increased 5.0% excluding the effects of changes in
foreign currency. The decrease in worldwide revenue was a
result of reduced demand for advertising and marketing services
due to the weak economy, particularly in the United States, the
negative impact of the events of September 11 and the loss of
the Chrysler account in the fourth quarter of 2000. The compo-
nents of the total revenue change of (6.3)% were: acquisitions
net of divestitures 0.9%, impact of foreign currency changes
(2.2)%, impact of the loss of the Chrysler account (1.6)%, the
estimated impact of the events of September 11 (0.5)% and
organic revenue decline of (2.9)%. Organic changes in revenue
are based on increases or decreases in net new business activity
and increases or decreases from existing client accounts.

Worldwide revenue for 2000 was $7,182.7, an increase of
$765.5 or 11.9% over 1999. Domestic revenue, which represented
59% of revenue, increased $620 or 17.1% over 1999. International
revenue, which represented 41% of revenue in 2000, increased
$145.5 or 5.2% over 1999. International revenue would have
increased 14.5% excluding the effects of changes in foreign
currency. The increase in worldwide revenue was a result of both
growth from new business gains and growth from acquisitions.
The components of the total revenue change of 11.9% were:
acquisitions 3.6%, impact of foreign currency changes (4.2)%
and organic revenue 12.5%.

The Company is a worldwide global marketing services
company, providing clients with communications expertise in
four broad areas: a) advertising and media management, b)
marketing communications, which includes client relationship
management (direct marketing), public relations, sales promotion,
event marketing, on-line marketing and healthcare marketing,
c) marketing intelligence, which includes custom marketing
research, brand consultancy and database management and
d) specialized marketing services, which includes sports and
entertainment marketing, corporate meetings and events, retail
marketing and other marketing and business services.

The following table sets forth the estimated revenue
breakdown by type of service offering. Management of the
Company believes that this breakdown is a useful measure of the
types of global marketing services provided. This presentation
does not represent the way in which the Company is organized
or managed since most of the services are offered by each of the
Company’s global operating groups:

2001

2000

1999

Advertising and Media Management
Marketing Communications
Marketing Intelligence
Specialized Marketing Services

$4,001
1,823
446
457

$4,450
1,855
461
417

$4,155
1,511
464
287

Total Revenue

$6,727

$7,183

$6,417

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

Ofﬁce and general expenses increased $49.7 in 2001 to

$2,026.1. Ofﬁce and general expenses excluding non-recurring
items were $1,940.7, a decrease of 1.8%. The decrease was due
to the impact of foreign currency changes and the impact of the
loss of the Chrysler account, offset by higher ofﬁce rental and
supplies costs. However, during the latter part of the year, the
Company beneﬁted from the restructuring plan initiatives,
including reduced travel and entertainment costs and reduced
ofﬁce rental and supplies costs. The components of the total
change of (1.8)% were: acquisitions net of divestitures 0.4%,
impact of foreign currency changes (2.4)%, impact of the loss
of the Chrysler account (2.2)% and organic ofﬁce and general
expenses 2.4%.

A summary of the components of the total restructuring
and other merger related costs in 2001, together with an analysis
of the cash and non-cash elements, is as follows:

TOTAL
RECORDED

CASH PAID
IN 2001

NON-CASH
ITEMS

LIABILITY AT
DECEMBER 31,
2001

TOTAL BY TYPE

Severance and

termination costs

$297.5

$143.5

–

$154.0

Lease termination and
other exit costs

Transaction costs

310.9
37.2

55.2
31.5

98.6
5.7

157.1
–

Total

$645.6

$230.2

$104.3

$311.1

Ofﬁce and general expenses for 2000 were $1,976.4, an

The severance and termination costs relate to approxi-

increase of 6.1% over 1999. The increase was a result of higher
new business development costs, higher ofﬁce rental and supplies
costs, higher travel and entertainment costs and increased
depreciation costs. The components of the total change of 6.1%
were: acquisitions 3.4%, impact of foreign currency changes
(5.1)% and organic ofﬁce and general expenses 7.8%.

Amortization of intangible assets increased $28.7 to
$173.0 in 2001 and increased $15.9 to $144.3 in 2000. The year
over year increase reﬂects the increased level of acquisition
activity in 1999 and 2000. See New Accounting Standards sec-
tion for discussion of accounting for goodwill and other intan-
gible assets going forward.

NON-RECURRING ITEMS

RESTRUCTURING AND OTHER MERGER RELATED COSTS

2001 ACTIVITIES
Following the completion of the True North acquisition in June
2001, the Company initiated a series of operational initiatives
focusing on: a) the integration of the True North operations and
the identiﬁcation of synergies and savings, b) the realignment
of certain Interpublic businesses and c) productivity initiatives to
achieve higher operating margins. As a result of the operational
initiatives, the combined Company has been organized into
four global operating groups. Three of these groups, McCann-
Erickson WorldGroup, an enhanced FCB Group and a new
global marketing resource called The Partnership, provide a
full complement of global marketing services and marketing
communication services. The fourth group, Advanced Marketing
Services, focuses on expanding the Company’s operations in the
area of specialized marketing communications and services.
In connection with the operational initiatives, the

Company executed a wide-ranging restructuring plan that
included severance, lease terminations and other actions. The
total amount of the charges incurred in connection with the
plan was $645.6 ($446.5, net of tax), of which $592.8 was
recorded in the third quarter with the remainder having been
recorded through the end of the second quarter.

mately 6,800 employees who have been, or will be, terminated.
As of December 31, 2001, approximately 5,200 of those identiﬁed
had been terminated. The remaining employees are expected to
be terminated by the middle of the year 2002. A signiﬁcant
portion of severance liabilities are expected to be paid out over
a period of up to one year. The employee groups affected
include all levels and functions across the Company: executive,
regional and account management, administrative, creative and
media production personnel. Approximately half of the 6,800
headcount reductions relate to the U.S., one third relate to
Europe (principally the UK, France and Germany), with the
remainder relating to Latin America and Asia Paciﬁc.

Lease termination costs, net of estimated sublease
income, relate to the ofﬁces that have been or will be vacated
as part of the restructuring. The Company plans to downsize or
vacate approximately 180 locations and expects that all leases
will have been terminated or subleased by the middle of the year
2002; however, the cash portion of the charge will be paid out
over a period of up to ﬁve years. The geographical distribution
of ofﬁces to be vacated is similar to the geographical distribution
of the severance charges. Lease termination and related costs
include write-offs related to the abandonment of leasehold
improvements as part of the ofﬁce vacancies.

Other exit costs relate principally to the impairment loss

on sale or closing of certain business units in the U.S. and Europe.
In the aggregate, the businesses being sold or closed represent
an immaterial portion of the revenue and operating proﬁt of
the Company. The write-off amount was computed based upon
the difference between the estimated sales proceeds (if any) and
the carrying value of the related assets. Approximately one half
of the sales or closures had occurred by December 2001, with
the remaining to occur by the middle of the year 2002.

The transaction costs relate to the direct costs incurred

in connection with the True North acquisition and included
investment banker and other professional services fees.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 21

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

2000 ACTIVITIES
During 2000, the Company recorded restructuring and other
merger related costs of $177.7 ($124.3, net of tax). Of the total
pre-tax restructuring and other merger related costs, cash
charges represented $104.6. The key components of the charge
were: a) costs associated with the restructuring of Lowe &
Partners Worldwide (formerly Lowe Lintas & Partners
Worldwide), b) costs associated with the loss, by True North, of
the Chrysler account, c) other costs related to the acquisition of
Deutsch and d) costs related principally to the merger with NFO.

LOWE & PARTNERS In October 1999, the Company announced the
merger of two of its advertising networks. The networks affected,
Lowe & Partners Worldwide and Ammirati Puris Lintas, were
combined to form a new agency. The merger involved the
consolidation of operations in agencies in approximately 24
cities in 22 countries around the world and the severance of
approximately 600 employees. As of September 30, 2000, all
restructuring activities had been completed.

In connection with this restructuring, costs of $84.1
($51.4, net of tax) were recorded in 1999 and $87.8 ($53.6, net of
tax) in 2000. Of the totals, $75.6 related to severance, $50.2 related
to lease related costs and the remainder related principally to
investment write-offs. No adjustment to the Company’s statement
of operations was required as a result of the completion of the
restructuring plan.

LOSS OF CHRYSLER ACCOUNT In September 2000, Chrysler, one of
True North’s larger accounts, announced that it was undertaking
a review of its two advertising agencies to reduce the costs of its
global advertising and media. On November 3, 2000, True
North was informed that it was not selected as the agency of
record. In December 2000, True North terminated its existing
contract with Chrysler and entered into a transition agreement
effective January 1, 2001.

As a result of the loss of the Chrysler account, the
Company recorded a charge of $17.5 pre-tax ($10.0, net of tax)
in the fourth quarter of 2000. The charge covered primarily
severance, lease termination and other exit costs associated with
the decision to close the Detroit ofﬁce. The severance portion
of the charge amounted to $5.8 and reﬂected the elimination of
approximately 250 positions. The charge also included $11.4
associated primarily with the lease termination of the Detroit
ofﬁce, as well as other exit costs. In addition, an impairment
loss of $5.5 was recorded for intangible assets that were deter-
mined to be no longer recoverable. Offsetting these charges was
a $5.2 payment from Chrysler to compensate the Company
for severance and other exit costs. As of December 31, 2001, all
actions had been completed. No adjustment to the Company’s
statement of operations was required as a result of the completion
of these actions.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

ACQUISITION OF DEUTSCH In connection with the acquisition of
Deutsch in 2000, the Company recognized a charge related to
one-time transaction costs of $44.7 ($41.7, net of tax). The
principal component of this amount related to the expense
associated with various equity participation agreements with
certain members of management. These agreements provided
for participants to receive a portion of the proceeds in the event
of the sale or merger of Deutsch.

NFO AND OTHER In addition to the above 2000 activities, additional
charges, substantially all of which were cash costs, were recorded
during 2000 related principally to the transaction and other
merger related costs arising from the acquisition of NFO.

Also included in 2000 were excess restructuring reserves

of $0.6 related to the 1999 restructuring of Bozell and FCB
Worldwide. This excess was reversed into income in the Company’s
statement of operations during 2000.

1999 ACTIVITIES
During 1999, the Company recorded restructuring and other
merger related costs of $159.5 ($101.0, net of tax). Of the total
pre-tax restructuring and other merger related costs, cash
charges represented $91.5. The components of the charge were:
a) costs associated with the restructuring of Lowe & Partners
Worldwide (see above) and b) costs associated with the restruc-
turing of Bozell and FCB Worldwide.

BOZELL AND FCB WORLDWIDE In September 1999, the Company
announced a formal plan to restructure its Bozell and FCB
Worldwide agency operations and recorded a $75.4 charge ($49.6,
net of tax) in the third quarter of 1999. The charge covered
primarily severance ($41.4) and lease termination and other
exit costs ($24.2) in connection with the combination and
integration of the two worldwide advertising agency networks.
Approximately 640 individuals were terminated as part of the
plan. Bozell Worldwide’s international operations, along with
Bozell Detroit and Bozell Costa Mesa, were merged with FCB
Worldwide and now operate under the FCB Worldwide name.
The restructuring initiatives also included the impairment loss
on the sale or closing of certain underperforming business
units. The activities had been completed by December 31, 2000.

GOODWILL IMPAIRMENT AND OTHER CHARGES

Following the completion of the True North acquisition and the
realignment of certain of the Company’s businesses, the Company
evaluated the realizability of various assets. In connection with
this review, undiscounted cash ﬂow projections were prepared
for certain investments, and the Company determined that the
goodwill attributable to certain business units was stated at an
amount in excess of the future estimated cashﬂows. As a result,
an impairment charge of $303.1 ($263.4, net of tax) was recorded
in 2001. Of the total write-off, $221.4 was recorded in the second
quarter, with the remainder recorded in the third quarter. The

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

largest components of the goodwill impairment and other
charges were Capita Technologies, Inc. (approximately $145) and
Zentropy Partners (approximately $16), both internet services
businesses. The remaining amount primarily related to several
other businesses including internet services, healthcare consulting
and certain advertising ofﬁces in Europe and Asia Paciﬁc.

See Liquidity and Capital Resources section for description of
ﬁnancing activities. Interest expense increased by $26.8 to
$126.3 in 2000 due to higher average debt levels and higher
interest rates, which included the issuance and sale of $500.0,
7.875% notes due 2005.

INVESTMENT IMPAIRMENT

During 2001, the Company recorded total charges related to the
impairment of investments of $208.3 ($134.1, net of tax). Of
the total amount, $160.1 ($103.7, net of tax) was recorded in
the ﬁrst quarter, with the remainder recorded in the third quarter.
The charge in the ﬁrst quarter related to the impairment of
investments primarily in publicly traded internet-related
companies, including marchFIRST, Inc. (an internet professional
services ﬁrm), which had ﬁled for relief under Chapter 11 of
the Federal Bankruptcy Code in April 2001. The third quarter
charge included write-offs for investments in non-internet
companies, certain venture funds and other investments. The
impairment charge adjusted the carrying value of investments
to the estimated market value where an other than temporary
impairment had occurred.

At December 31, 2001, the Company had approximately
$146 of investments, of which approximately $55 are less than
20% owned (and are accounted for on the cost basis), and
approximately $91 are available-for-sale securities.

OTHER NON-RECURRING ITEMS

Included in ofﬁce and general expenses in 2001 were charges
of $85.4 ($49.5, net of tax) relating primarily to operating assets,
which are no longer considered realizable. Additionally, a beneﬁt
of $50.0 ($29.0, net of tax) resulting from a reduction in severance
reserves related to recent signiﬁcant headcount reductions is
included in salaries and related expenses.

In 2000, the Company also recorded its share of the asset

impairment and restructuring charges of Modem Media. The
$25.7 charge is reﬂected in equity in net income of unconsolidated
afﬁliates in the Company’s statement of operations.

OTHER INCOME (EXPENSE)

INTEREST EXPENSE Interest expense increased by $38.3 to $164.6
in 2001 due to higher debt levels, which included the issuance
and sale of $500.0, 7.25% notes due 2011 in August 2001. The
increase was partially offset by lower interest rates paid on
short-term borrowings. The Company’s effective interest rate
was beneﬁted by the interest rate swap agreements covering
$400.0 of the $500.0, 7.875% notes issued in 2000. The interest
rate savings as a result of these agreements was approximately
$4.5 in 2001. In addition, the Company expects to further
reduce its effective interest rate in 2002 due to the issuance and
sale of the Zero-Coupon Convertible Notes in December 2001.

INTEREST INCOME Interest income was $43.0 in 2001, $57.5 in
2000 and $56.2 in 1999. The decrease in 2001 is primarily due
to lower interest rates and lower average cash balances primarily
resulting from the lower earnings levels in 2001. Interest income
increased modestly in 2000 from 1999.

OTHER INCOME Other income primarily consists of investment
income, gains from the sale of businesses and gains (losses)
from the sale of investments, primarily marketable securities
classiﬁed as available-for-sale. Other income decreased by $32.5
in 2001 and by $19.6 in 2000 primarily due to a reduction in
the gains from sales of investments, which were a loss of $(2.5),
and gains of $28.5 and $45.3 in 2001, 2000 and 1999, respectively.
The year over year reduction reﬂects the reduced level of the
Company’s investment activity.

OTHER ITEMS

The Company’s effective income tax rate was a beneﬁt of 8.4%
in 2001, and an expense of 42.2% in 2000 and 42.5% in 1999.
The 2001 effective tax rate was impacted by the non-recurring
items, which were beneﬁted at lower foreign tax rates and by the
write-off of non-deductible goodwill, resulting in a lower tax
beneﬁt rate. Excluding non-recurring items, the effective income
tax rate was 42.5%, 40.1% and 41.4%, respectively. The primary
difference between the effective tax rate and the statutory federal
rate of 35% is due to state and local taxes and nondeductible
goodwill expense. The increased tax rate in 2001 reﬂects a
change in the tax status of Deutsch, Inc., which was acquired in
November 2000, from “S” Corporation to “C” Corporation status.
Income applicable to minority interests decreased by $12.5

to $30.3 in 2001 and increased by $4.6 in 2000. The decrease in
2001 was primarily due to lower operating results of certain
operations in Europe and Asia Paciﬁc. The slight increase in
2000 was due to the growth of companies not wholly owned.
Equity in net income of unconsolidated afﬁliates was
$5.4 in 2001, a loss of $14.6 in 2000 and income of $11.0 in
1999. Equity in net income of unconsolidated afﬁliates excluding
non-recurring items decreased to $5.4 in 2001 from $11.1 in
2000. The decrease was primarily due to reduced earnings of our
unconsolidated afﬁliates and the consolidation of an advertising
ofﬁce in the Middle East at the end of 2000.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 23

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001, cash and cash equivalents were $935.2,
an increase of $90.6 from the December 31, 2000 balance of
$844.6. The Company collects funds from clients on behalf of
media outlets resulting in cash receipts and disbursements at
levels substantially exceeding its revenue. Therefore, the working
capital amounts reported on its balance sheet and cash ﬂows
from operating activities reﬂect the “pass-through” of these items.
Cash ﬂow provided from operating activities, supplemented
by seasonal short-term borrowings and long-term credit facilities,
finance the operating, acquisition and capital expenditure
requirements of the Company, in addition to dividend payments
and repurchases of common stock.

OPERATING ACTIVITIES
Cash ﬂow from operations and borrowings under existing
credit facilities, and reﬁnancings thereof, have been the primary
sources of the Company’s working capital, and management
believes that they will continue to be so in the future.

Net cash provided by operating activities was $148.5, $607.2

and $769.4 for the years ended December 31, 2001, 2000 and
1999, respectively. The decrease in 2001 was primarily attributa-
ble to lower operating proﬁt levels and to severance payments
made in connection with the Company’s restructuring plan. The
Company’s practice is to bill and collect from its clients in sufﬁ-
cient time to pay the amounts due for media on a timely basis.
Other uses of working capital include acquisitions, capital
expenditures, disbursements for severance and lease terminations
related to the Company’s restructuring activities, repurchase of
the Company’s common stock and payment of cash dividends.

INVESTING ACTIVITIES
The Company pursues acquisitions to complement and enhance
its service offerings. In addition, the Company seeks to acquire
businesses similar to those already owned to expand its geographic
scope to better serve new and existing clients. Acquisitions have
historically been funded using stock, cash or a combination of both.
During 2001, 2000 and 1999 the Company paid $1,729.7,

$1,668.3 and $652.2, respectively, in cash and stock for new
acquisitions, including a number of specialized marketing and
communications services companies to complement its existing
agency systems and to optimally position itself in the ever-
broadening communications marketplace. This amount includes
the value of stock issued for pooled companies and includes cash
of $84.7, $577.4 and $231.4 in 2001, 2000 and 1999, respectively.
The Company’s capital expenditures in 2001 were $268.0

compared to $259.5 in 2000 and $249.7 in 1999. The primary
purposes of these expenditures were to upgrade computer and
telecommunications systems and to modernize ofﬁces. The
Company’s planned capital expenditures for 2002 are estimated
to be no greater than the level of spending in 2001.

During 2001, the Company sold a marketing services
afﬁliate in Europe for approximately $5 and some non-core
marketing services afﬁliates in the U.S. for approximately $6.9.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

During 2000, the Company sold its interest in a non-core

minority owned marketing services business for proceeds of
approximately $12.

During 1999, the Company sold its entire investment in
Publicis S.A. for net cash proceeds of $135.3 and a portion of
its investments in the common stock of Lycos and marchFIRST
(formerly USWEB) for combined proceeds of approximately
$56. Additionally, the Company sold its minority interest in
Nicholson NY, Inc. to Icon in exchange for shares of Icon’s
common stock worth $19.

FINANCING ACTIVITIES
Total debt at December 31, 2001 was $2,933.7, an increase of
$852.6 from December 31, 2000. The increase in debt was
primarily attributable to lower operating proﬁt levels and to
severance payments made in connection with the Company’s
restructuring plan.

ZERO-COUPON CONVERTIBLE NOTES
In December 2001, the Company completed the issuance and
sale of approximately $702 of aggregate principal amount of
Zero-Coupon Convertible Senior Notes (“Zero-Coupon Notes”)
due 2021. The Company used the net proceeds of $563.5 from
this offering to repay indebtedness under the Company’s credit
facilities. The Zero-Coupon Notes are unsecured, zero-coupon,
senior securities that may be converted into common shares if
the price of the Company’s common stock reaches a speciﬁed
threshold, at a conversion rate of 22.8147 shares per one thousand
dollars principal amount at maturity, subject to adjustment.
This threshold will initially be 120% of the accreted value of a
Zero-Coupon Note, divided by the conversion rate and will
decline 1/2% each year until it reaches 110% at maturity in
2021. A Zero-Coupon Note’s accreted value is the sum of its
issue price plus its accrued original issue discount.

The Zero-Coupon Notes may also be converted, regardless

of the sale price of the Company’s common stock, at any time
after: (i) the credit rating assigned to the Zero-Coupon Notes by
any two of Moody’s Investors Service, Inc., Standard & Poor’s
Ratings Group and Fitch IBCA Duff & Phelps are Bal, BB+ and
BB+, respectively, or lower, or the Zero-Coupon Notes are no
longer rated by at least two of these ratings services, (ii) the
Company calls the Zero-Coupon Notes for redemption, (iii) the
Company makes speciﬁed distributions to shareholders or (iv)
the Company becomes a party to a consolidation, merger or
binding share exchange pursuant to which our common stock
would be converted into cash or property (other than securities).

The Company, at the investor’s option, may be required
to redeem the Zero-Coupon Notes for cash on December 14,
2003. The Company may also be required to redeem the Zero-
Coupon Notes at the investor’s option, on December 14, 2004,
2005, 2006, 2011 or 2016 for cash or common stock or a
combination of both, at the Company’s election. Additionally,
the Company has the option of redeeming the Zero-Coupon
Notes after December 14, 2006 for cash.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The yield to maturity of the Zero-Coupon Notes at the

date of issuance was 1%. Unless the Company is required to pay
the contingent interest described in the following sentence or
the U.S. tax laws change in certain ways, no cash interest will be
paid at any time. After December 14, 2006, if the Company’s
stock price reaches speciﬁed thresholds, the Company would be
obligated to pay semi-annual contingent cash interest which
would approximate the dividends paid to common stockholders
during the prior six-month period (subject to a ﬂoor rate).
Further, in the event that the notes are not registered for public
sale by May 13, 2002, additional amounts of up to 0.5% per
annum would be payable until the registration is declared effective
by the SEC.

SENIOR UNSECURED NOTES — 7.25%
On August 22, 2001, the Company completed the issuance and
sale of $500.0 principal amount of senior unsecured notes due
2011. The notes bear interest at a rate of 7.25% per annum. The
Company used the net proceeds of approximately $493 from
the sale of the notes to repay outstanding indebtedness under
its credit facilities.

SENIOR UNSECURED NOTES — 7.875%
On October 20, 2000, the Company completed the issuance and
sale of $500.0 principal amount of senior unsecured notes due
2005. The notes bear an interest rate of 7.875% per annum. The
Company used the net proceeds of approximately $496 from
the sale of the notes to repay outstanding indebtedness under
its credit facilities.

During 2001, the Company entered into interest rate
swap agreements to convert the ﬁxed interest rate on the 7.875%
notes to a variable rate based on 6 month LIBOR. At December
31, 2001, the Company had outstanding interest rate swap
agreements covering $400.0 of the $500.0, 7.875% notes due
October 2005. The swaps have the same term as the 7.875%
notes and, for 2001, had the effect of reducing the effective
interest rate on the notes to 6.972%.

CREDIT AGREEMENTS
In July 2001, the Company entered into a credit agreement with
a group of lenders. The credit agreement provided for revolving
borrowings of up to $750.0. No borrowings were drawn under
this facility and the facility terminated upon the issuance and
sale of the $500.0 Senior Notes on August 22, 2001.

On June 26, 2001, the Company replaced its maturing

$375.0, 364-day syndicated revolving multi-currency credit
agreement with a substantially similar $500.0 facility. The new
facility bears interest at variable rates based on either LIBOR or
a bank’s base rate, at the Company’s option. As of December 31,
2001, there were no outstanding balances under this facility.
Prior to June 25, 2002, the Company may, at its option, borrow
the full amount of the $500.0 facility for a one-year term.
In June 2000, the Company entered into a ﬁve-year

syndicated revolving multi-currency credit agreement with a
group of lenders. The credit agreement provides for borrowings

of up to $375.0 which bear interest at variable rates based on
LIBOR or a bank’s base rate, at the Company’s option. At
December 31, 2001, there was approximately $144.1 borrowed
under this facility.

The Company’s bank-provided revolving credit agreements
include ﬁnancial covenants that set maximum levels of debt as
a function of EBITDA and minimum levels of EBITDA as a
function of interest expense (as deﬁned in these agreements).
The ﬁnancial covenants contained in the Company’s term loan
agreements set minimum levels for net worth and for cash ﬂow as
a function of borrowed funds and maximum levels of borrowed
funds as a function of net worth (as deﬁned in these agreements).
At December 31, 2001, the Company was in compliance with all
of its ﬁnancial covenants, with the most restrictive being that
of cash ﬂow to borrowed funds, the ratio of which is required
to exceed .25 to 1. During 2001, as a result of the signiﬁcant
non-recurring charges, the Company required and received
amendments related to its ﬁnancial covenants.

FLOATING RATE NOTES
On June 28, 2001, the Company issued and sold $100.0 of
ﬂoating rate notes. The notes mature on June 28, 2002 and bear
interest at a variable rate based on three month LIBOR. The
Company intends to repay these notes at maturity from its
available borrowing capacity.

OTHER
During 2001, the Company purchased approximately 2.4 million
shares of its common stock, compared to 4.8 million shares in
2000. Since July 2001, the Company has not repurchased its
common stock in the open market as its current holdings of
treasury shares are sufﬁcient to meet its needs for various
compensation plans.

The Company has paid cash dividends at a quarterly rate

of $0.095 per share since the second quarter of 2000, when it
was increased from $0.085 per share. The determination of
dividend payments is made by the Company’s Board of Directors
on a quarterly basis. The Company anticipates that the payment of
dividends will continue to be at levels similar to the levels in 2001.
Based on current demand for the Company’s services and

the global economic environment, the Company believes that
its cash ﬂow from operations, together with its existing lines of
credit and cash on hand, is sufﬁcient to provide for the liquidity
needs of its business. At December 31, 2001 and 2000, the
Company’s committed credit facilities were approximately $875
and $750, respectively, of which $144.1 and $160.0 were utilized
at December 31, 2001 and 2000. In addition, the Company has
had success in the past accessing the debt markets for increased
liquidity. Unanticipated decreases in cash ﬂow from operations
as a result of decreased demand for our services and other
developments, including those described in the “Cautionary
Statement” below, may require the Company to seek other
sources of liquidity and modify its operating strategies.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 25

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The Company is currently engaged in preliminary
discussions and expects to renew its 364-day, $500.0 bank facility
which matures in June 2002. At December 31, 2001, there were
no borrowings under this facility.

CONTRACTUAL OBLIGATIONS
The following summarizes the Company’s estimated contractual
obligations at December 31, 2001, and the effect such
obligations are expected to have on its liquidity and cash ﬂow
in future periods.

TOTAL

LESS THAN
1 YEAR

1-3 YEARS

AFTER
3 YEARS

HEDGES OF NET INVESTMENT
The Company has signiﬁcant foreign operations and conducts
business in various foreign currencies. In order to hedge the
value of its investment in Europe, the Company has designated
approximately 125 million Euro of borrowings under its $375.0
syndicated revolving multi-currency credit facility as a hedge
of this net investment. Changes in the spot rate of the debt
instruments designated as hedges of the net investment in a
foreign subsidiary are reﬂected in the cumulative translation
adjustment component of stockholders’ equity. As of December
31, 2001, the reduction in stockholders’ equity related to this
item was approximately $5.

CONTRACTUAL OBLIGATIONS:

Long-term debt
Non-cancelable operating

$2,515.2

$ 34.6

$318.9 $2,161.7

FORWARD CONTRACTS

SHORT-TERM
The Company has entered into foreign currency transactions in
which foreign currencies (principally the Euro, Pounds Sterling
and the Japanese Yen) are bought or sold forward. The contracts
were entered into to meet currency requirements arising from
speciﬁc transactions. The changes in value of these forward
contracts were reﬂected in the Company’s consolidated statement
of operations. As of December 31, 2001, the Company had
contracts covering approximately $50 of notional amount of
currency. Substantially all of these contracts expire by the end
of February 2002. As of December 31, 2001, the fair value of the
forwards was a loss of $0.2.

LONG-TERM
In September 2000, the Company acquired a 35.5% interest in
Springer & Jacoby, a German-based advertising group, for total
consideration of $25.9. The consideration consisted of an initial
cash payment of $16.9 and a put option valued at $9.0. Pursuant
to the purchase agreement, two shareholders of Springer &
Jacoby have the right to sell all of their shares (put option) to
the Company in January 2003 at a ﬁxed price of 27.1 million
Euros. The additional shares to be purchased in January 2003
pursuant to the put option represent 15.5% of the outstanding
shares of Springer & Jacoby. The Company has recorded the fair
value of this put option as an $8.3 liability at December 31,
2001. The Company has entered into forward contracts to
purchase 27.1 million Euros in January 2003. The fair value
of the forward contracts was recorded as an asset of $1.0 at
December 31, 2001. Changes in the fair value of the put option
liability and the forward contracts are reﬂected as a component
of the Company’s consolidated statement of operations.

lease obligations

$1,552.9

$314.1

$400.2 $ 838.6

Estimated obligations under

acquisition earn-outs $ 380.0

$150.0

$230.0 $

–

The amount reﬂected as obligations under acquisition
earn-outs is estimated based on the assumption that the full
amount due under the acquisition agreements would be paid,
however, the Company does not expect to pay out the full
amount estimated.

As noted above, the Company’s Zero-Coupon Notes

contain a provision whereby the Company may be required to
redeem the Zero-Coupon Notes for cash on December 14, 2003.

DERIVATIVES AND HEDGING ACTIVITIES

The Company enters into interest rate swaps, hedges of net
investment in overseas subsidiaries and forward contracts to
mitigate related risks.

INTEREST RATE SWAPS
At December 31, 2001, the Company had outstanding interest
rate swap agreements covering $400.0 of the $500.0, 7.875%
notes due October 2005. The swaps have the same term as the
debt and effectively convert the ﬁxed rate on the debt to a variable
rate based on 6 month LIBOR. The swaps are accounted for as
hedges of the fair value of the related debt and are recorded as
an asset or liability as appropriate. As of December 31, 2001, the
fair value of the hedges was an asset of $10. The net effect of the
hedges is that interest expense on the $400.0 of debt being
hedged is recorded at variable rates, which for 2001 resulted in
the effective interest rate on the $500.0, 7.875% notes being
reduced to 6.972%. The fair value is estimated based on quotes
from the market makers of these instruments and represents
the estimated amounts that the Company would expect to
receive if these agreements were terminated. These instruments
were executed with institutions the Company believes to be
credit-worthy.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company assesses the required amount of allowance for
doubtful accounts based on past experience and reviews of aging
and analysis of speciﬁc accounts. While the expense for bad
debts has historically ﬂuctuated in line with revenue, it is not
certain that past experience will continue.

ACCOUNTING FOR INCOME TAXES
As part of the process of preparing its consolidated ﬁnancial
statements, the Company is required to estimate income taxes
payable in each of the jurisdictions in which it operates. This
process involves estimating the actual current tax expense
together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities,
which are included within our consolidated balance sheet. The
Company then assesses the likelihood that deferred tax assets
will be recovered from future taxable income and to the extent
it is determined that recovery is not likely, a valuation allowance
is established. Signiﬁcant management judgement is required in
determining the provision for income taxes and the amount
of valuation allowance that would be required. In the event that
actual results differ from these estimates or the Company adjusts
these estimates in future periods, the Company may need to
establish an additional valuation allowance which could materially
impact our ﬁnancial position and results of operations.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS, INVESTMENTS
AND GOODWILL
The Company has a signiﬁcant amount of long-lived assets,
including ﬁxed assets, investments, goodwill and other intangibles.
The Company periodically evaluates the realizability of all of its
long-lived assets. Future events could cause the Company to
conclude that impairment indicators exist and that the asset
values associated with a given operation have become impaired.
Any resulting impairment loss could have a material impact on
the Company’s ﬁnancial condition and results of operations.

OTHER
Under the terms of the offering of Zero-Coupon Convertible
Notes in December 2001, two embedded derivative instruments
were created. The derivatives are related to: a) the value of the
contingent interest feature (whereby cash interest may become
payable in certain circumstances) and, b) the value of the
feature that the debt becomes convertible upon a reduction in
the credit rating of the Notes. The Company obtained valuations
of the two derivatives at the time of initial issuance of the Notes
and determined that the fair value of the two derivatives was
negligible. At December 31, 2001, the fair value of the two
derivatives was negligible.

CRITICAL ACCOUNTING POLICIES

The Company’s signiﬁcant accounting policies are described in
Note 1 to the consolidated ﬁnancial statements. The Company
believes the following accounting policies are critical to the
accuracy of the more signiﬁcant judgements and estimates used
in the preparation of its consolidated ﬁnancial statements:

(cid:2) revenue recognition;
(cid:2) allowance for doubtful accounts;
(cid:2) accounting for income taxes; and
(cid:2) valuation of long-lived and intangible assets, investments

and goodwill.

REVENUE RECOGNITION
The Company derives revenue from advertising services,
including media buying, and from marketing and communication
services, including market research, public relations, direct
marketing, sales promotion and event marketing activities.

The Company’s advertising services revenue is derived
from commissions that are earned when the media is placed,
from fees earned as advertising services are performed and from
production services rendered. In addition, incentive amounts
may be earned based on qualitative and/or quantitative criteria.
In the case of commissions, revenue is recognized as the media
placements appear. In the case of fee and production arrange-
ments, the revenue is recognized as the services are performed
which is generally ratably over the period of the client contract.
The Company’s marketing service revenues are generally earned
on a fee basis, and in certain cases incentive amounts may
also be earned. As with fee arrangements in advertising, such
revenue is recognized as the work is performed. Incentive
amounts are recognized upon satisfaction of the relevant
qualitative and quantitative criteria.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 27

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

In June 2001, Statement of Financial Accounting Standards

No. 143, “Accounting for Asset Retirement Obligations”
(“SFAS 143”) was issued. SFAS 143 addresses ﬁnancial accounting
and reporting for legal obligations associated with the retirement
of tangible long-lived assets and the associated retirement costs
that result from the acquisition, construction, or development
and normal operation of a long-lived asset. Upon initial
recognition of a liability for an asset retirement obligation,
SFAS 143 requires an increase in the carrying amount of the
related long-lived asset. The asset retirement cost is subsequently
allocated to expense using a systematic and rational method
over the assets useful life. SFAS 143 is effective for ﬁscal years
beginning after June 15, 2002. The adoption of this statement is
not expected to have a material impact on the Company’s
ﬁnancial position or results of operations.

In August 2001, Statement of Financial Accounting
Standards No. 144, “Accounting for the Impairment or Disposal
of Long-lived Assets” (“SFAS 144”) was issued. SFAS 144
supersedes Statement of Financial Accounting Standards No. 121,
“Accounting for the Impairment of Long-lived Assets to be
Disposed of ”, and the accounting and reporting provisions of
APB Opinion No. 30, “Reporting the Results of Operations-
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently occurring Events
and Transactions”. SFAS 144 also amends ARB (Accounting
Research Bulletins) No. 51, “Consolidated Financial Statements”,
to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. SFAS 144 retains the
fundamental provisions of SFAS 121 for recognizing and
measuring impairment losses on long-lived assets held for use
and long-lived assets to be disposed of by sale, while resolving
signiﬁcant implementation issues associated with SFAS 121.
Among other things, SFAS 144 provides guidance on how
long-lived assets used as part of a group should be evaluated for
impairment, establishes criteria for when long-lived assets are
held for sale, and prescribes the accounting for long-lived assets
that will be disposed of other than by sale. SFAS 144 is effective
for ﬁscal years beginning after December 15, 2001. The adoption
of this statement is not expected to have a material impact on
the Company’s ﬁnancial position or results of operations.

OTHER MATTERS

ARGENTINA
As a result of the devaluation of the Argentine peso in recent
months, the Company’s cumulative translation adjustment
balance for its Argentine operation reﬂected a reduction in
stockholders’ equity of approximately $10 at December 31, 2001.
The Company expects to maintain its strategic investment in
Argentina for the long-term and further anticipates that its
Argentine operations will remain proﬁtable. Accordingly, the
Company does not currently consider its investment in
Argentina to be permanently impaired.

NEW ACCOUNTING STANDARDS
In June 2001, Statement of Financial Accounting Standards
No. 141, “Business Combinations’’ (“SFAS 141”), and Statement
of Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets’’ (“SFAS 142”) were issued. SFAS 141
requires that companies use the purchase method of accounting
for all business combinations initiated after June 30, 2001 and
addresses the initial recognition and measurement of goodwill
and other intangible assets acquired in a business combination.
SFAS 142 addresses the initial recognition and measurement of
intangible assets acquired outside a business combination and the
recognition and measurement of goodwill and other intangible
assets subsequent to acquisition. Under the new standards,
goodwill and intangible assets deemed to have indeﬁnite lives
will no longer be amortized but, instead, will be tested at least
annually for impairment. Other intangible assets will continue
to be amortized over their useful lives. The Company will
adopt the new standards on accounting for goodwill and other
intangible assets effective January 1, 2002.

Upon adoption, the Company will cease amortizing the

remaining amount of unamortized goodwill. As of December 31,
2001, the Company’s remaining unamortized goodwill balance was
$3,004.7. Although the Company is still reviewing the provisions
of the Statements, it is management’s preliminary assessment
that no goodwill impairment will be recognized upon adoption
of the new standard. Further, the Company does not anticipate
any signiﬁcant reclassiﬁcations of amounts reﬂected on its
balance sheet as a result of the adoption of the standard.

Although SFAS 142 does not require that previously
reported numbers be restated, the following table sets forth the
effect on reported results of adopting SFAS 142:

2001

2000

1999

Net income (loss), as reported
Add back amortization of goodwill
Less related tax effect

$(505.3)
169.0
(24.3)

$420.3
140.4
(17.2)

$359.4
122.8
(15.0)

Net income (loss), as adjusted

$(360.6)

$543.5

$467.2

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

CONVERSION TO THE EURO
On January 1, 1999, certain member countries of the European
Union established ﬁxed conversion rates between their existing
currencies and the European Union’s common currency (the
“Euro”). The Company conducts business in member countries.
The transition period for the introduction of the Euro will end
on June 30, 2002. The Company believes it has addressed the
major issues involved with the introduction of the Euro which
were: converting information technology systems, reassessing
currency risk, negotiating and amending contracts and processing
tax and accounting records.

The Company believes that use of the Euro will not have

a signiﬁcant impact on the manner in which it conducts its
business affairs and processes its business and accounting records.
Accordingly, conversion to the Euro has not and is not expected
to have a material effect on the Company’s ﬁnancial condition
or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to interest rates
and foreign currencies.

INTEREST RATES
At December 31, 2001, a signiﬁcant portion of the Company’s
debt obligations were at ﬁxed interest rates. Accordingly,
assuming the ﬁxed rate debt is not reﬁnanced, there would be
no impact on interest expense or cash ﬂow from either a 10%
increase or decrease in market rates of interest. The fair market
value of the debt obligations would decrease by $24 if market
rates were to increase by 10% and would increase by $26 if
market rates were to decrease by 10%. For that portion of the
debt that is either maintained at variable rates or is swapped
into variable rates, based on amounts and rates outstanding at
December 31, 2001, the change in interest expense and cash
ﬂow from a 10% change in rates would be approximately $5.

FOREIGN CURRENCIES
The Company faces two risks related to foreign currency
exchange: translation risk and transaction risk. Amounts invested
in the Company’s foreign operations are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date.
The resulting translation adjustments are recorded as a
component of accumulated other comprehensive income (loss)
in the stockholders’ equity section of the balance sheet. The
Company’s foreign subsidiaries generally collect revenues and
pay expenses in currencies other than the United States dollar.
Since the functional currency of the Company’s foreign operations
is generally the local currency, foreign currency translation of
the balance sheet is reﬂected as a component of stockholders’
equity and does not impact operating results. Revenues and
expenses in foreign currencies translate into varying amounts of

U.S. dollars depending upon whether the U.S. dollar weakens or
strengthens against other currencies. Therefore, changes in
exchange rates may negatively affect the Company’s consolidated
revenues and expenses (as expressed in U.S. dollars) from foreign
operations. Currency transaction gains or losses arising from
transactions in currencies other than the functional currency
are included in results of operations. The Company has generally
not entered into a material amount of foreign currency forward
exchange contracts or other derivative ﬁnancial instruments to
hedge the effects of adverse ﬂuctuations in foreign currency
exchange rates.

CAUTIONARY STATEMENT
This Annual Report on Form 10-K, including Management’s
Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. Statements
in this Annual Report that are not historical facts, including
statements about the Company’s beliefs and expectations,
particularly regarding recent business and economic trends, the
integration of acquisitions and restructuring costs, constitute
forward-looking statements. These statements are based on
current plans, expectations, estimates and projections, and you
should therefore not place undue reliance on them. Forward-
looking statements speak only as of the date they are made, and
the Company undertakes no obligation to update publicly any
of them in light of new information or future events.

Forward-looking statements involve inherent risks and

uncertainties. A number of important factors could cause actual
results to differ materially from those contained in any forward-
looking statement. Such factors include, but are not limited to,
those associated with the effect of national and regional economic
conditions, the ability of the Company to attract new clients and
retain existing clients, the ﬁnancial success of the Company’s
clients, developments from changes in the regulatory and legal
environment for advertising companies around the world, and
the successful completion and integration of acquisitions which
complement and expand our business capabilities.

This Annual Report also contains certain ﬁnancial
information calculated on a “pro forma” basis (including
information that is restated to exclude the impact of speciﬁed
historical events). Because “pro forma” ﬁnancial information by
its very nature departs from traditional accounting conventions,
such information should not be viewed as a substitute for the
information prepared in accordance with GAAP contained in
the Company’s ﬁnancial statements that are contained in this
Annual Report and should be read in conjunction therewith.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 29

Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP
New York, New York
February 28, 2002

To the Board of Directors and Stockholders of The Interpublic Group of Companies, Inc.

In our opinion, based on our audits and the reports of other
auditors, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash ﬂows, and of
stockholders’ equity and comprehensive income present fairly,
in all material respects, the ﬁnancial position of The Interpublic
Group of Companies, Inc. and its subsidiaries (the “Company”) at
December 31, 2001 and 2000, and the results of their operations
and their cash ﬂows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These ﬁnancial
statements are the responsibility of the Company’s management;
our responsibility is to express an opinion on these ﬁnancial
statements based on our audits. We did not audit the ﬁnancial
statements of NFO Worldwide, Inc. (“NFO”), a wholly-owned
subsidiary, which statements reﬂect total revenues constituting
approximately 7% of the related 1999 consolidated ﬁnancial
statement total. We did not audit the ﬁnancial statements of
Deutsch, Inc. and Subsidiary and Afﬁliates (“Deutsch”), a
wholly-owned subsidiary, which statements reﬂect total net loss
constituting approximately 2% of the related 2000 consolidated
ﬁnancial statement total and total net income constituting
approximately 4% of the related 1999 consolidated ﬁnancial
statement total. Additionally, we did not audit the ﬁnancial

statements of True North Communications Inc. (“True North”),
a wholly-owned subsidiary, which statements reﬂect total
revenues constituting approximately 22% of the related consoli-
dated ﬁnancial statement totals for each of the two years in the
period ended December 31, 2000. Those statements were audited
by other auditors whose reports thereon have been furnished to
us, and our opinion expressed herein, insofar as it relates to the
amounts included for NFO, Deutsch and True North, is based
solely on the reports of the other auditors. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the ﬁnancial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
ﬁnancial statements, assessing the accounting principles used
and signiﬁcant estimates made by management, and evaluating
the overall ﬁnancial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable
basis for our opinion.

PricewaterhouseCoopers LLP

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

CONSOLIDATED STATEMENT OF OPERATIONS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Amounts in Millions, Except Per Share Amounts)

2001

2000

1999

$6,726.8

$7,182.7

$6,417.2

3,787.1
2,026.1
173.0
645.6
303.1

6,934.9

4,035.2
1,976.4
144.3
177.7
–

6,333.6

3,617.4
1,862.5
128.4
159.5
–

5,767.8

(208.1)

849.1

649.4

(164.6)
43.0
13.7
(208.3)

(316.2)

(524.3)

(43.9)

(480.4)

(30.3)
5.4

(126.3)
57.5
46.2
–

(22.6)

826.5

348.8

477.7

(42.8)
(14.6)

(99.5)
56.2
65.8
–

22.5

671.9

285.3

386.6

(38.2)
11.0

$ (505.3)

$ 420.3

$ 359.4

$
$

(1.37)
(1.37)

369.0
369.0
0.38

$
$

1.17
1.14

359.6
370.6
0.37

$
$

1.02
0.99

352.0
364.6
0.33

Year Ended December 31

REVENUE

OPERATING EXPENSES:
Salaries and related expenses
Ofﬁce and general expenses
Amortization of intangible assets
Restructuring and other merger related costs
Goodwill impairment and other charges

Total operating expenses

OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE):
Interest expense
Interest income
Other income
Investment impairment

Total other income (expense)

Income (loss) before provision for (beneﬁt of) income taxes

Provision for (beneﬁt of) income taxes

Income (loss) of consolidated companies

Income applicable to minority interests
Equity in net income (loss) of unconsolidated afﬁliates

NET INCOME (LOSS)

Earnings (loss) per share:
Basic EPS
Diluted EPS
Weighted average shares:

Basic
Diluted

Cash dividends per share

The accompanying notes are an integral part of these ﬁnancial statements.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 31

Financial Statements

2001

2000

935.2

844.6

4,780.5
333.0
80.0
338.5

6,467.2

5,735.7
437.9
–
277.8

7,296.0

161.1
1,085.8
461.4
1,708.3
(858.0)

850.3

174.1
1,103.7
427.8
1,705.6
(879.2)

826.4

165.0
492.8
432.5

178.9
380.3
525.4

3,106.9

3,155.0

4,197.2

4,239.6

$11,514.7

$12,362.0

CONSOLIDATED BALANCE SHEET

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Amounts in Millions, Except Per Share Amounts)

December 31

ASSETS

CURRENT ASSETS:
Cash and cash equivalents (includes certiﬁcates of deposit:

2001 – $93.8; 2000 – $110.9)

Accounts receivable (net of allowance for doubtful accounts:

2001 – $90.7; 2000 – $85.7)

Expenditures billable to clients
Deferred taxes on income
Prepaid expenses and other current assets

Total current assets

FIXED ASSETS, AT COST:
Land and buildings
Furniture and equipment
Leasehold improvements

Less: accumulated depreciation

Total ﬁxed assets

OTHER ASSETS:
Investment in unconsolidated afﬁliates
Deferred taxes on income
Other assets and miscellaneous investments
Intangible assets (net of accumulated amortization:
2001 – $1,024.8; 2000 – $861.5)

Total other assets

TOTAL ASSETS

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

December 31

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable
Accrued expenses
Accrued income taxes
Dividends payable
Short-term bank borrowings
Current portion of long-term debt

Total current liabilities

NON-CURRENT LIABILITIES:
Long-term debt
Convertible subordinated notes
Zero-coupon convertible senior notes
Deferred compensation
Accrued postretirement beneﬁts
Other non-current liabilities
Minority interests in consolidated subsidiaries

Total non-current liabilities

Commitments and contingencies (Note 16)

STOCKHOLDERS’ EQUITY:
Preferred stock, no par value,

shares authorized: 20.0, shares issued: none

Common stock, $0.10 par value,
shares authorized: 550.0,
shares issued: 2001 – 385.8; 2000 – 377.3

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax

Less:
Treasury stock, at cost: 2001 – 7.3 shares; 2000 – 5.5 shares
Unamortized deferred compensation

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these ﬁnancial statements.

CONSOLIDATED BALANCE SHEET

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Amounts in Millions, Except Per Share Amounts)

2001

2000

$ 4,525.2
1,316.5
103.1
36.0
418.5
34.6

$ 5,751.3
1,081.7
210.3
29.4
483.8
65.5

6,433.9

7,622.0

1,356.8
548.5
575.3
376.7
54.4
100.5
89.3

3,101.5

38.6
1,785.2
1,011.2
(451.5)
2,383.5

(290.2)
(114.0)

998.7
533.1
–
464.3
55.2
105.7
100.6

2,257.6

37.7
1,514.7
1,667.5
(411.6)
2,808.3

(194.8)
(131.1)

1,979.3

2,482.4

$11,514.7

$12,362.0

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 33

Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Amounts in Millions)

Year Ended December 31

2001

2000

1999

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:

$ (505.3)

$ 420.3

$ 359.4

Depreciation and amortization of ﬁxed assets
Amortization of intangible assets
Amortization of restricted stock awards and bond discounts
Provision for (beneﬁt of) deferred income taxes
Undistributed equity losses (earnings)
Income applicable to minority interests
Restructuring costs, non-cash
Investment impairment
Goodwill impairment and other
Other net (gains) losses

Change in assets and liabilities, net of acquisitions:

Accounts receivable
Expenditures billable to clients
Prepaid expenses and other current assets
Accounts payable, accrued expenses and other current liabilities
Accrued income taxes
Other non-current assets and liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions, net of cash acquired
Capital expenditures
Proceeds from sales of businesses
Proceeds from sales of long-term investments
Purchase of long-term investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Other investments and miscellaneous assets
Investment in unconsolidated afﬁliates

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Increase (decrease) in short-term bank borrowings
Proceeds from long-term debt
Payments of long-term debt
Treasury stock acquired
Issuance of common stock
Proceeds from IPO of subsidiary
Cash dividends — Interpublic
Cash dividends — pooled companies

Net cash provided by ﬁnancing activities

Deconsolidation of subsidiary
Effect of exchange rates on cash and cash equivalents

Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest
Cash paid for income taxes

The accompanying notes are an integral part of these ﬁnancial statements.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

199.1
173.0
79.1
(191.2)
1.5
30.3
104.3
208.3
275.6
(5.6)

780.6
84.6
(106.4)
(896.0)
(97.0)
13.6

148.5

(310.6)
(268.0)
18.9
36.8
(29.4)
85.3
(79.7)
(142.2)
(7.6)

(696.5)

(670.6)
1,804.7
(281.8)
(118.0)
85.6
–
(129.2)
(15.2)

675.5

–
(36.9)

90.6
844.6

192.6
144.3
60.5
(20.2)
14.6
42.8
73.1
–
–
(32.0)

(230.6)
(30.0)
(56.6)
13.1
(13.1)
28.4

607.2

(670.1)
(259.5)
12.1
83.9
(147.9)
98.3
(101.4)
(95.0)
(12.5)

(1,092.1)

105.8
1,013.9
(521.8)
(248.1)
60.0
–
(109.1)
(44.3)

256.4

(29.1)
(45.1)

(302.7)
1,147.3

168.0
128.4
42.9
14.6
(10.4)
38.2
68.0
–
–
(47.7)

(928.5)
(24.4)
(8.3)
1,004.6
(64.4)
29.0

769.4

(318.6)
(249.7)
–
268.2
(133.9)
25.8
(51.7)
(54.2)
(11.1)

(525.2)

50.0
433.9
(111.1)
(313.4)
91.5
42.0
(90.4)
(43.3)

59.2

–
(46.0)

257.4
889.9

$ 935.2

$ 844.6

$1,147.3

$ 122.5
$ 231.1

$
88.7
$ 274.5

$
72.0
$ 239.2

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Amounts in Millions)

For the Three Year Period Ended December 31, 2001

COMMON STOCK

NUMBER
OF SHARES

AMOUNT
(PAR VALUE $.10)

ADDITIONAL
PAID-IN
CAPITAL

ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
INCOME (LOSS)
EARNINGS

UNAMORTIZED
EXPENSE
OF RESTRICTED
STOCK GRANTS

TREASURY
STOCK

TOTAL

BALANCES AT DECEMBER 31, 1998 AS PREVIOUSLY REPORTED

Pooling of interests transaction

BALANCES AT DECEMBER 31, 1998 AS RESTATED

310.0

51.3

361.3

$31.0

$ 597.6

$1,166.8

$(161.0)

$(132.7)

$(71.3)

$1,430.4

5.1

36.1

297.7

895.3

18.0

(7.9)

–

312.9

1,184.8

(168.9)

(132.7)

(71.3)

1,743.3

Comprehensive income:

Net income

Adjustment for minimum pension liability

Change in market value of securities available-for-sale

(net of reclassiﬁcations)

Foreign currency translation adjustment

Total comprehensive income

Dividends

Awards of stock under Company plans:

Achievement stock and incentive awards

Restricted stock, net of forfeitures and amortization

Employee stock purchases

Exercise of stock options, including tax beneﬁt

Purchase of Company’s own stock

Issuance of shares for acquisitions

Par value of shares issued for two-for-one split

Equity adjustments — pooled companies

Other

18.6

154.8

(100.8)

359.4

(137.2)

(.2)

(.5)

(7.6)

(7.9)

(300.5)

127.9

359.4

18.6

154.8

(100.8)

432.0

(137.2)

6.5

26.7

19.1

116.7

(300.5)

200.4

–

4.0

15.3

1.0

6.1

2.1

1.1

6.2

42.1

19.1

116.1

72.5

4.5

15.2

BALANCES AT DECEMBER 31, 1999

371.6

$37.1

$1,171.0

$1,406.3

$ (96.3)

$(312.9)

$ (78.9)

$2,126.3

Comprehensive income:

Net income

Change in market value of securities available-for-sale

(net of reclassiﬁcations)

Foreign currency translation adjustment

Total comprehensive income

Dividends

Awards of stock under Company plans:

Achievement stock and incentive awards

Restricted stock, net of forfeitures and amortization

Employee stock purchases

Exercise of stock options, including tax beneﬁt

Purchase of Company’s own stock

Issuance of shares for acquisitions

Tax impact of Deutsch acquisition

Equity adjustments — pooled companies

Other

1.8

1.0

2.9

$ 420.3

(224.2)

(91.1)

(158.9)

(.2)

90.8

22.0

84.0

43.9

94.9

1.1

6.1

6.2

(52.2)

(236.8)

348.5

(224.2)

(91.1)

105.0

(158.9)

1.1

45.0

22.1

84.3

(236.8)

392.4

94.9

6.1

BALANCES AT DECEMBER 31, 2000

377.3

$37.7

$1,514.7

$1,667.5

$(411.6)

$(194.8)

$(131.1)

$2,482.4

Comprehensive income:

Net loss

Adjustment for minimum pension liability

Change in market value of securities available-for-sale

(net of reclassiﬁcations)

Foreign currency translation adjustment

Total comprehensive income

Dividends

Awards of stock under Company plans:

Restricted stock, net of forfeitures and amortization

Employee stock purchases

Exercise of stock options, including tax beneﬁt

Purchase of Company’s own stock

Issuance of shares for acquisitions

Equity adjustments — pooled companies

Other

$ (505.3)

(151.0)

(5.4)

55.1

(89.6)

1.0

3.8

2.9

37.4

19.6

129.4

56.8

26.0

1.3

(.9)

17.1

(123.7)

29.2

$ (505.3)

(5.4)

55.1

(89.6)

(545.2)

(151.0)

53.7

19.7

129.8

(123.7)

86.3

26.0

1.3

BALANCES AT DECEMBER 31, 2001

385.8

$38.6

$1,785.2

$1,011.2

$(451.5)

$(290.2)

$(114.0)

$1,979.3

The accompanying notes are an integral part of these ﬁnancial statements.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 35

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS
The Company is a worldwide global marketing services company,
providing clients with communications expertise in four broad
areas: a) advertising and media management, b) marketing
communications, which includes client relationship management
(direct marketing), public relations, sales promotion, on-line
marketing and healthcare marketing, c) marketing intelligence,
which includes custom marketing research, brand consultancy
and database management and d) marketing services, which
includes sports and entertainment marketing, corporate
meetings and events, retail marketing and other marketing and
business services.

The Company is organized into four global operating

groups. Three of these groups, McCann-Erickson WorldGroup,
the FCB Group and The Partnership, are global marketing
communications companies that provide a full complement of
global marketing services and marketing communication services.
The fourth global operating group, Advanced Marketing Services,
focuses on expanding the Company’s operations in the area of
specialized marketing communications and services.

PRINCIPLES OF CONSOLIDATION
The consolidated ﬁnancial statements include the accounts of the
Company and its subsidiaries, most of which are wholly owned.
All signiﬁcant intercompany transactions and balances have
been eliminated. The Company also has certain investments in
unconsolidated afﬁliates that are carried on the equity basis.

The Company’s consolidated ﬁnancial statements, including

the related notes, have been restated as of the earliest period
presented to include the results of operations, ﬁnancial position
and cash ﬂows of transactions accounted for as poolings of
interest. Certain prior year amounts have been reclassiﬁed to
conform to the current year presentation.

CASH EQUIVALENTS AND INVESTMENTS
Cash equivalents are highly liquid investments, including
certiﬁcate of deposits, government securities and time deposits,
with maturities of three months or less at the time of purchase
and are stated at estimated fair value which approximates cost.
The Company classiﬁes its existing marketable securities

as available-for-sale in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities.” These securities are carried at fair value with the
corresponding unrealized gains and losses reported as a separate
component of comprehensive income. The cost of securities sold
is determined based upon the average cost of the securities sold.

USE OF ESTIMATES
The preparation of ﬁnancial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

assets and liabilities at the date of the ﬁnancial statements, and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

TRANSLATION OF FOREIGN CURRENCIES
The ﬁnancial statements of the Company’s foreign operations,
when the local currency is the functional currency, are translated
into U.S. dollars at the exchange rates in effect at each year end
for assets and liabilities and average exchange rates during each
year for the results of operations. The related unrealized gains
or losses from translation are reported as a separate component
of comprehensive income.

The ﬁnancial statements of foreign subsidiaries located in
highly inﬂationary economies are remeasured as if the functional
currency were the U.S. dollar. The related remeasurement
adjustments are included as a component of operating expenses.

The Company’s advertising services revenue is derived
from commissions that are earned when the media is placed,
from fees earned as advertising services are performed and from
production services rendered. In addition, incentive amounts
may be earned based on qualitative and/or quantitative criteria.
In the case of commissions, revenue is recognized as the media
placements appear. In the case of fee and production arrange-
ments, the revenue is recognized as the services are performed
which is generally ratably over the period of the client contract.
The Company’s marketing service revenue is generally earned
on a fee basis, and in certain cases incentive amounts may also
be earned. As with fee arrangements in advertising, such revenue
is recognized as the work is performed. Incentive amounts are
recognized upon satisfaction of the relevant qualitative and
quantitative criteria.

EXPENDITURES BILLABLE TO CLIENTS
Expenditures billable to clients include costs incurred primarily
in connection with production work by the Company on behalf
of clients that have not yet been billed to clients. Commissions
and fees on such production work are recorded as revenue
when earned.

PROPERTY AND DEPRECIATION
The cost of property and equipment is depreciated generally
using the straight-line method over the estimated useful lives of
the related assets, which range from 3 to 20 years for furniture and
equipment and from 10 to 45 years for the component parts of
buildings. Leasehold improvements are capitalized and amortized
over the shorter of the life of the asset or the lease term.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

LONG-LIVED ASSETS
Long-lived assets, consisting primarily of property and equipment
and intangible assets arising from business purchase combinations,
are reviewed for impairment whenever events or circumstances
indicate their carrying value may not be recoverable. When
such events or circumstances arise, an estimate of the future
undiscounted cash ﬂows produced by the asset, or the appropriate
grouping of assets, is compared to the asset’s carrying value to
determine if an impairment exists pursuant to the requirements
of SFAS No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.” If the asset
is determined to be impaired, the impairment loss is measured
based on the excess of its carrying value over its fair value.
Assets to be disposed of are reported at the lower of its carrying
value or net realizable value.

Intangible assets, principally goodwill and customer lists,
have been amortized using the straight-line method over periods
not exceeding 40 years. In June 2001, SFAS No. 141 (“SFAS 141”),
“Business Combinations’’, and SFAS No. 142 (“SFAS 142”),
“Goodwill and Other Intangible Assets’’ were issued. SFAS No.
141 requires that companies use the purchase method of
accounting for all business combinations initiated after June 30,
2001 and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business
combination. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside a business
combination and the recognition and measurement of goodwill
and other intangible assets subsequent to acquisition. Under the
new standards, goodwill and intangible assets deemed to have
indeﬁnite lives will no longer be amortized but, instead, will be
tested at least annually for impairment. Other intangible assets
will continue to be amortized over their useful lives. The Company
will adopt the new standards on accounting for goodwill and
other intangible assets effective January 1, 2002.

Upon adoption, the Company will cease amortizing the
remaining amount of unamortized goodwill. As of December
31, 2001, the Company’s remaining unamortized goodwill bal-
ance was $3,004.7. Although the Company is still reviewing the
provisions of the Statements, it is management’s preliminary
assessment that no goodwill impairment will be recognized upon
adoption of the new standard. Further, the Company does not
anticipate any signiﬁcant reclassiﬁcations of amounts reﬂected
on its balance sheet as a result of the adoption of the standard.
In August 2001, SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-lived Assets” (“SFAS 144”) was
issued. SFAS 144 supersedes SFAS No. 121, “Accounting for the
Impairment of Long-lived Assets to be Disposed of”, and the
accounting and reporting provisions of APB Opinion No. 30,
“Reporting the Results of Operations — Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently occurring Events and Transactions”. SFAS 144 also
amends ARB (Accounting Research Bulletins) No. 51, “Consolidated
Financial Statements”, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS
144 retains the fundamental provisions of SFAS 121 for recognizing
and measuring impairment losses on long-lived assets held for

use and long-lived assets to be disposed of by sale, while resolving
signiﬁcant implementation issues associated with SFAS 121.
Among other things, SFAS 144 provides guidance on how
long-lived assets used as part of a group should be evaluated for
impairment, establishes criteria for when long-lived assets are
held for sale, and prescribes the accounting for long-lived assets
that will be disposed of other than by sale. SFAS 144 is effective
for ﬁscal years beginning after December 15, 2001. The adoption
of this statement is not expected to have a material impact on the
Company’s ﬁnancial position or results of operations.

INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences of temporary differences
between the ﬁnancial statement carrying amounts and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the year in which the temporary differences are
expected to be recovered or settled.

Income taxes are generally not provided on undistributed

earnings of foreign subsidiaries because these earnings are
considered to be permanently invested.

EARNINGS PER SHARE
Basic earnings per share are computed using the weighted
average number of common shares outstanding during the year.
Diluted earnings per share are computed using the weighted
average number of common shares outstanding during the year
but also include the dilutive effect of stock-based (including
stock options and awards to restricted stock) and the assumed
conversion, as applicable, of the convertible notes as described
in Note 9.

TREASURY STOCK
In July 1999, the Board of Directors authorized the repurchase
of up to 60 million shares of the Company’s common stock
and, speciﬁcally, authorized a maximum of 6 million shares be
purchased annually. The purchase of treasury shares is accounted
for at cost. The reissuance of treasury shares is accounted for on
a ﬁrst-in, ﬁrst-out basis and any gains or losses are accounted
for as additional paid-in capital. Since July 2001, the Company
has not made any purchases of treasury shares.

CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equiv-
alents, accounts receivable, interest rate instruments and foreign
exchange contracts. The Company invests its excess cash in
investment-grade, short-term securities with ﬁnancial institutions
and limits the amount of credit exposure to any one counterparty.
Concentrations of credit risk with accounts receivable are limited
due to the large number of clients and the dispersion across different
industries and geographical areas. The Company performs
ongoing credit evaluations of its clients and maintains an allowance

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 37

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

for doubtful accounts based upon the expected collectibility of all
accounts receivable. The Company is exposed to credit loss in the
event of nonperformance by the counterparties of the interest rate
swaps and foreign currency contracts. The Company limits its
exposure to any one ﬁnancial institution and does not anticipate
nonperformance by these counterparties.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, SFAS No. 133, “Accounting for Derivative Instruments
and Hedging Activities” was issued. SFAS No. 133 established
accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet
as either an asset or a liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative’s fair value be
recognized currently in earnings unless speciﬁc hedge accounting
criteria are met. SFAS No. 133 was to be effective for ﬁscal years
beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137, which delayed the effective date of SFAS No. 133
by one year. In June 2000, the FASB issued SFAS No. 138, which
amends the accounting and reporting standards of SFAS No.

133 for certain derivative instruments and hedging activities.
The Company adopted the provisions of SFAS No. 133 effective
January 1, 2001. The adoption did not have a material effect on
the Company’s ﬁnancial condition or results of operations.

See Note 13 for a discussion of the derivative instruments
currently outstanding and the associated accounting treatment.
In June 2001, SFAS No. 143, “Accounting for Asset

Retirement Obligations” (“SFAS 143”) was issued. SFAS 143
addresses ﬁnancial accounting and reporting for legal obligations
associated with the retirement of tangible long-lived assets and
the associated retirement costs that result from the acquisition,
construction, or development and normal operation of a
long-lived asset. Upon initial recognition of a liability for an
asset retirement obligation, SFAS 143 requires an increase in
the carrying amount of the related long-lived asset. The asset
retirement cost is subsequently allocated to expense using a
systematic and rational method over the assets’ useful life.
SFAS 143 is effective for ﬁscal years beginning after June 15,
2002. The adoption of this statement is not expected to have a
material impact on the Company’s ﬁnancial position or results
of operations.

NOTE 2: EARNINGS PER SHARE

The following is a reconciliation of the components of the basic and diluted earnings per share computations for income available
to common stockholders for the years ended December 31:

2001

2000

1999

(Number of Shares in Millions)

INCOME

PER SHARE
AMOUNT

INCOME

PER SHARE
AMOUNT

INCOME

PER SHARE
AMOUNT

BASIC EARNINGS PER SHARE

Income available to common stockholders
Effect of Dilutive Securities: (a)(b)

Options
Restricted stock

$(505.3)

369.0

$(1.37)

$420.3

359.6

$1.17

$359.4

352.0

$1.02

–
–

–
.6

7.6
3.4

–
.6

9.1
3.5

DILUTED EARNINGS PER SHARE

$(505.3)

369.0

$(1.37)

$420.9

370.6

$1.14

$360.0

364.6

$0.99

(a) The computation of diluted earnings per share for 2001, 2000 and 1999 excludes the assumed conversion of the 1.87% and 1.80% Convertible Subordinated Notes (see Note 9)

because they were antidilutive. The computation of diluted earnings per share for 2001 excludes the weighted average number of incremental shares in connection with stock options
and restricted stock because they were antidilutive.

(b) The computation of diluted earnings per share for 2001 excludes the assumed conversion of the Zero-Coupon Convertible Senior Notes due 2021 (see Note 9) as they are contingently

convertible and assume cash settlement of the put option.

NOTE 3: ACQUISITIONS AND DISPOSITIONS

The Company acquired a signiﬁcant number of advertising and specialized marketing and communications services companies during
the three-year period ended December 31, 2001. The aggregate purchase price, including cash and stock payments, was as follows:

2001 – Purchases

– Pooling

Total

2000 – Purchases

– Poolings

Total

1999 – Purchases

– Poolings

Total

NUMBER OF
ACQUISITIONS

19
1

93
3

64
5

CASH

$ 84.7
–

$ 84.7

$577.4
–

$577.4

$231.4
–

$231.4

CONSIDERATION

STOCK

14.0
1,631.0

$1,645.0

$ 331.9
759.0

$1,090.9

$ 117.6
303.2

$ 420.8

TOTAL

98.7
1,631.0

$1,729.7

$ 909.3
759.0

$1,668.3

$ 349.0
303.2

$ 652.2

NO. OF SHARES
ISSUED (000s)

500
58,200

58,700

8,000
19,100

27,100

3,100
7,200

10,300

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The value of the stock issued for acquisitions is based on

The following table shows the historical results of the

the market price of the Company’s stock at the time of the
closing of the transaction. For those entities accounted for as
purchase transactions, the purchase price of the acquisitions has
been allocated to assets acquired and liabilities assumed based
on estimated fair values.

Details of businesses acquired in transactions accounted

for as purchases were as follows:

2001

2000

1999

Company and True North for the periods prior to the
consummation of the merger:

THREE MONTHS ENDED
MARCH 31, 2001
(UNAUDITED)

YEARS ENDED DECEMBER 31,

2000

1999

Revenue:

IPG
True North

$1,302.2 $5,625.8 $4,977.8
1,439.4
1,556.9

356.0

Revenue, as restated

$1,658.2 $7,182.7 $6,417.2

Consideration for new acquisitions
Less: net assets of new acquisitions

$ 98.7
17.1

$909.3
91.1

$349.0
35.7

Goodwill recorded for new acquisitions

$ 81.6

$818.2

$313.3

Net income (loss):

IPG, as previously reported
True North,

$ (38.3) $ 358.7 $ 331.3

Cash paid for new acquisitions
Deferred cash payments,
prior acquisitions

Less: cash acquired

$ 84.7

$577.4

$231.4

228.9
3.0

158.1
65.4

149.5
62.3

Net cash paid for acquisitions

$310.6

$ 670.1

$318.6

2001 ACQUISITIONS

PURCHASES
The results of operations of the acquired companies, which
included Transworld Marketing Corporation and DeVries
Public Relations, were included in the consolidated results of
the Company from their respective acquisition dates, which
were generally in the middle of the year. None of the acquisi-
tions made in 2001 was signiﬁcant on an individual basis.

ACQUISITION OF TRUE NORTH
On June 22, 2001, the Company acquired True North
Communications Inc. (“True North”), a global provider of
advertising and communication services, in a transaction
accounted for as a pooling of interests. Approximately 58.2
million shares were issued in connection with the acquisition,
which, based on the market price of the Company’s stock at the
date of closing, yielded a value of approximately $1,631. No
adjustments were necessary to conform accounting policies
of the entities.

The Company’s consolidated ﬁnancial statements, includ-
ing the related notes, have been restated as of the earliest period
presented to include the results of operations, ﬁnancial position
and cash ﬂows of True North.

as previously reported

9.5

61.6

28.1

Net income (loss), as restated

$ (28.8) $ 420.3 $ 359.4

2000 ACQUISITIONS

PURCHASES
The companies acquired in transactions accounted for as purchases
included Capita Technologies, Nationwide Advertising Services,
Waylon, MWW and certain assets of Caribiner International. The
results of operations of the acquired companies were included in
the consolidated results of the Company from their respective
acquisition dates, which occurred throughout the year. None of the
acquisitions was signiﬁcant on an individual basis.

POOLINGS
In April 2000, the Company acquired NFO Worldwide, Inc.
(“NFO”), a leading provider of research-based marketing
information and counsel, in a transaction accounted for as a
pooling of interests. Approximately 12.6 million shares were
issued to acquire NFO. In November 2000, the Company
acquired Deutsch, Inc. and its afﬁliate companies (“Deutsch”), a
full service advertising agency, in a transaction accounted for as
a pooling of interests. Approximately 6 million shares were
issued to acquire Deutsch. No adjustments were necessary to
conform accounting policies of the entities. The Company’s
consolidated ﬁnancial statements have been restated as of the
earliest period presented to include the results of operations,
ﬁnancial position and cash ﬂows of NFO, Deutsch and the
other immaterial acquisition (for which 0.5 million shares were
issued) accounted for as poolings of interests.

Revenue and net income for NFO for the quarter ended
March 31, 2000 were $106.0 and $.2 and for the year 1999 were
$457.2 and a loss of $6.2, respectively. Revenue and net income
for Deutsch for the three quarters ended September 30, 2000
were $88.1 and $19.5 and for the year 1999 were $84.9 and
$16.0, respectively.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 39

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The following table shows the historical results of the
Company, NFO and Deutsch for the year ended December
31, 1999:

Year Ended December 31, 1999

Revenue:
IPG
NFO
Deutsch
Other

Revenue, as restated

Net income (loss):
IPG, as previously reported
NFO, as previously reported
Deutsch, as previously reported
Other, as previously reported

Net income, as restated

$4,427.3
457.2
84.9
8.4

$4,977.8

$ 321.9
(6.2)
16.0
(.4)

$ 331.3

In connection with the acquisition of Deutsch in 2000

and based on the taxable structure of the transaction, a deferred
tax asset of approximately $110 and a current tax liability of
$15 were recorded with corresponding adjustments to additional
paid in capital. In connection with the acquisition of Deutsch,
the Company recognized a charge related to one-time transaction
costs of $44.7. The principal component of this amount related
to the expense associated with various equity participation
agreements with certain members of management. These
agreements provided for participants to receive a portion of the
proceeds in the event of the sale or merger of Deutsch.

Prior to its acquisition by the Company, Deutsch elected
to be treated as an “S” Corporation under applicable sections
of the Internal Revenue Code as well as for state income tax
purposes. Accordingly, income tax expense was lower than
would have been the case had Deutsch been treated as a
“C” Corporation. Deutsch became a “C” Corporation upon its
acquisition by the Company. On a pro forma basis, assuming
“C” Corporation status, net income for Deutsch and the Company
would have been lower by $10.7 in 2000 and $6.5 in 1999.
The following unaudited pro forma data summarize
the results of operations for the periods indicated as if the 2000
and 2001 purchase acquisitions had been completed as of
January 1, 2000.

For the year ended December 31, 2001

Revenue
Net loss
Loss per share:

Basic
Diluted

IPG
(AS REPORTED)

$6,726.8
$ (505.3)

$
(1.37)
$ (1.37)

PRE-ACQUISITION
RESULTS
(UNAUDITED)

PRO FORMA IPG
WITH 2001
ACQUISITIONS
(UNAUDITED)

$46.1
$ (1.3)

$6,772.9
$ (506.6)

$ (1.37)
$ (1.37)

For the year ended December 31, 2000

Revenue
Net income
Earnings per share:
Basic
Diluted

IPG
(AS REPORTED)

$7,182.7
$ 420.3

$
$

1.17
1.14

PRE-ACQUISITION
RESULTS
(UNAUDITED)

PRO FORMA IPG
WITH 2000 AND
2001 ACQUISITIONS
(UNAUDITED)

$376.5
$ 22.3

$7,559.2
$ 442.6

$
$

1.23
1.20

The pro forma data give effect to actual operating results

prior to the acquisition, adjusted to include the estimated pro
forma effect of interest expense, amortization of intangibles and
income taxes. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained
if the acquisitions occurred as of the beginning of the periods
presented or that may be obtained in the future.

1999 ACQUISITIONS

PURCHASES
The companies acquired in transactions accounted for as
purchases included The Cassidy Companies, Spedic France,
Mullen Advertising and PDP Promotions UK. None of the
acquisitions was signiﬁcant on an individual basis.

POOLINGS
On December 1, 1999, the Company acquired Brands Hatch
Leisure Plc., a UK-based international motorsports circuit and
venue management company, for 5.2 million shares of stock.
The acquisition has been accounted for as a pooling of interests.
Additionally, during 1999 the Company issued 2 million shares
to acquire 4 other companies, including public relations and
media buying companies, which have been accounted for as
poolings of interests.

OTHER

DEFERRED PAYMENTS
Certain of the Company’s acquisition agreements provide for
deferred payments by the Company, contingent upon future
revenues or proﬁts of the companies acquired. Deferred payments
of both cash and shares of the Company’s common stock for
prior years’ acquisitions were $277.1, $221.3 and $230.4 in
2001, 2000 and 1999, respectively. Such payments are capitalized
and recorded as goodwill.

DISPOSITIONS
During 2001, the Company disposed of 22 operations through
either sale or closure. The operating results of the entities disposed
of were not material to the operating results of the Company.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 4: RESTRUCTURING AND OTHER MERGER RELATED COSTS

Lease termination costs, net of estimated sublease income,

In connection with the operational initiatives, the Company

executed a wide-ranging restructuring plan that included
severance, lease terminations and other actions. The total
amount of the charges incurred in connection with the plan
was $645.6 ($446.5, net of tax), of which $592.8 was recorded in
the third quarter with the remainder having been recorded
through the end of the second quarter.

A summary of the components of the total restructuring
and other merger related costs in 2001, together with an analysis
of the cash and non-cash elements, is as follows:

TOTAL
RECORDED

CASH PAID
IN 2001

NON-CASH
ITEMS

LIABILITY AT
DECEMBER 31,
2001

TOTAL BY TYPE

Severance and

termination costs

$297.5

$143.5

–

$154.0

Lease termination and
other exit costs

Transaction costs
Total

310.9
37.2
$645.6

55.2
31.5
$230.2

98.6
5.7
$104.3

157.1
–
$311.1

The severance and termination costs related to approxi-
mately 6,800 employees who have been, or will be, terminated.
As of December 31, 2001, approximately 5,200 of those identiﬁed
had been terminated. The remaining employees are expected to
be terminated by the middle of the year 2002. A signiﬁcant
portion of severance liabilities are expected to be paid out over
a period of up to one year. The employee groups affected
included all levels and functions across the Company: executive,
regional and account management, administrative, creative and
media production personnel. Approximately half of the 6,800
headcount reductions related to the U.S., one third related to
Europe (principally the UK, France and Germany), with the
remainder related to Latin America and Asia Paciﬁc.

relate to the ofﬁces that have been or will be vacated as part of
the restructuring. The Company plans to downsize or vacate
approximately 180 locations and expects that all leases will have
been terminated or subleased by the middle of the year 2002;
however, the cash portion of the charge will be paid out over a
period of up to ﬁve years. The geographical distribution of
ofﬁces to be vacated is similar to the geographical distribution
of the severance charges. Lease termination and related costs
include write-offs related to the abandonment of leasehold
improvements as part of the ofﬁce vacancies.

Other exit costs relate principally to the impairment loss

The transaction costs relate to the direct costs incurred in

connection with the True North acquisition and included
investment banker and other professional services fees.

LOWE & PARTNERS
In October 1999, the Company announced the merger of two
of its advertising networks. The networks affected, Lowe &
Partners Worldwide and Ammirati Puris Lintas, were combined
to form a new agency. The merger involved the consolidation of
operations in agencies in approximately 24 cities in 22 countries
around the world and the severance of approximately 600
employees. As of September 30, 2000, all restructuring activities
had been completed.

In connection with this restructuring, costs of $84.1
($51.4, net of tax) were recorded in 1999 and $87.8 ($53.6, net
of tax) in 2000. Of the totals, $75.6 related to severance, $50.2
related to lease related costs and the remainder related principally
to investment write-offs. No adjustment to the Company’s
statement of operations was required as a result of the completion
of the restructuring plan.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 41

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

BOZELL AND FCB WORLDWIDE
In September 1999, the Company announced a formal plan to
restructure its Bozell and FCB Worldwide agency operations and
recorded a $75.4 charge ($49.6, net of tax) in the third quarter of
1999. The charge covered primarily severance ($41.4) and lease
termination and other exit costs ($24.2) in connection with the
combination and integration of the two worldwide advertising
agency networks. Approximately 640 individuals were terminated
as part of the plan. Bozell Worldwide’s international operations,
along with Bozell Detroit and Bozell Costa Mesa, were merged
with FCB Worldwide and now operate under the FCB Worldwide
name. The restructuring initiatives also included the impairment
loss on the sale or closing of certain underperforming business
units. The activities had been completed by December 31, 2000.

NOTE 5: GOODWILL IMPAIRMENT AND OTHER OPERATING CHARGES

GOODWILL IMPAIRMENT AND OTHER CHARGES
Following the completion of the True North acquisition and
the realignment of certain of the Company’s businesses, the
Company evaluated the realizability of various assets. In
connection with this review, undiscounted cash ﬂow projections
were prepared for certain investments, and the Company
determined that the goodwill attributable to certain business
units was stated at an amount in excess of the future estimated
cashﬂows. As a result, an impairment charge of $303.1 ($263.4,
net of tax) was recorded in 2001. Of the total write-off, $221.4
was recorded in the second quarter, with the remainder recorded
in the third quarter. The largest components of the goodwill
impairment and other charges were Capita Technologies, Inc.
(approximately $145) and Zentropy Partners (approximately
$16), both internet services businesses. The remaining amount
primarily related to several other businesses including internet
services, healthcare consulting and certain advertising ofﬁces
in Europe and Asia Paciﬁc.

OPERATING EXPENSES
Included in ofﬁce and general expenses in 2001 are charges
of $85.4 ($49.5, net of tax) relating primarily to operating
assets, which are no longer considered realizable. Additionally,
a beneﬁt of $50.0 ($29.0, net of tax) resulting from a reduction
in severance reserves related to recent signiﬁcant headcount
reductions is included in salaries and related expenses.

LOSS OF CHRYSLER ACCOUNT
In September 2000, Chrysler, one of True North’s larger
accounts, announced that it was undertaking a review of its two
advertising agencies to reduce the costs of its global advertising
and media. On November 3, 2000, True North was informed
that it was not selected as the agency of record. In December
2000, True North terminated its existing contract with Chrysler
and entered into a transition agreement effective January 1, 2001.
As a result of the loss of the Chrysler account, the Company

recorded a charge of $17.5 pre-tax ($10.0, net of tax) in the
fourth quarter of 2000. The charge covered primarily severance,
lease termination and other exit costs associated with the
decision to close the Detroit ofﬁce. The severance portion of
the charge amounted to $5.8 and reﬂected the elimination of
approximately 250 positions. The charge also included $11.4
associated primarily with the lease termination of the Detroit
ofﬁce, as well as other exit costs. In addition, an impairment loss
of $5.5 was recorded for intangible assets that were determined
to be no longer recoverable. Offsetting these charges was a
$5.2 payment from Chrysler to compensate the Company for
severance and other exit costs. As of December 31, 2001, all
actions had been completed. No adjustment to the Company’s
statement of operations was required as a result of the completion
of these actions.

ACQUISITION OF DEUTSCH
In connection with the acquisition of Deutsch in 2000, the
Company recognized a charge related to one-time transaction
costs of $44.7 ($41.7, net of tax). The principal component of
this amount related to the expense associated with various equity
participation agreements with certain members of management.
These agreements provided for participants to receive a portion
of the proceeds in the event of the sale or merger of Deutsch.

NFO AND OTHER
In addition to the above 2000 activities, additional charges,
substantially all of which were cash costs, were recorded during
2000 related principally to the transaction and other merger
related costs arising from the acquisition of NFO.

Also included in 2000 were excess restructuring reserves

of $0.6 related to the 1999 restructuring of Bozell and FCB
Worldwide. This excess was reversed into income in the Company’s
statement of operations during 2000.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 6: OTHER INCOME (EXPENSE)

NOTE 7: PROVISION FOR INCOME TAXES

INVESTMENT IMPAIRMENT
During 2001 the Company recorded total charges related to the
impairment of investments of $208.3 ($134.1, net of tax). Of
the total amount, $160.1 ($103.7, net of tax) was recorded in
the ﬁrst quarter, with the remainder recorded in the third
quarter. The charge in the ﬁrst quarter related to the impairment
of investments primarily in publicly traded internet-related
companies, including marchFIRST, Inc. (an internet professional
services ﬁrm), which had ﬁled for relief under Chapter 11 of the
Federal Bankruptcy Code in April 2001. The third quarter charge
includes write-offs for non-internet investments, certain venture
funds and other investments. The impairment charge adjusted
the carrying value of investments to the estimated market value
where an other than temporary impairment has occurred.

The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 (“SFAS 109”),
“Accounting for Income Taxes”. SFAS 109 applies an asset and
liability approach that requires the recognition of deferred
tax assets and liabilities with respect to the expected future tax
consequences of events that have been recognized in the
consolidated ﬁnancial statements and tax returns.

The components of income (loss) before provision for

(beneﬁt of) income taxes are as follows:

Year ended December 31,

2001

2000

1999

Domestic
Foreign

$(470.0)
(54.3)

$501.6
324.9

$440.9
231.0

Total

$(524.3)

$826.5

$671.9

OTHER INCOME
The following table sets forth the components of other income:

The provision for (beneﬁt of) income taxes consists of:

December 31

2001

2000

1999

December 31

2001

2000

1999

Gains on sales of business
Gains (losses) on sales of

available-for-sale securities

Investment income and miscellaneous

$12.3

$16.5

$14.5

(2.5)
3.9

28.5
1.2

45.3
6.0

$13.7

$46.2

$65.8

During 2001, the Company sold a marketing services
afﬁliate in Europe for approximately $5 and some non-core
marketing services afﬁliates in the U.S. for approximately $6.9.
During 2000, the Company sold its interest in a non-core

minority owned marketing services business for proceeds of
approximately $12.

Federal Income Taxes
(Including Foreign Withholding Taxes):

Current
Deferred

State and Local Income Taxes:

Current
Deferred

Foreign Income Taxes:
Current
Deferred

$ 49.6
(144.4)

$168.8
2.9

$117.9
25.1

(94.8)

171.7

143.0

3.9
(36.9)

(33.0)

48.4
(2.8)

45.6

32.3
4.3

36.6

93.8
(9.9)

83.9

151.8
(20.3)

131.5

120.5
(14.8)

105.7

Total

$ (43.9)

$348.8

$285.3

At December 31, 2001 and 2000 the deferred tax assets

consisted of the following items:

December 31,

2001

2000

Postretirement/postemployment beneﬁts
Deferred compensation
Pension costs
Depreciation
Rent
Interest
Accrued reserves
Allowance for doubtful accounts
Goodwill amortization
Investments in equity securities
Tax loss/tax credit carryforwards
Restructuring and other merger related costs
Other

Total deferred tax assets
Valuation allowance

Net deferred tax assets

$ 59.6
112.5
21.3
(11.0)
(9.6)
3.5
12.2
16.8
83.9
33.7
74.2
220.3
(2.8)

614.6
(41.8)

$ 55.2
98.6
25.2
(11.7)
(10.5)
1.7
20.6
13.8
98.1
32.9
54.1
26.1
1.8

405.9
(25.6)

$572.8

$380.3

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 43

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The valuation allowance of $41.8 and $25.6 at December

31, 2001 and 2000, respectively, represents a provision for
uncertainty as to the realization of certain deferred tax assets,
including U.S. tax credits and net operating loss carryforwards
in certain jurisdictions. The change during 2001 in the deferred
tax valuation allowance primarily relates to uncertainties
regarding the utilization of tax credits and net operating loss
carryforwards. At December 31, 2001, there were $31.0 of tax
credit carryforwards with expiration periods through 2006 and
net operating loss carryforwards with a tax effect of $43.2 with
various expiration periods. The Company has concluded that,
based upon expected future results, it is more likely than not
that the net deferred tax asset balance will be realized.

A reconciliation of the effective income tax rate as shown
in the consolidated statement of income to the federal statutory
rate is as follows:

Year Ended December 31,

2001

2000

1999

Statutory federal income tax rate
State and local income taxes, net of

federal income tax beneﬁt

Impact of foreign operations,

including withholding taxes
Goodwill and intangible asset amortization
Effect of pooled companies
Effect of non-recurring items:

Goodwill impairment
Restructuring and other merger

related costs

Investment impairment

Other

Effective tax rate

(35.0)% 35.0%

35.0%

3.1

2.5
6.5

–

3.5

2.8

(0.7)
3.4
1.7

0.9
3.6
2.2

12.6

–

5.1
(0.2)
(3.0)

1.1
–
(1.8)

(0.4)
–
(1.6)

(8.4)%

42.2%

42.5%

As described in Note 3, prior to its acquisition by the
Company, Deutsch had elected to be treated as an “S” Corporation
and accordingly, its income tax expense was lower than it would
have been had Deutsch been treated as a “C” Corporation.
Deutsch became a “C” Corporation upon its acquisition by the
Company. Assuming Deutsch had been a “C” Corporation since
1999, the Company’s effective tax rate would have been 43.5%
and 43.4% for 2000 and 1999, respectively.

The total amount of undistributed earnings of foreign

subsidiaries for income tax purposes was approximately $847.7
at December 31, 2001. It is the Company’s intention to reinvest
undistributed earnings of its foreign subsidiaries and thereby
indeﬁnitely postpone their remittance. Accordingly, no provision

has been made for foreign withholding taxes or United States
income taxes which may become payable if undistributed
earnings of foreign subsidiaries were paid as dividends to the
Company. The additional taxes on that portion of undistributed
earnings which is available for dividends are not practicably
determinable.

NOTE 8: SHORT-TERM BORROWINGS

The Company and its subsidiaries have lines of credit with
various banks that permit borrowings at variable interest rates.
At December 31, 2001 and 2000, borrowings in the United
States under these facilities totaled $87.2 and $117.8, respectively.
Borrowings by subsidiaries outside the United States at December
31, 2001 and 2000 totaled $231.3 and $365.9, respectively. These
international borrowings principally consist of drawings against
uncommitted bank facilities. These credit lines are primarily
provided by key relationship banks, which also participate in
our committed facilities. Where required, the Company has
guaranteed the repayment of these borrowings. Short-term
unused lines of credit by the Company and its subsidiaries at
December 31, 2001 and 2000 aggregated approximately $1,000
and $1,200, respectively. The weighted-average interest rates
on outstanding balances at December 31, 2001 and 2000 were
approximately 4.2% and 6.6%, respectively.

CREDIT AGREEMENTS
On June 26, 2001, the Company replaced its maturing $375.0,
364-day syndicated revolving multi-currency credit agreement
with a substantially similar $500.0 facility. The facility bears
interest at variable rates based on either LIBOR or a bank’s base
rate, at the Company’s option. As of December 31, 2001, there
were no outstanding balances under this facility. Prior to June
25, 2002, the Company may, at its option, borrow the full
amount of the facility for a one-year term.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 9: LONG-TERM DEBT

Long-term debt at December 31 consisted of the following:

Convertible Subordinated Notes — 1.80%
Convertible Subordinated Notes — 1.87%
Zero-Coupon Convertible Notes
Senior Unsecured Note — 7.875%
Senior Unsecured Note — 7.25%
Syndicated Multi-Currency Credit

2001

2000

$ 228.5 $ 221.2
311.9
–
500.0
–

320.0
575.3
500.0
500.0

Agreement — 3.05% (7.0% in 2000)

144.1

160.0

Term Loans — 6.05% to 8.01%

(5.03% to 7.91% in 2000)
Germany Mortgage Note Payable — 7.6%
Other Mortgage Notes Payable and

203.9
22.7

307.7
24.5

Long-Term Loans — 2.30% to 17.27%

20.7

72.0

Less: Current Portion

Long-Term Debt

2,515.2
34.6

1,597.3
65.5

$2,480.6 $1,531.8

The Zero-Coupon Notes may also be converted, regardless

The Company, at the investor’s option, may be required to
redeem the Zero-Coupon Notes for cash on December 14, 2003.
The Company may also be required to redeem the Zero-Coupon
Notes at the investor’s option, on December 14, 2004, 2005,
2006, 2011 or 2016 for cash or common stock or a combination
of both, at the Company’s election. Additionally, the Company
has the option of redeeming the Zero-Coupon Notes after
December 14, 2006 for cash.

The yield to maturity of the Zero-Coupon Notes at the

SENIOR UNSECURED NOTES — 7.875%
On October 20, 2000, the Company completed the issuance and
sale of $500.0 principal amount of senior unsecured notes due
2005. The notes bear an interest rate of 7.875% per annum. The
Company used the net proceeds of approximately $496 from the
sale of the notes to repay outstanding indebtedness under its
credit facilities.

During 2001, the Company entered into interest rate swap

agreements to convert the ﬁxed interest rate on the 7.875%
notes to a variable rate based on 6 month LIBOR. At December
31, 2001, the Company had outstanding interest rate swap
agreements covering $400.0 of the $500.0, 7.875% notes due
October 2005. The swaps have the same term as the 7.875%
notes and, for 2001, had the effect of reducing the effective
interest rate on the notes to 6.972%.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 45

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

CREDIT AGREEMENTS
In July 2001, the Company entered into a credit agreement with
a group of lenders. The credit agreement provided for revolving
borrowings of up to $750.0. No borrowings were drawn under
this facility and the facility terminated upon the issuance and sale
of the $500.0 Senior Notes on August 22, 2001.

agreements). At December 31, 2001, the Company was in
compliance with all of its ﬁnancial covenants, with the most
restrictive being that of cash ﬂow to borrowed funds, the ratio
of which is required to exceed .25 to 1. During 2001, as a result
of the signiﬁcant non-recurring charges, the Company required
and received amendments related to its ﬁnancial covenants.

In June 2000, the Company entered into a ﬁve-year

syndicated revolving multi-currency credit agreement with a
group of lenders. The credit agreement provides for borrowings
of up to $375.0 which bear interest at variable rate based on
LIBOR or a bank’s base rate, at the Company’s option. At
December 31, 2001, there was approximately $144.1 borrowed
under this facility.

CONVERTIBLE SUBORDINATED NOTES — 1.87%
On June 1, 1999, the Company issued $361.0 face amount of
Convertible Subordinated Notes due 2006 with a cash coupon
rate of 1.87% and a yield to maturity of 4.75%. The 2006 notes
were issued at an original price of 83% of the face amount,
generating proceeds of approximately $300. The notes are
convertible into 6.4 million shares of the Company’s common
stock at a conversion rate of 17.616 shares per one thousand
dollars face amount. From June 2002, the Company may
redeem the notes for cash.

CONVERTIBLE SUBORDINATED NOTES — 1.80%
On September 16, 1997, the Company issued $250.0 face amount
of Convertible Subordinated Notes due 2004 with a coupon
rate of 1.80% and a yield to maturity of 5.25%. The 2004 Notes
were issued at an original price of 80% of the face amount,
generating proceeds of approximately $200. The notes are
convertible into 6.7 million shares of the Company’s common
stock at a conversion rate of 26.772 shares per one thousand
dollars face amount. Since September 2000, the Company has
had the option to redeem the notes for cash.

OTHER
The Company’s bank-provided revolving credit agreements
include ﬁnancial covenants that set maximum levels of debt as a
function of EBITDA and minimum levels of EBITDA as a
function of interest expense (as deﬁned in these agreements).
The ﬁnancial covenants contained in the Company’s term loan
agreements set minimum levels for net worth and for cash
ﬂow as a function of borrowed funds and maximum levels of
borrowed funds as a function of net worth (as deﬁned in these

Long-term debt maturing over the next ﬁve years and
thereafter is as follows: 2002-$34.6, 2003-$52.6, 2004-$266.3,
2005-$507.6, 2006-$461.6 and $1,192.5 thereafter.

See Note 14 for discussion of fair market value of the

Company’s long-term debt.

NOTE 10: INCENTIVE PLANS

The 1997 Performance Incentive Plan (“1997 PIP Plan”) was
approved by the Company’s stockholders in May 1997 and
includes both stock and cash based incentive awards. The
maximum number of shares of the Company’s common stock
which may be granted in any year under the 1997 PIP Plan is
equal to 1.85% of the total number of shares of the Company’s
common stock outstanding on the ﬁrst day of the year adjusted
for additional shares as deﬁned in the 1997 PIP Plan document
(excluding management incentive compensation performance
awards). The 1997 PIP Plan also limits the number of shares
available with respect to awards made to any one participant as
well as limiting the number of shares available under certain
awards. Awards made prior to the 1997 PIP Plan remain subject
to the respective terms and conditions of the predecessor
plans. Except as otherwise noted, awards under the 1997 PIP
Plan have terms similar to awards made under the respective
predecessor plans.

STOCK OPTIONS
Stock options are generally granted at the fair market value of
the Company’s common stock on the date of grant and are
exercisable as determined by the Compensation Committee of
the Board of Directors (the “Committee”). Generally, options
become exercisable between two and ﬁve years after the date of
grant and expire ten years from the grant date.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

Following is a summary of stock option transactions during the three-year period ended December 31:

Shares under option, beginning of year
Options granted
Options exercised
Options cancelled

Shares under option, end of year

Options exercisable at year-end

2001

WEIGHTED
AVERAGE
EXERCISE PRICE

$25
$36
$15
$33

$29

$22

SHARES
(000s)

34,939
10,048
(5,228)
(1,445)

38,314

20,166

SHARES
(000s)

34,665
6,381
(3,657)
(2,450)

34,939

12,008

2000

WEIGHTED
AVERAGE
EXERCISE PRICE

$22
$38
$15
$28

$25

$15

1999

WEIGHTED
AVERAGE
EXERCISE PRICE

$18
$33
$12
$23

$22

$14

SHARES
(000s)

37,401
6,774
(6,485)
(3,025)

34,665

11,647

The following table summarizes information about stock options outstanding and exercisable at December 31, 2001:

RANGE OF EXERCISE PRICES

$ 3.31 to $ 9.99
$10.00 to $14.99
$15.00 to $24.99
$25.00 to $60.00

NUMBER OF SHARES
(000s) OUTSTANDING
AT 12/31/01

WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE

WEIGHTED-AVERAGE
EXERCISE PRICE

NUMBER OF SHARES
(000s) EXERCISABLE
AT 12/31/01

WEIGHTED-AVERAGE
EXERCISE PRICE

1,302
2,110
10,583
24,319

1.56
2.93
5.55
8.17

$ 7.10
$11.22
$18.95
$36.46

1,302
2,100

10,032
6,732

$ 7.10
$11.22
$18.87
$33.24

EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan (“ESPP”), employees
may purchase common stock of the Company through payroll
deductions not exceeding 10% of their compensation. The price
an employee pays for a share of stock is 85% of the market
price on the last business day of the month. The Company
issued approximately eight hundred thousand shares in 2001,
six hundred thousand shares in 2000 and ﬁve hundred thousand
shares in 1999, under the ESPP. An additional 14.1 million shares
were reserved for issuance at December 31, 2001.

SFAS 123 DISCLOSURES
The Company applies the disclosure principles of Statement
of Financial Accounting Standards No. 123 (“SFAS 123”),
“Accounting for Stock-Based Compensation”. As permitted by
the provisions of SFAS 123, the Company applies APB Opinion
25, “Accounting for Stock Issued to Employees”, and related
interpretations in accounting for its stock-based employee
compensation plans.

If compensation cost for the Company’s stock option plans
and its ESPP had been determined based on the fair value at the
grant dates as deﬁned by SFAS 123, the Company’s pro forma
net income (loss) and earnings (loss) per share would have
been as follows:

2001

2000

1999

Net income (loss)

As reported
Pro forma

$(505.3)
$(573.9)

$420.3
$382.9

$359.4
$325.3

Earnings (loss) per share

Basic

Diluted

As reported
Pro forma
As reported
Pro forma

$ (1.37)
$ (1.56)
$ (1.37)
$ (1.56)

$ 1.17
$ 1.06
$ 1.14
$ 1.03

$ 1.02
$ 0.92
$ 0.99
$ 0.89

For purposes of this pro forma information, the fair value
of shares issued under the ESPP was based on the 15% discount
received by employees. The weighted-average fair value (discount)
on the date of purchase for stock purchased under this plan was
$4.50, $6.17 and $5.28 in 2001, 2000 and 1999, respectively.

The weighted-average fair value of options granted during
2001, 2000 and 1999 was $12.55, $14.86 and $12.94, respectively.
The fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option-pricing model with
the following assumptions:

Expected option lives
Risk free interest rate
Expected volatility
Dividend yield

2001

2000

1999

6 years

4.89%
30.35%
1.19%

6.15%

5.72%
25.86% 19.73%
.81%

.89%

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 47

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

As required by SFAS 123, this pro forma information is
based on stock awards beginning in 1995, and accordingly, the
pro forma information for 1999 is not likely to be representative
of the pro forma effects in future years because options generally
vest over ﬁve years.

RESTRICTED STOCK
Restricted stock issuances are subject to certain restrictions and
vesting requirements as determined by the Compensation
Committee of the Board of Directors. The vesting period is
generally ﬁve to seven years. No monetary consideration is paid
by a recipient for a restricted stock award and the grant date fair
value of these shares is amortized over the restriction periods.
At December 31, 2001, there was a total of 6.3 million shares of
restricted stock outstanding. During 2001, 2000 and 1999, the
Company awarded 1.5 million shares, 2.4 million shares and 1.2
million shares of restricted stock with a weighted-average grant
date fair value of $32.09, $42.13 and $35.84, respectively. The
cost recorded for restricted stock awards in 2001, 2000 and 1999
was $48.4, $40.3 and $27.7, respectively.

PERFORMANCE UNITS
Performance units have been awarded to certain key employees
of the Company and its subsidiaries. The ultimate value of
these performance units is contingent upon the annual growth
in proﬁts (as deﬁned) of the Company, its operating components
or both, over the performance periods. The awards are generally
paid in cash. The projected value of these units is accrued by
the Company and charged to expense over the performance
period. The Company expensed approximately $45, $40 and
$42 in 2001, 2000 and 1999, respectively.

NOTE 11: RETIREMENT PLANS

DEFINED BENEFIT PENSION PLANS
Through March 31, 1998 the Company and certain of its
domestic subsidiaries had a deﬁned beneﬁt plan (“Domestic
Plan”) which covered substantially all regular domestic employees.
Effective April 1, 1998, this Plan was curtailed and participants
with ﬁve or less years of service became fully vested in the
Domestic Plan. Participants with ﬁve or more years of service as
of March 31, 1998 retain their vested balances and participate
in a new beneﬁt plan.

Under the new plan, each participant’s account is credited

with an annual allocation, which approximates the projected
discounted pension beneﬁt accrual (normally made under the
Domestic Plan) plus interest, while they continue to work for the
Company. Participants in active service are eligible to receive up
to ten years of allocations coinciding with the number of years
of plan participation with the Company after March 31, 1998.

Net periodic pension costs (income) for the Domestic Plan

for 2001, 2000 and 1999 were $1.6, ($.9) and $1.3, respectively.

Additionally, NFO maintains a deﬁned beneﬁt plan (“NFO
Plan”) covering approximately one half of NFO’s U.S. employees.
The periodic pension costs for this plan for 2001, 2000 and 1999
were $0.6, $0.5 and $0.8, respectively.

The Company’s stockholders’ equity balance includes a

minimum pension liability of $24.0, $18.6 and $18.6 at
December 31, 2001, 2000 and 1999, respectively.

The Company also has several foreign pension plans in

which beneﬁts are based primarily on years of service and
employee compensation. It is the Company’s policy to fund these
plans in accordance with local laws and income tax regulations.
Net periodic pension costs for foreign pension plans for

2001, 2000 and 1999 included the following components:

Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized

transition obligation
Amortization of prior service cost
Recognized actuarial loss (gain)

2001

2000

1999

$ 10.4
11.7
(10.7)

$ 9.5
11.6
(12.0)

$ 9.6
11.8
(9.4)

1.3
.6
(.6)

.5
.7
(.3)

.4
.8
.5

Net periodic pension cost

$ 12.7

$ 10.0

$13.7

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The following table sets forth the change in the beneﬁt obligation, the change in plan assets, the funded status and amounts

recognized for the pension plans in the Company’s consolidated balance sheet at December 31, 2001 and 2000:

DOMESTIC PENSION PLANS

FOREIGN PENSION PLANS

2001

2000

2001

2000

Change in beneﬁt obligation
Beginning obligation
Service cost
Interest cost
Beneﬁts paid
Participant contributions
Actuarial (gains) losses
Currency effect
Other

Ending obligation

Change in plan assets

Beginning fair value
Actual return on plan assets
Employer contributions
Participant contributions
Beneﬁts paid
Currency effect
Other

Ending fair value

Funded status of the plans
Unrecognized net actuarial loss
Unrecognized prior service cost
Unrecognized transition cost

Net asset (liability) recognized

$153.8
.7
10.4
(13.9)
–
(3.6)
–
.1

147.5

132.5
(6.2)
.4
–
(13.9)
–
–

112.8

(34.7)
45.0
.1
–

$151.9
.7
10.5
(14.7)
–
5.4
–
–

153.8

135.5
2.5
9.2
–
(14.7)
–
–

132.5

(21.3)
33.5
–
–

$231.7
10.4
11.7
(16.6)
2.3
(15.7)
(15.1)
.2

208.9

183.8
(18.0)
7.8
2.3
(16.6)
(14.7)
4.1

148.7

(60.2)
14.3
.8
1.9

$226.5
9.5
11.6
(10.9)
1.6
8.0
(14.9)
.3

231.7

192.7
(2.3)
8.3
1.6
(10.9)
(5.8)
.2

183.8

(47.9)
5.4
1.3
2.7

$ 10.4

$ 12.2

$ (43.2)

$ (38.5)

At December 31, 2001 and 2000, the assets of the
Domestic Plans and the foreign pension plans were primarily
invested in ﬁxed income and equity securities.

For the Domestic Plans, discount rates of 7.25% in 2001,

7.5% in 2000 and 7.75% in 1999 and salary increase assump-
tions of 3.5% in 2001 and 4.5% in 2000 and 1999 (for the NFO
Plan) were used in determining the actuarial present value of
the projected beneﬁt obligation. The expected return of
Domestic Plans assets was 9% to 9.5% in 2001, 2000 and 1999.
For the foreign pension plans, discount rates ranging from 3%
to 10% in 2001, 3.8% to 10% in 2000 and 3.75% to 14% in
1999 and salary increase assumptions ranging from 1% to 10%
in 2001, 2.5% to 10% in 2000 and 3% to 10% in 1999 were
used in determining the actuarial present value of the projected
beneﬁt obligation. The expected rates of return on the assets of
the foreign pension plans ranged from 2% to 10% in 2001 and
2000 and 2% to 14% in 1999.

As of December 31, 2001, the projected beneﬁt obligation,

accumulated beneﬁt obligation and fair value of plan assets for
the Domestic Plans with accumulated beneﬁt obligation in
excess of plan assets were approximately $147, $146 and $113,

respectively, and as of December 31, 2000, approximately $145,
$145 and $124, respectively. The projected beneﬁt obligation,
accumulated beneﬁt obligation and fair value of plan assets for
the foreign pension plans with accumulated beneﬁt obligations
in excess of plan assets were approximately $69, $66 and $3,
respectively, as of December 31, 2001 and approximately $77,
$72 and $5, respectively, as of December 31, 2000.

OTHER BENEFIT ARRANGEMENTS
The Company sponsors other deﬁned contribution plans
(“Savings Plans”) and certain domestic subsidiaries maintain a
proﬁt sharing plan that cover substantially all domestic employees
of the Company and participating subsidiaries. The Savings
Plans permit participants to make contributions on a pre-tax
and/or after-tax basis. The Savings Plans allow participants to
choose among several investment alternatives. The Company
matches a portion of participants’ contributions based upon the
number of years of service. The Company match is made in cash
and ranges between 2-4% of salary. The Company contributed
$36.7, $34.2 and $27.4 to the Savings Plans and Proﬁt Sharing
Plan in 2001, 2000 and 1999, respectively.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 49

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

The Company has deferred compensation plans which

The following table sets forth the change in beneﬁt

permit certain of its key ofﬁcers and employees to defer a
portion of their salary and incentive compensation and receive
corresponding company matching and discretionary proﬁt
sharing contributions. The Company has purchased whole life
insurance policies on participants’ lives to assist in the funding
of the deferred compensation liability. As of December 31, 2001
and 2000, the cash surrender value of these policies was approx-
imately $105 and $73, respectively. Additionally, certain investments
are maintained in a separate trust for the purpose of paying the
deferred compensation liability. The assets are held on the
balance sheet of the Company but are restricted to the purpose
of paying the deferred compensation liability. As of December
31, 2001 and 2000, the value of such restricted assets was
approximately $91 and $71, respectively.

POSTRETIREMENT BENEFIT PLANS
The Company and its subsidiaries provide certain postretirement
health care beneﬁts for employees who were in the employ of the
Company as of January 1, 1988 and life insurance beneﬁts for
employees who were in the employ of the Company as of
December 1, 1961. The plans cover certain domestic employees
and certain key employees in foreign countries. The Company’s
plan covering postretirement medical beneﬁts is self-insured with
no maximum limit of coverage. However, the Company carries
insurance to cover medical beneﬁts of between $350 thousand
and one million dollars per person per year for retirees pre-65
years of age, for whom the Company is the primary insurer.

The Company accrues the expected cost of postretirement
beneﬁts other than pensions over the period in which the active
employees become eligible for such postretirement beneﬁts.
The net periodic expense for these postretirement beneﬁts for
2001, 2000 and 1999 was $3.7, $3.0 and $3.0, respectively.

obligation, change in plan assets, funded status and amounts
recognized for the Company’s postretirement beneﬁt plans in
the consolidated balance sheet at December 31, 2001 and 2000:

Change in beneﬁt obligation
Beginning obligation
Service cost
Interest cost
Participant contributions
Beneﬁts paid
Plan amendments
Actuarial loss

Ending obligation

Change in plan assets

Beginning fair value
Actual return on plan assets
Employer contributions
Participant contributions
Beneﬁts paid

Ending fair value

Funded status of the plans
Unrecognized net actuarial gain
Unrecognized prior service cost
Unrecognized net transaction obligation (assets)

2001

2000

$ 49.4
.9
3.7
.1
(4.6)
–
3.1

$ 45.8
.5
3.9
.1
(3.9)
(.6)
3.6

52.6

49.4

–
–
4.5
.1
(4.6)

–

(52.6)
(2.9)
(.5)
1.6

–
–
3.8
.1
(3.9)

–

(49.4)
(6.2)
(1.5)
1.9

Net liability recognized

$(54.4)

$(55.2)

Discount rates of 7.25% in 2001, 7.5% to 7.8% in 2000
and 6.8% to 7.75% in 1999 and salary increase assumptions of
3.5% to 6% in 2001, 5% to 6% in 2000 and 4% to 6% in 1999
were used in determining the accumulated postretirement beneﬁt
obligation. A 6.1% to 12% and a 5% to 7.5% increase in the cost
of covered health care beneﬁts were assumed for 2001 and 2000,
respectively. These rates are assumed to decrease incrementally to
approximately 5% to 11% in the years 2002 to 2006 and remain
at that level thereafter. A 1% increase in the health care cost trend
rate would increase the obligation by approximately $3 and the
periodic expense by $0.3. A 1% decrease would decrease the
obligation and expense by similar amounts.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 12: COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) amounts are
reﬂected in the consolidated ﬁnancial statements as follows:

2001

2000

1999

Net income (loss)

$(505.3) $420.3 $359.4

Foreign currency translation adjustment

(89.6)

(91.1)

(100.8)

ADJUSTMENT FOR MINIMUM PENSION LIABILITY:

Adjustment for minimum pension liability

Tax beneﬁt

Adjustment for minimum pension liability

UNREALIZED HOLDING GAIN (LOSS) ON SECURITIES:

Unrealized holding gains
Tax expense
Unrealized holding losses
Tax beneﬁt

Reclassiﬁcation of unrealized

loss to net earnings
Tax beneﬁt

Reclassiﬁcation of unrealized

gains to net earnings
Tax expense

(9.3)
3.9

(5.4)

–
–

–

18.6
–

18.6

0.5
(0.2)
–
–

9.1
(3.8)
(381.9)
160.4

309.8
(130.1)
(8.4)
3.5

94.8
(39.8)

–
–

FORWARD CONTRACTS

(0.3)
0.1

(13.8)
5.8

(34.7)
14.7

Unrealized holding gain (loss) on securities

55.1

(224.2) 154.8

Comprehensive income (loss)

$(545.2) $105.0 $432.0

As of December 31, accumulated other comprehensive

loss as reﬂected in the Consolidated Balance Sheet is as follows:

2001

2000

1999

Foreign currency translation adjustment
Adjustment for minimum pension liability
Unrealized holding gain (loss) on securities

$(428.1) $(338.5) $(247.4)
(18.6)
169.7

(18.6)
(54.5)

(24.0)
0.6

Accumulated other comprehensive loss

$(451.5) $(411.6) $ (96.3)

NOTE 13: DERIVATIVE AND HEDGING INSTRUMENTS

The Company enters into interest rate swap agreements, forward
foreign currency contracts and maintains certain debt balances
in currencies other than the Company’s functional currency.

notes being reduced to 6.972%. The fair value is estimated
based on quotes from the market makers of these instruments
and represents the estimated amounts that the Company would
expect to receive if these agreements were terminated. These
instruments were executed with institutions the Company
believes to be credit-worthy.

SHORT-TERM
The Company has entered into foreign currency transactions in
which foreign currencies (principally the Euro, Pounds Sterling
and the Japanese Yen) are bought or sold forward. The contracts
were entered into to meet currency requirements arising from
speciﬁc transactions. The changes in value of these forward
contracts were reﬂected in the Company’s consolidated statement
of operations. As of December 31, 2001 the Company had
contracts covering approximately $50 of notional amount of
currency. Substantially all of these contracts expire by the end
of February 2002. As of December 31, 2001, the fair value of the
forwards was a loss of $0.2.

LONG-TERM
In September 2000, the Company acquired a 35.5% interest in
Springer & Jacoby, a German-based advertising group, for total
consideration of $25.9. The consideration consisted of an initial
cash payment of $16.9 and a put option valued at $9.0. Pursuant
to the purchase agreement, two shareholders of Springer &
Jacoby have the right to sell all of their shares (put option) to
the Company in January 2003 at a ﬁxed price of 27.1 million
Euros. The additional shares to be purchased in January 2003
pursuant to the put option represent 15.5% of the outstanding
shares of Springer & Jacoby. The Company has recorded the fair
value of this put option as an $8.3 liability at December 31,
2001. The Company has entered into forward contracts to
purchase 27.1 million Euros in January 2003. The fair value of
the forward contracts was recorded as an asset of $1.0 at
December 31, 2001. Changes in the fair value of the put option
liability and the forward contracts are reﬂected as a component
of the Company’s consolidated statement of operations.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 51

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

OTHER
Under the terms of the offering of Zero-Coupon Convertible
Notes in December 2001 (see Note 9), two embedded derivative
instruments were created. The derivatives are related to: a) the
value of the contingent interest feature (whereby cash interest
may become payable in certain circumstances) and b) the value of
the feature that the debt become convertible upon a reduction in
the credit rating of the Notes. The Company obtained valuations
of the two derivatives at the time of initial issuance of the Notes
and determined that the fair value of the two derivatives was
negligible. At December 31, 2001, the fair value of the two
derivatives was negligible.

NOTE 14: FINANCIAL INSTRUMENTS

Financial assets, which include cash and cash equivalents,
short-term marketable securities and receivables, have carrying
values which approximate fair value. Marketable securities are
deemed to be available-for-sale as deﬁned by SFAS 115 and
accordingly are reported at fair value, with net unrealized gains
and losses reported as a component of the comprehensive income.

The following table summarizes net unrealized holding

gains and losses on marketable securities before taxes at
December 31:

(Dollars in Millions)

2001

2000

1999

Cost

Unrealized:

Gains
Losses

Net unrealized gains (losses)

$68.2

$217.1

$172.3

1.4
–

1.4

1.3
(94.9)

(93.6)

304.3
(12.2)

292.1

Fair market value

$69.6

$123.5

$464.4

Unrealized holding gains (losses), net of tax, were $0.6,

$(54.5) and $169.7 at December 31, 2001, 2000 and 1999,
respectively.

Financial liabilities with carrying values approximating
fair value include accounts payable and accrued expenses, as
well as short-term bank borrowings.

As of December 31, the fair value of the Company’s

signiﬁcant long-term borrowings was as follows:

Convertible Subordinated Notes —1.87%

Convertible Subordinated Notes — 1.80%
Senior Unsecured Note — 7.875%
Senior Unsecured Note — 7.25%
Zero-Coupon Convertible Notes

2001

2000

BOOK VALUE

FAIR VALUE

BOOK VALUE

FAIR VALUE

$320.0

$228.5
$500.0
$500.0
$575.3

$284.7

$235.9
$513.4
$476.7
$593.1

$311.9

$221.2
$500.0
–
$
–
$

$339.0

$293.0
$509.0
–
$
–
$

Effective February 10, 1999, a majority-owned subsidiary
of the Company, Modem Media, Poppe Tyson, Inc. (now known
as Modem Media, Inc.), completed an initial public offering
(IPO) of its common stock. The number of shares issued was
3.0 million, at a price of $16 per share, with net proceeds
totaling $42.0. As a result of the IPO, the Company owned
approximately 48% of Modem Media, down from its 70%
ownership, but controlled approximately 80% of the related
stockholder votes due to the super-majority voting right on its
Class B shares. Modem Media used the proceeds from the IPO
for working capital, capital expenditures and acquisitions. As a
result of this transaction, the Company recorded a $2.6 gain, net
of $2.0 of deferred income taxes, as a credit to stockholders’ equity.
In April 2000, the Company converted all of its shares of

Modem Media Class B common stock into Class A common
stock pursuant to a Stockholders’ Agreement with Modem Media.
As a result, the Company’s voting power was reduced from
approximately 80% to approximately 46%. Accordingly, effective
with the second quarter of 2000, Modem Media is no longer
consolidated in the Company’s ﬁnancial statements and is
accounted for on the equity method.

NOTE 15: GEOGRAPHIC AREAS

Following the acquisition of True North in June 2001, the
Company was reorganized into four global operating groups. The
Company’s global groups are: a) McCann-Erickson WorldGroup
(“McCann”), b) the FCB Group (“FCB”), c) The Partnership
and d) Advanced Marketing Services (“AMS”). Each of the four
groups has its own management structure and reports to senior
management of the Company on the basis of the four groups.
McCann, FCB and The Partnership provide a full complement
of global marketing services including advertising and media
management, marketing communications including direct
marketing, public relations, sales promotion, event marketing,
on-line marketing and healthcare marketing in addition to
specialized marketing services. AMS provides marketing
communication services, primarily public relations, and also
includes NFO WorldGroup (for marketing intelligence services)
and Jack Morton Worldwide (for specialized marketing services
including corporate events, meetings and training/learning).

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

NOTE 16: COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease certain facilities and
equipment. Gross rental expense amounted to approximately
$470.2 for 2001, $433.8 for 2000 and $393.6 for 1999, which
was reduced by sublease income of $29.2 in 2001, $34.7 in 2000
and $33.5 in 1999.

Minimum rental commitments for the rental of ofﬁce

premises and equipment under noncancellable leases, some of
which provide for rental adjustments due to increased property
taxes and operating costs for 2002 and thereafter, are as follows:

PERIOD

2002
2003
2004
2005
2006
2007 and thereafter

AMOUNT

$314.1
$210.4
$189.8
$157.2
$145.6
$535.8

Certain of the Company’s acquisition agreements provide
for deferred payments by the Company, contingent upon future
revenues or proﬁts of the companies acquired. Such contingent
amounts are approximately $550 (including cash and stock)
assuming the full amount due under these acquisition agreements
is paid, however, the Company does not expect to pay the full
amount estimated.

The Company and certain of its subsidiaries are party to

various tax examinations, some of which have resulted in
assessments. The Company intends to vigorously defend any and
all assessments and believes that additional taxes (if any) that
may ultimately result from the settlement of such assessments or
open examinations would not have a material adverse effect on
the consolidated ﬁnancial statements.

The Company is involved in legal and administrative

proceedings of various types. While any litigation contains an
element of uncertainty, the Company believes that the outcome
of such proceedings or claims will not have a material adverse
effect on the Company.

Each of McCann, FCB, The Partnership and AMS
operates with the same business objective which is to provide
clients with a wide variety of services that contribute to the
delivery of a message and to the maintenance or creation of a
brand. The service offerings included in AMS are afﬁliated with
the three other operating groups and provide services to clients
on a seamless and integrated basis. Given the similarity of the
operations, the Company has aggregated the results of the four
groups. The four groups have similar economic characteristics
and, speciﬁcally, are similar in: a) the nature of the services they
provide, b) the manner in which the services are delivered and
c) the type of clients served.

Long-lived assets and revenue are presented below by

major geographic area:

2001

2000

1999

LONG-LIVED ASSETS:

United States

International

United Kingdom
All Other Europe
Asia Paciﬁc
Latin America
Other

Total International

Total Consolidated

REVENUE:

United States

International

United Kingdom
All Other Europe
Asia Paciﬁc
Latin America
Other

Total International

Total Consolidated

$2,772.5

$2,702.9 $2,189.5

610.7
782.0
155.0
116.5
118.0

568.9
850.3
310.8
118.9
133.9

504.9
742.8
297.0
105.6
87.1

1,782.2

1,982.8

1,737.4

$4,554.7

$4,685.7 $3,926.9

$3,805.8

$4,244.2 $3,624.2

679.7
1,161.0
478.9
327.1
274.3

604.9
1,233.6
508.9
333.7
257.4

596.0
1,278.7
415.1
280.0
223.2

2,921.0

2,938.5

2,793.0

$6,726.8

$7,182.7 $6,417.2

Revenue is attributed to geographic areas based on

where the services are performed. Property and equipment is
allocated based upon physical location. Intangible assets, other
assets and investments are allocated based on the location of
the related operation.

The largest client of the Company contributed approxi-

mately 7% in 2001, 6% in 2000 and 6% in 1999 to revenue.
The Company’s second largest client contributed approximately
2% in 2001, 2% in 2000 and 3% in 1999 to revenue.

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 53

Financial Statements

SELECTED FINANCIAL DATA FOR FIVE YEARS

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts and Number of Employees)

OPERATING DATA
Revenue
Operating expenses
Restructuring and other merger related costs
Goodwill impairment and other charges
Special compensation charge
Investment impairment
Interest expense
Provision for (beneﬁt of) income taxes
Net income (loss)

PER SHARE DATA
Basic
Net income (loss)
Weighted-average shares
Diluted
Net income (loss)
Weighted-average shares

FINANCIAL POSITION
Working capital
Total assets
Total long-term debt
Book value per share

2001

2000

1999

1998

1997

$ 6,726.8
5,986.2
645.6
303.1
–
208.3
164.6
(43.9)
$ (505.3)

(1.37)
369.0

33.3
$
$11,514.7
$ 2,480.6
5.23
$

$ 7,182.7
6,155.9
177.7
–
–
–
126.3
348.8
420.3

1.17
359.6

1.14
370.6

$ (326.0)
$12,362.0
$ 1,531.8
6.68
$

$ 6,417.2
5,608.3
159.5
–
–
–
99.5
285.3
359.4

1.02
352.0

0.99
364.6

(3.8)
$
$11,225.8
$ 1,085.2
5.86
$

$ 5,492.9
4,817.2
3.3
–
–
–
86.5
301.7
374.2

1.08
346.9

1.04
359.4

(89.7)
$
$ 9,345.4
721.7
$
4.91
$

$ 4,850.7
4,396.3
79.6
–
32.2
–
80.0
208.6
168.7

0.51
333.8

0.49
345.2

(3.5)
$
$ 7,959.6
590.5
$
4.04
$

OTHER DATA
Cash dividends — Interpublic
Cash dividends per share — Interpublic
Number of employees

$
$

129.3
.38
54,100

$
$

109.1
.37
62,000

$
$

90.4
.33
54,800

$
$

76.9
.29
49,500

$
$

61.2
.25
43,100

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

RESULTS BY QUARTER (UNAUDITED)

The Interpublic Group of Companies, Inc. and its Subsidiaries

(Dollars in Millions, Except Per Share Amounts)

(Amounts in Millions, Except Per Share Data)

2001

2000

2001

2000

2001

2000

2001

2000

1ST QUARTER

2ND QUARTER

3RD QUARTER

4TH QUARTER

Revenue
Operating expenses
Restructuring and other

merger related costs

Goodwill impairment and other charges

Income (loss) from operations

Investment impairment
Interest expense
Interest income
Other income, net

Income (loss) before

$1,658.2
1,502.1

$1,585.1
1,453.7

$1,743.4
1,498.4

$1,821.6
1,469.8

$1,605.7
1,501.8

$1,734.2
1,516.0

$1,719.5
1,483.9

$2,041.8
1,716.4

1.5
–

154.6

(160.1)
(37.5)
12.8
7.0

36.0
–

95.4

–
(24.3)
14.5
3.2

51.3
221.4

(27.7)

–
(41.4)
10.4
5.0

52.8
–

592.8
81.7

26.7
–

–
–

62.2
–

299.0

(570.6)

191.5

235.6

263.2

–
(26.2)
9.2
21.0

(48.2)
(46.9)
6.8
(.7)

–
(36.5)
11.6
6.3

–
(38.8)
13.0
2.4

–
(39.3)
22.2
15.7

provision for income taxes

(23.2)

88.8

(53.7)

303.0

(659.6)

172.9

212.2

261.8

Provision for (beneﬁt of) income taxes

Income applicable to minority interests
Equity in net income (loss) of

unconsolidated afﬁliates

Net equity interests

Net income (loss)

Per share data:

Basic EPS
Diluted EPS

Cash dividends per share — Interpublic

Weighted-average shares:

Basic
Diluted

Stock price:
High
Low

0.5

(6.8)

1.7

(5.1)

37.0

(3.9)

2.2

(1.7)

48.3

(10.6)

127.6

(11.2)

(184.7)

(2.9)

2.4

(8.2)

2.2

(9.0)

(2.6)

72.1

(10.7)

(10.0)

92.0

(10.0)

1.0

(9.0)

112.1

(17.0)

(19.7)

(36.7)

(28.8)

50.1

$ (110.2)

$ 166.4

$ (477.5)

90.8

$ 111.2

$ 113.0

$
$
$

(.08)
(.08)
.095

$
$
$

.14
.14
.085

$
$
$

(.30)
(.30)
.095

$
$
$

.47
.45
.095

$
(1.29)
$ (1.29)
.095
$

$
$
$

.25
.24
.095

$
$
$

.30
.30
.095

$
$
$

.31
.30
.095

366.1
366.1

355.6
368.0

368.9
368.9

356.7
380.9

369.6
369.6

362.7
373.1

371.3
377.2

363.5
373.3

$ 47.19
$ 32.50

$ 55.56
$ 37.00

$ 38.85
$ 27.79

$ 48.25
$ 38.00

$ 30.46
$ 19.30

$ 44.63
$ 33.50

$ 31.00
$ 19.50

$ 43.75
$ 33.06

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 55

Financial Statements

REPORT OF MANAGEMENT

The ﬁnancial statements, including the ﬁnancial analysis and
all other information in this Annual Report, were prepared
by management, who is responsible for their integrity and
objectivity. Management believes the ﬁnancial statements,
which require the use of certain estimates and judgments,
reﬂect the Company’s ﬁnancial position and operating results
in conformity with generally accepted accounting principles.
All ﬁnancial information in this Annual Report is consistent
with the ﬁnancial statements.

Management maintains a system of internal accounting

controls which provides reasonable assurance that, in all
material respects, assets are maintained and accounted for in
accordance with management’s authorization, and transactions
are recorded accurately in the books and records. To assure the
effectiveness of the internal control system, the organizational
structure provides for deﬁned lines of responsibility and
delegation of authority.

The Finance Committee of the Board of Directors, which

is comprised of the Company’s Chairman and Chief Financial
Ofﬁcer and four outside Directors, is responsible for deﬁning
these lines of responsibility and delegating the authority to
management to conduct the day-to-day ﬁnancial affairs of the
Company. In carrying out its duties, the Finance Committee
primarily focuses on monitoring ﬁnancial and operational goals
and guidelines; approving and monitoring speciﬁc proposals for
acquisitions; approving capital expenditures; working capital,
cash and balance sheet management; and overseeing the hedging
of foreign exchange, interest-rate and other ﬁnancial risks. The
Committee meets regularly to review presentations and reports
on these and other ﬁnancial matters to the Board. It also works
closely with, but is separate from, the Audit Committee of the
Board of Directors.

The Company has formally stated and communicated

policies requiring of employees high ethical standards in their
conduct of its business. As a further enhancement of the above,
the Company’s comprehensive internal audit program is designed
for continual evaluation of the adequacy and effectiveness of its
internal controls and measures adherence to established policies
and procedures.

The Audit Committee of the Board of Directors is
comprised of four directors who are not employees of the
Company. The Committee reviews audit plans, internal controls,
financial reports and related matters, and meets regularly with
management, internal auditors and independent accountants.
The independent accountants and the internal auditors have
free access to the Audit Committee, without management being
present, to discuss the results of their audits or any other matters.

The independent accountants, PricewaterhouseCoopers
LLP, were recommended by the Audit Committee of the Board
of Directors and selected by the Board of Directors, and their
appointment was ratiﬁed by the stockholders. The independent
accountants have examined the ﬁnancial statements of the
Company and their opinion is included as part of the ﬁnancial
statements.

John J. Dooner Jr.
Chairman and Chief Executive Ofﬁcer

Sean F. Orr
Executive Vice President and Chief Financial Ofﬁcer

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Financial Statements

BOARD OF DIRECTORS

FRANK J. BORELLI
(1995) 1,2,3,4

REGINALD K. BRACK
(1996) 1,2,3,4,5

JILL M. CONSIDINE
(1997) 1,2,4,5

Senior Advisor,

Former Chairman &

Chairman &

Retired Chief Financial

Chief Executive Ofﬁcer,

Ofﬁcer & Director, Marsh &

Time, Inc.

McLennan Companies, Inc.

The Depository Trust

& Clearing Corporation

JOHN J. DOONER, JR.
(1995) 3,4

RICHARD A. GOLDSTEIN
(2001) 2

H. JOHN GREENIAUS
(2001) 2

SEAN F. ORR
(2000) 4

Chairman &

Former Chairman &

Chief Executive Ofﬁcer

Chief Executive Ofﬁcer,

Executive Vice President

& Chief Financial Ofﬁcer

International Flavors

Nabisco, Inc.

& Fragrances

MICHAEL I. ROTH
(2002) 1,4

J. PHILLIP SAMPER
(1990) 2,5

Chairman &

Managing Director,

Chief Executive Ofﬁcer,

Gabriel Venture Partners

The MONY Group

(Year Elected)

1 Audit Committee

2 Compensation Committee

3 Executive Policy Committee

4 Finance Committee

5 Nominating Committee

2001 ANNUAL REPORT

THE INTERPUBLIC GROUP OF COMPANIES 57

Board of Directors

EXECUTIVE OFFICERS & STOCKHOLDERS’ INFORMATION

EXECUTIVE OFFICERS

JOHN J. DOONER, JR.
Chairman & Chief Executive Ofﬁcer

ALBERT S. CONTE
Senior Vice President, Financial Services

SUSAN WATSON
Senior Vice President, Investor Relations

SEAN F. ORR
Executive Vice President & Chief Financial Ofﬁcer

THOMAS A. DOWLING
Senior Vice President, Financial Administration

GUNNAR P. WILMOT
Senior Vice President,

BRUCE NELSON
Executive Vice President & Chief Marketing Ofﬁcer

PHILIPPE KRAKOWSKY
Senior Vice President,

BARRY R. LINSKY
Executive Vice President

NICHOLAS J. CAMERA
Senior Vice President, General Counsel & Secretary

Director of Corporate Communications

C. KENT KROEBER
Senior Vice President, Human Resources

Planning & Business Development

STEVEN BERNS
Vice President & Treasurer

RICHARD P. SNEEDER, JR.
Vice President & Controller

CORPORATE HEADQUARTERS:

AUTOMATIC DIVIDEND REINVESTMENT PLAN:

STOCK OWNER INTERNET ACCOUNT ACCESS:

1271 Avenue of the Americas
New York, New York 10020
212.399.8000

TRANSFER AGENT & REGISTRAR
FOR COMMON STOCK:

First Chicago Trust Company,
A Division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303-2500
Stock of The Interpublic Group of
Companies, Inc., is traded on the
New York Stock Exchange.
At December 31, 2001, there were
18,107 stockholders of record.

ANNUAL MEETING:

The annual meeting will be held
on Monday, May 20, 2002, at
9:30 a.m. in the auditorium of
The Equitable Center,
787 Seventh Avenue
(between 51st and 52nd Streets)
New York, NY 10019.

Stock owners of record may access their
account via the Internet. By accessing
their account they may view share balances,
obtain current market price of shares, his-
torical stock prices, and the total value of
their investment. In addition, they may sell
or request issuance of dividend and cash
investment plan shares.

For information on how to access this
secure site, please call EquiServe, toll-free
at (877) THE WEB7 (843.9327) or visit

www.gateway.equiserve.com.

For hearing impaired: 201.222.4955

E-MAIL: equiserve@equiserve.com

INTERNET: www.equiserve.com

For more information regarding The
Interpublic Group of Companies, visit
its website at www.interpublic.com.

An Automatic Dividend Reinvestment Plan
is offered to all stockholders of record. The
Plan, which is administered by Equiserve,
provides a way to acquire additional shares of
Interpublic Common Stock in a systematic
and convenient manner that affords savings
in commissions for most stockholders.
Those interested in participating in this
plan are invited to write for details and an
authorization form to:

EquiServe Dividend Reinvestment Plan
P.O. Box 2598
Jersey City, NJ 07303-2598.

FORM 10-K:

A copy of the Company’s annual report
(Form 10-K) to the Securities and
Exchange Commission may be obtained
without charge by writing to:

Nicholas J. Camera, Senior Vice President,
General Counsel & Secretary,
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, NY 10020.

Exhibits to the annual report will also be
furnished, but will be sent only upon
payment of the Company’s reasonable
expense in furnishing them.

THE INTERPUBLIC GROUP OF COMPANIES

2001 ANNUAL REPORT

Executive Officers & Stockholders’ Information

Interpublic is one of the world’s largest marketing communications and marketing

services companies. Fundamentally, we are in the idea business. We provide

clients with customer-driven insights, strategic communications programs and other

marketing counsel that will help them build their business.

TABLE OF CONTENTS

FINANCIAL ANALYSIS

MESSAGE FROM THE CHAIRMAN

McCANN-ERICKSON WORLDGROUP

THE PARTNERSHIP

FCB GROUP

ADVANCED MARKETING SERVICES

THE INTERPUBLIC GROUP STRUCTURE

PROFESSIONAL ACHIEVEMENTS 2001

FINANCIAL STATEMENTS

THE INTERPUBLIC GROUP, 2001

AS ALWAYS,

DIFFICULT TIMES REQUIRE

AN UNPRECEDENTED FOCUS

ON GETTING

THE FUNDAMENTALS

RIGHT.

2001 ANNUAL REPORT