FORM 10-K
INTERPUBLIC GROUP OF COMPANIES, INC. - IPG
Filed: September 30, 2005 (period: December 31, 2004)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
10-K - FORM 10-K
PART I
Item 6, Selected Financial Data, contains restated financial results;
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant s Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7, Management s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7. Management s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Item
7A.
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Item
9A.
PART III
Item 10. Directors and Executive Officers of Interpublic
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
EX-10.I.G (EX-10.I.G: AMENDED AND RESTATED 3-YEAR CREDIT AGREEMENT)
EX-10.III.A.82 (EX-10.III.A.82: SUPPLEMENTAL AGREEMENT)
EX-21 (EX-21: SUBSIDIARIES OF THE REGISTRANT)
EX-24 (EX-24: POWER OF ATTORNEY)
EX-31.1 (EX-31.1: CERTIFICATION)
EX-31.2 (EX-31.2: CERTIFICATION)
EX-32 (EX-32: CERTIFICATION)
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
�
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
�
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file no. 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State of Incorporation)
13-1024020
(I.R.S. Employer Identification No.)
1114 Avenue of the Americas, New York, New York 10036
(Address of Principal Executive Offices) (Zip Code)
(212) 704-1200
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.10 par value
Series A Mandatory Convertible Preferred Stock, no par value
Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for at least the
past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes � No �
�
Yes � No �
Yes � No �
As of June 30, 2005, the aggregate market value of the shares of the registrant’s common stock held by non-affiliates was
$5,201,493,786. The number of shares of the registrant’s common stock outstanding as of August 31, 2005 was 427,268,023.
TABLE OF CONTENTS
Page
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Item 1.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART I.
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II.
Market for Registrant’s Common Equity and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
PART III.
Directors and Executive Officers of Interpublic
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
PART IV.
Exhibits and Financial Statement Schedules
Item 15.
EX-10.I.G: AMENDED AND RESTATED 3-YEAR CREDIT AGREEMENT
EX-10.III.A.82: SUPPLEMENTAL AGREEMENT
EX-21: SUBSIDIARIES OF THE REGISTRANT
EX-24: POWER OF ATTORNEY
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION
1
10
10
11
12
14
17
90
91
207
207
208
217
232
235
235
237
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
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STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This report contains forward-looking statements. We may also make forward-looking statements orally from time to time.
Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, particularly
regarding recent business and economic trends, our internal control over financial reporting, impairment charges, the Securities and
Exchange Commission (“SEC”) investigation, credit ratings, regulatory and legal developments, acquisitions and dispositions,
constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to
change based on a number of factors, including those outlined in this report under Item 1, Business — Risk Factors. Forward-looking
statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new
information or future events.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such risk factors include, but are not limited to, the
following:
• risks arising from material weaknesses in our internal control over financial reporting, including material weaknesses in our
control environment;
• potential adverse effects to our financial condition, results of operations or prospects as a result of our restatement of prior period
financial statements;
• risks associated with our inability to satisfy covenants under our syndicated credit facilities;
• our ability to satisfy certain reporting covenants under our indentures;
• our ability to attract new clients and retain existing clients;
• our ability to retain and attract key employees;
• potential adverse effects if we are required to recognize additional impairment charges or other adverse accounting-related
developments;
• potential adverse developments in connection with the ongoing SEC investigation;
• potential downgrades in the credit ratings of our securities;
• risks associated with the effects of global, national and regional economic and political conditions, including with respect to
fluctuations in interest rates and currency exchange rates; and
• developments from changes in the regulatory and legal environment for advertising and marketing services companies around
the world.
Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in Item 1, Business —
Risk Factors, in this report.
AVAILABLE INFORMATION
Information regarding our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to these reports, will be made available, free of charge, at our website at http://www.interpublic.com, as soon as
reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. Any document that we file with the
SEC may also be read and copied at the SEC’s Public Reference Room located at Room 1580, 100 F Street, N.E., Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to
the public from the SEC’s website at http://www.sec.gov, and at the offices of the New York Stock Exchange. For further information
on obtaining copies of our public filings at the New York Stock Exchange, please call (212) 656-5060.
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Table of Contents
Our Corporate Governance Guidelines, Code of Conduct and each of the charters for the Audit Committee, Compensation
Committee and the Corporate Governance Committee are available free of charge on our website at http://www.interpublic.com, or by
writing to The Interpublic Group of Companies, Inc., 1114 Avenue of the Americas, New York, New York 10036, Attention:
Secretary.
EXPLANATORY NOTE
The filing of this report for 2004 was delayed because of the extensive additional work necessary to compensate for material
weaknesses in our internal control over financial reporting and to complete a restatement of our previously issued Consolidated
Financial Statements. The material weaknesses in our internal control over financial reporting are described in Item 8, Management’s
Assessment on Internal Control Over Financial Reporting, and Item 9A, Controls and Procedures. All our Consolidated Financial
Statements and other financial information included in this report for dates and periods through the third quarter of 2004 have been
restated. These Consolidated Financial Statements and financial information have been restated to reflect adjustments to our
previously reported financial information for the years ended December 31, 2003, 2002, 2001, and 2000. Our 2004 and 2003 quarterly
financial information also has been restated to reflect adjustments to our previously reported financial information for the quarters
ended March 31, June 30, and September 30 of those years. The restatement also affects periods prior to 2000, which is reflected as an
adjustment to opening retained earnings as of January 1, 2000.
We have not amended any of our previously filed reports. The Consolidated Financial Statements and other financial information
in our previously filed reports for the dates and periods referred to above should no longer be relied upon.
The broad areas of restatement adjustments primarily relate to errors in the accounting for acquisitions, revenue, leases, and the
results of internal investigations into employee misconduct, as well as the impact of other miscellaneous adjustments.
The following sections of this report contain restatement-related disclosures:
• Item 6, Selected Financial Data, contains restated financial results;
• Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains restated financial
results, the reconciliation of restated amounts to previously released financial information, and an in depth discussion of each
category of adjustment recorded;
• Item 8, Financial Statements and Supplementary Data, Note 2, Restatement of Previously Issued Financial Statements, presents
restated financial results, the reconciliation of restated amounts to previously released financial information, and an in-depth
discussion of each category of adjustment recorded;
• Item 8, Financial Statements and Supplementary Data, Note 20, Results by Quarter, presents restated financial results and the
reconciliation of restated amounts to previously released financial information;
• Item 8, Management’s Assessment on Internal Control Over Financial Reporting; and
• Item 9A, Controls and Procedures.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Item 1. Business
PART I
The Interpublic Group of Companies, Inc. was incorporated in Delaware in September 1930 under the name of McCann-Erickson
Incorporated as the successor to the advertising agency businesses founded in 1902 by A.W. Erickson and in 1911 by Harrison K.
McCann. The Company has operated under the Interpublic name since January 1961.
Our Client Offerings
The Interpublic Group of Companies, Inc. and subsidiaries (the “Company”, “we”, “us” or “our”) is one of the world’s largest
advertising and marketing services companies, comprised of hundreds of communication agencies around the world that deliver
custom marketing solutions on behalf of our clients. Our agencies cover the spectrum of marketing disciplines and specialties, from
traditional services such as consumer advertising and direct marketing, to services such as experiential marketing and branded
entertainment. With offices in approximately 130 countries and approximately 43,700 employees, our agencies work with our clients
to create global and local marketing campaigns that cross borders and media. These marketing programs seek to build brands,
influence consumer behavior and sell products.
To meet the challenge of an increasingly complex consumer culture, we create customized marketing solutions for each of our
clients. Engagements between clients and agencies fall into five basic categories:
Single discipline model — This model allows clients to have an ongoing relationship with one best-in-class marketing specialist.
In this traditional client-agency model, one agency provides service in a single discipline.
Project collaboration model — Many of our clients have ongoing relationships with only one of our agencies, which specializes in
one marketing discipline. However, when the client has a need that requires additional expertise, the agency can turn to an affiliated
company for an expansion of capabilities.
Integrated agency-of-record model — Within our agency groups, there are approximately twenty full-service marketing agencies.
These agencies offer multidisciplinary solutions for their clients, including advertising, direct marketing, interactive services, public
relations, promotions and other specialties, under one roof.
Lead company model — For clients needing world-class expertise across global markets in many marketing disciplines, we offer
this solution in which one lead agency manages the work of multiple partner agencies on an on-going basis.
Virtual network model — To capitalize on the fullest range of the marketing spectrum that we have to offer, clients can formalize a
relationship at the holding company level. A channel-neutral team becomes the client’s brand steward and coordinates the work of
multiple agencies from within our agency groups.
While our agencies work on behalf of our clients using one of these models, we provide resources and support to ensure that our
agencies can best meet our clients’ needs. Based in New York City, the holding company sets company-wide financial objectives,
directs collaborative inter-agency programs, establishes fiscal management and operational controls, guides personnel policy, conducts
investor relations and initiates, manages and approves mergers and acquisitions. In addition, it provides limited centralized functional
services that offer our companies some operational efficiencies, including accounting and finance, marketing information retrieval and
analysis, legal services, real estate expertise, recruitment aid, employee benefits and executive compensation management.
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Table of Contents
Our Disciplines and Agencies
We have hundreds of specialized agencies. The following is a sample of some of our brands.
Our global networks offer our largest clients a full range of marketing and communications services. Combined, their footprint
spans approximately 130 countries:
• McCann Erickson Worldwide
• Foote Cone & Belding Worldwide
• Lowe Worldwide
We have many full-service marketing agencies whose distinctive resources provide clients with multi-disciplinary
communication services:
• Campbell-Ewald
• Carmichael Lynch
• Deutsch
• Hill Holliday
• The Martin Agency
• Springer & Jacoby
We also have many domestic advertising agencies that provide North American clients with traditional services in print and
broadcast media:
• Austin Kelley
• Avrett Free & Ginsberg
• Campbell Mithun
• Dailey & Associates
• Gillespie
• Gotham
• Jay Advertising
• Mullen
• Tierney Communications
• TM Advertising
Our direct marketing agencies deliver one-to-one marketing that communicates directly with consumers in relevant and
innovative ways:
• Draft Worldwide
• MRM Partners Worldwide
• The Hacker Group
Our interactive agencies seek to provide best-in-class digital marketing solutions for many of our largest clients:
• R/ GA
• FCBi
• Zentropy
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Table of Contents
We have a worldwide leader in experiential marketing, Jack Morton Worldwide, as part of our agency group. Jack Morton
creates interactive experiences whose goal is to improve performance, increase sales and build brand recognition. The agency
produces meetings and events, environmental design, exhibits, digital media and learning programs.
Our media offering takes advantage of changes in today’s fragmented media landscape, with capabilities in planning, research,
negotiating, product placement and programming:
• Initiative
• MAGNA Global
• Universal McCann
To help activate consumer demand, our promotion agencies offer clients a range of options, including sweepstakes, incentive
programs, sampling opportunities and trade programming:
• Marketing Drive
• Momentum
• The Properties Group
• Zipatoni
Our public relations agencies offer such worldwide services as consumer PR, corporate communications, crisis management, web
relations and investor relations:
• DeVries Public Relations
• Golin Harris
• MWW Group
• Weber Shandwick
We also have special marketing services agencies that we believe are best-in-class for their niche markets:
• Marketing Accountability Practice (marketing accountability/ ROI)
• frank about women
• KidCom (youth marketing)
• NAS (recruitment)
• Newspaper Services of America (newspaper services)
• OSI (outdoor advertising)
• Wahlstrom Group (yellowpages)
• Women2Women Communications
Our sports and entertainment marketing firms manage top athletes and sporting events and represent some of the world’s
most-recognized celebrities:
• Bragman Nyman Cafarelli
• Octagon
• PMK/ HBH
• Rogers & Cowan
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Our affiliated multicultural agency partners, in which we own a minority interest, target specific demographic segments:
• Accent Marketing (Hispanic)
• Casanova Pendrill (Hispanic)
• GlobalHue (diverse segments)
• IW Group (Asian-Pacific-American)
• SiboneyUSA (Hispanic)
• Ten Communications (Asian-American)
We have organized our agencies into five global operating divisions and a group of leading stand-alone agencies. Four of these
divisions, McCann WorldGroup(“McCann”), The FCB Group (“FCB”), The Lowe Group (“Lowe”) and Draft Worldwide (“Draft”),
provide a distinct comprehensive array of global communications and marketing services. The fifth global operating division, The
Constituent Management Group (“CMG”), including Weber Shandwick, FutureBrand, DeVries Public Relations, Golin Harris, Jack
Morton and Octagon Worldwide (“Octagon”), provides clients with diversified services, including public relations, meeting and event
production, sports and entertainment marketing, corporate and brand identity and strategic marketing consulting.
Our leading stand-alone agencies provide clients with a full range of advertising and marketing services. These agencies partner
with our global operating groups as needed, and include Deutsch, Campbell-Ewald, Hill Holliday and The Martin Agency. We believe
this organizational structure allows us to provide comprehensive solutions for clients, enables stronger financial and operational
growth opportunities and allows us to improve operating efficiencies within our organization. We practice a decentralized
management style, providing agency management with a great deal of operational autonomy, while holding them broadly responsible
for their agencies’ financial and operational performance.
Our Financial Reporting Segments
For financial reporting purposes, we have three reporting segments. The largest segment, Integrated Agency Networks (“IAN”), is
comprised of McCann, FCB, Lowe, Draft and our leading stand-alone agencies. CMG comprises our second reporting segment. Our
third reporting segment was comprised of our Motorsports operations, which were sold during 2004. IAN also includes our media
agencies, Initiative Media and Magna Global which are part of our leading stand-alone agencies, and Universal McCann which is part
of McCann. Our media offering creates integrated communications solutions, with services that cover the full spectrum of
communication needs, including channel strategy, planning and buying, consulting, production, and post-campaign analysis. See
Note 18 to the Consolidated Financial Statements for further discussion.
Principal Markets
Our agencies are located in approximately 130 countries and in every significant market. We provide services for clients whose
businesses are broadly international in scope, as well as for clients whose businesses are limited to a single country or a small number
of countries. Based on revenue for the year ended December 31, 2004, our five principal markets are the US, Europe (excluding the
United Kingdom (“UK”), the UK, Asia Pacific and Latin America, which represented 54.9%, 19.2%, 10.3%, 7.5% and 3.8% of our
total revenue, respectively. For information concerning revenues and long-lived assets on a geographical basis for each of the last
three years, see Note 18 to the Consolidated Financial Statements.
Sources of Revenue
We generate revenue from fees and commissions. Our primary sources of revenue are the planning and execution of advertising
programs in various media and the planning and execution of other marketing
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Table of Contents
and communications programs. The fee and commission amounts vary depending on the level of client spending or the time we incur
performing the specific services required by a client plus the reimbursement of other costs.
Historically, revenues for creation, planning and placement of advertising were derived predominantly from commissions. These
services are now being provided on a negotiated fee basis and to a lesser extent on a commission basis. Fees are usually calculated to
reflect hourly rates plus proportional overhead and a mark-up. Many clients are now including an incentive compensation component
in their total compensation package. This provides added revenue based on achieving mutually agreed upon metrics within specified
time periods. Commissions are earned based on services provided, and are usually based as a percentage or fee over the total cost and
expense to complete the assignment. They can also be derived when clients pay us the gross rate billed by media and we pay for media
at a lower net rate. The difference is the commission that is earned by us, which is either retained in total or shared with the client
depending on the nature of the services agreement.
We pay the media charges with respect to contracts for advertising time or space that we place on behalf of our clients. To reduce
our risk from a client’s non-payment, we generally pay media charges only after we have received funds from our clients. Generally,
we act as the client’s agent rather than the primary obligor. In some instances we agree with the media provider that we will only be
liable to pay the media after the client has paid us for the media charges.
We also generate revenue in negotiated fees from our public relations, sales promotion, event marketing, sports and entertainment
marketing and corporate and brand identity services.
Our revenue is dependent upon the advertising, marketing and corporate communications requirements of our clients and tends to
be higher in the second half of the calendar year as a result of the holiday season and lower in the first half as a result of the
post-holiday slow-down of client activity. Our agencies generally have written contracts with their clients which dictate proportional
performance, monthly basis or completed contract revenue recognition. Fee revenue recognized on a completed contract basis also
contributes to the higher seasonal revenues experienced in the fourth quarter due to the majority of our contracts ending at
December 31. As is customary in the industry, these contracts provide for termination by either party on relatively short notice,
usually 90 days. See Note 1 to the Consolidated Financial Statements for further discussion of our revenue recognition accounting
policies.
Clients
In the aggregate, our top ten clients that made the largest revenue contribution accounted for approximately 23.5% and 22.7% of
revenue in 2004 and 2003, respectively. Based on revenue for the year ended December 31, 2004, our largest clients were General
Motors Corporation, Johnson & Johnson, L’Oreal, Microsoft and Unilever. While the loss of the entire business of any one of our
largest clients might have a material adverse effect upon our business, we believe that it is very unlikely that the entire business of any
of these clients would be lost at the same time. This is because we represent several different brands or divisions of each of these
clients in a number of geographic markets, in each case through more than one of our agency systems. Representation of a client rarely
means that we handle advertising for all brands or product lines of the client in all geographical locations. Any client may transfer its
business from one of our agencies to a competing agency, and a client may reduce its marketing budget at any time.
Personnel
As of December 31, 2004, we employed approximately 43,700 persons, of whom 18,400 were employed in the US. Because of the
personal service character of the advertising and marketing communications business, the quality of personnel is of crucial importance
to our continuing success. There is keen competition for qualified employees.
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Risk Factors
We are subject to a variety of possible risks that could adversely impact our revenues, results of operations or financial condition.
Some of these risks relate to the industry in which we operate, while others are more specific to us. The following factors set out
potential risks we have identified that could adversely affect us. See also Statement Regarding Forward-Looking Disclosure.
• We have restated our previously issued financial statements.
As a result of the restatement presented in this annual report, we have recorded liabilities for vendor discounts and other
obligations that will necessitate cash settlement which may negatively impact our cash flow in future years. We may also become
subject to additional scrutiny in our ongoing SEC investigation or new regulatory actions or civil litigation that could require us to pay
fines or other penalties or damages. In addition, we may become subject to further ratings downgrades and negative publicity and may
lose or fail to attract and retain key clients, employees and management personnel as a result of these matters.
• We have numerous material weaknesses in our internal control over financial reporting.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has conducted an assessment of our internal control
over financial reporting. In performing our assessment we identified numerous material weaknesses in our internal control over
financial reporting and management has assessed that our internal control over financial reporting was not effective as of
December 31, 2004. For a detailed description of these material weaknesses, see Item 8, Management’s Assessment on Internal
Control Over Financial Reporting. It is possible had we been able to complete our assessment that additional material weaknesses may
have been identified. Each of our material weaknesses results in more than a remote likelihood that a material misstatement will not be
prevented or detected. As a result, we must perform extensive additional work to obtain assurance regarding the reliability of our
financial statements. Even with this additional work, given the extensive material weakness identified, there is a risk of additional
errors not being prevented or detected which could result in additional restatements.
• We have extensive work remaining to remedy the material weaknesses in our internal control over financial reporting.
Because of our decentralized structure and our many disparate accounting systems of varying quality and sophistication, we have
extensive work remaining to remedy our material weaknesses in internal control over financial reporting. We are in the process of
developing and implementing a full work plan for remedying all of the identified material weaknesses and we expect that this work
will extend into the 2006 fiscal year and possibly beyond. There can be no assurance as to when the remediation plan will be fully
completed and when it will be implemented. Until our remedial efforts are completed, we will continue to incur the expenses and
management burdens associated with the manual procedures and additional resources required to prepare our consolidated financial
statements. There will also continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC,
that a default under the indentures governing our default securities could occur and that our future financial statements could contain
errors that will be undetected.
• Until our auditor can provide us with an opinion on management’s assessment and on the effectiveness of our internal
control over financial reporting, we will continue to suffer certain adverse consequences under the federal securities laws.
The report of PricewaterhouseCoopers LLP (“PwC”), our independent registered public accounting firm, on our internal control
over financial reporting disclaims an opinion on management’s assessment of our internal control over financial reporting. See Item 8,
Report of Independent Registered Public Accounting Firm.
As a result of this disclaimer received from PwC, the SEC staff considers our SEC filings not to be current for purposes of certain
of the SEC’s rules. We are unable to use “short-form” registration (registration that allows us to incorporate by reference our
Form 10-K, Form 10-Q and other SEC reports into our registration statements) or, for most purposes, shelf registration, until twelve
complete months
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have passed after we file an annual report or amended annual report containing an audit report on internal control over financial
reporting that does not disclaim an opinion.
In addition, any holder of restricted securities within the meaning of Rule 144 of the Securities Act of 1933, as amended (the
“Securities Act”), who is our “affiliate” for purposes of the US securities laws will be unable to sell such securities in reliance on
Rule 144, unless such holder obtains no-action relief from the SEC.
Likewise, until we file an annual report or amended annual report containing an audit report on internal control over financial
reporting that does not disclaim an opinion on our assessment or on the effectiveness of our internal control over financial reporting,
we are ineligible to use Form S-8. We use Form S-8 to register grants of equity compensation to our employees, including grants in
the form of options and restricted stock. Although Form S-1 is still available for such purposes, the unavailability of Form S-8 reduces
our flexibility in granting options and restricted stock to some employees.
• We face substantial ongoing costs associated with complying with the requirements of Section 404 of the Sarbanes-Oxley Act.
We have extensive work remaining to remedy the material weaknesses in our internal control over financial reporting. We expect
that this work will extend into the 2006 fiscal year and possibly beyond. The cost of this work will be significant in 2005 and 2006.
These matters will continue to require a large amount of time of our financial management and external resources so long as the
remediation work continues.
• Ongoing SEC investigations regarding our accounting restatements could adversely affect us.
In January 2003, the SEC issued a formal order of investigation related to our restatements of earnings for periods dating back to
1997. On April 20, 2005, we received a subpoena from the SEC under authority of the order of investigation requiring production of
additional documents relating to the potential restatement we announced in March 2005. The SEC is investigating the restatement
detailed in Note 2 to the Consolidated Financial Statements. While we are cooperating fully with the investigation, adverse
developments in connection with the investigation, including any expansion of the scope of the investigation, could negatively impact
us and could divert the efforts and attention of our management team from our ordinary business operations. In connection with any
SEC investigation, it is possible that we will be required to pay fines, consent to injunctions on future conduct or suffer other
penalties, any of which could have a material adverse effect on us.
• We operate in a highly competitive industry.
The marketing communications business is highly competitive. Our agencies and media services must compete with other
agencies, and with other providers of creative or media services, in order to maintain existing client relationships and to win new
clients. The client’s perception of the quality of an agency’s creative work, our reputation and the agency’s reputation are important
factors in determining our competitive position. An agency’s ability to serve clients, particularly large international clients, on a broad
geographic basis is also an important competitive consideration. On the other hand, because an agency’s principal asset is its people,
freedom of entry into the business is almost unlimited and a small agency is, on occasion, able to take all or some portion of a client’s
account from a much larger competitor.
Some clients require agencies to compete for business periodically. We have lost client accounts in the past as a result of such
periodic competitions. To the extent that our clients require us to participate in open competitions to maintain accounts, it increases the
risk of losing those accounts.
Our large size may limit our potential for securing new business, because many clients prefer not to be represented by an agency
that represents a competitor. Also, clients frequently wish to have different products represented by different agencies. Our ability to
attract new clients and to retain existing clients may, in some cases, be limited by clients’ policies or perceptions about conflicts of
interest. These policies can, in some cases, prevent one agency, or even different agencies under our ownership, from performing
similar services for competing products or companies.
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Table of Contents
In addition, if our recent financial reporting difficulties were to persist, it could divert the efforts and attention of our management
from our ordinary business operations or have an adverse impact on clients’ perception of us and adversely affect our overall ability to
compete for new and existing business.
• We may lose or fail to attract and retain key employees and management personnel.
Employees, including creative, research, media, account and practice group specialists, and their skills and relationships with
clients, are among our most important assets. An important aspect of our competitiveness is our ability to attract and retain key
employees and management personnel.
Compensation for these key employees and management personnel is an essential factor in attracting and retaining them, and there
can be no assurance that we will offer a level of compensation sufficient to do so. Equity-based compensation, including in the forms
of options and restricted stock, plays an important role in our compensation of new and existing talent. Until we have received an
unqualified opinion on management’s assessment on the effectiveness of our internal controls over financial reporting from our
independent registered public accounting firm, our ability to use equity-based compensation to compensate or attract employees and
management personnel could be limited. In particular, the ability to exercise outstanding options will be limited, as will negotiated
grants of options or restricted stock. Our current financial reporting difficulties could adversely affect our ability to recruit and retain
key personnel.
• As a marketing services company, our revenues are highly susceptible to declines as a result of unfavorable economic
conditions.
Economic downturns often more severely affect the marketing services industry than many other industries. In the past, clients
have responded, and may respond in the future, to weak economic performance in any region where we operate by reducing their
marketing budgets, which are generally discretionary in nature and easier to reduce in the short-term than other expenses related to
operations.
• Our liquidity profile has recently been adversely affected.
In recent periods we have experienced operating losses which have adversely affected our cash flows from operations. In addition,
our 364-day credit facility will expire on September 30, 2005. We have recorded liabilities and incurred substantial professional fees
in connection with the restatement. It is also possible that we will be required to pay fines or other penalties or damages in connection
with the ongoing SEC investigation or future regulatory actions or civil litigation. These items have impacted and will impact our
liquidity in future years negatively and could require us to seek new or additional sources of liquidity to fund our working capital
needs, for example, through capital markets transactions. There can be no guarantee that we would be able to access any such new
sources of new liquidity on commercially reasonable terms or at all. If we are unable to do so, our working capital position would be
adversely affected.
• Downgrades of our credit ratings could adversely affect us.
Our current long-term debt credit ratings as of September 26, 2005 are Baa3 with negative outlook, BB- with negative outlook and
B+ with negative outlook, as reported by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, respectively. Although a
ratings downgrade by any of the ratings agencies will not trigger an acceleration of any of our indebtedness, a downgrade may
adversely affect our ability to access capital and would likely result in more stringent covenants and higher interest rates under the
terms of any new indebtedness.
• International business risks could adversely affect our operations.
International revenues represent a significant portion of our revenues, approximately 45% in 2004. Our international operations are
exposed to risks which affect foreign operations of all kinds, including, for example, local legislation, monetary devaluation, exchange
control restrictions and unstable political conditions. These risks may limit our ability to grow our business and effectively manage our
operations in those countries. In addition, because a high level of our revenues and expenses is denominated in
8
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
currencies other than the US dollar, primarily the Euro and Pound Sterling, fluctuations in exchange rates between the US dollar and
such currencies may materially affect our financial results.
• In 2004 and prior years, we recognized substantial impairment charges and increased our deferred tax valuation allowances,
and we may be required to record additional charges in the future related to these matters.
We evaluate all of our long-lived assets (including goodwill, other intangible assets and fixed assets), investments and deferred tax
assets for possible impairment or realizability at least annually and whenever there is an indication of impairment or lack of
realizability. If certain criteria are met, we are required to record an impairment charge or valuation allowance. In the past, we have
recorded substantial amounts of goodwill, investment and other impairment charges, and have been required to establish substantial
valuation allowances with respect to deferred tax assets and loss carry-forwards.
As of December 31, 2004, we have substantial amounts of intangibles, investments and deferred tax assets on our consolidated
Balance Sheet. Future events, including our financial performance and the strategic decisions we make, could cause us to conclude
that further impairment indicators exist and that the asset values associated with intangibles, investments and deferred tax assets may
have become impaired. Any resulting impairment loss would have an adverse impact on our reported earnings in the period in which
the charge is recognized.
Any future impairment charge (excluding valuation allowance charges) could also adversely affect our financial condition and
result in a violation of the financial covenants of our Three-Year Revolving Credit Facility, which requires us to maintain minimum
levels of consolidated EBITDA (as defined in that facility) and established ratios of debt for borrowed money to consolidated
EBITDA and interest coverage ratios. A violation of any of these financial covenants could trigger a default under this facility and
adversely affect our liquidity.
• We are subject to certain restrictions and must meet certain minimum financial covenants under our Revolving Credit
Facility.
Our Three-Year Revolving Credit Facility contains covenants that limit our flexibility in a variety of ways and that require us to
meet specified financial ratios. These covenants have recently been amended. As amended, the Three-Year Revolving Credit Facility
does not permit us (i) to make cash acquisitions in excess of $50.0 million until October 2006, or thereafter in excess of $50.0 million
until expiration of the agreement in May 2007, subject to increases equal to the net cash proceeds received in the applicable period
from any disposition of assets; (ii) to make capital expenditures in excess of $210.0 million annually; (iii) to repurchase or to declare
or pay dividends on our capital stock (except for any convertible preferred stock, convertible trust preferred instrument or similar
security, which includes our outstanding 5.40% Series A Mandatory Convertible Preferred), except that we may repurchase our capital
stock in connection with the exercise of options by our employees or with proceeds contemporaneously received from an issue of new
shares of our capital stock; and (iv) to incur new debt at our subsidiaries, other than unsecured debt incurred in the ordinary course of
business, which may not exceed $10.0 million in the aggregate with respect to our US subsidiaries.
Under the Three-Year Revolving Credit Facility, we are also subject to financial covenants with respect to our interest coverage
ratio, debt to EBITDA ratio and minimum EBITDA. We have amended the financial covenants as they apply to periods beginning
with the third quarter of 2005. There can be no assurance that we will be able to comply with these covenants for the third quarter
2005.
• We may not be able to meet our performance targets and milestones.
From time to time, we communicate to the market certain targets and milestones for our financial and operating performance
including, but not limited to, the areas of revenue growth, operating expense reduction and operating margin growth. These targets and
milestones are intended to provide metrics against which to evaluate our performance, but they should not be understood as
predictions or guidance
9
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
about our expected performance. Our ability to meet any target or milestone is subject to inherent risks and uncertainties, and we
caution investors against placing undue reliance on them. See Statement Regarding Forward-Looking Disclosure.
• We are subject to regulations that could restrict our activities or negatively impact our revenues.
Our industry is subject to government regulation, both domestic and foreign. There has been an increasing tendency in the US on
the part of advertisers to resort to the courts and industry and self-regulatory bodies to challenge comparative advertising on the
grounds that the advertising is false and deceptive. Through the years, there has been a continuing expansion of specific rules,
prohibitions, media restrictions, labeling disclosures and warning requirements with respect to the advertising for certain products.
Representatives within government bodies, both domestic and foreign, continue to initiate proposals to ban the advertising of specific
products and to impose taxes on or deny deductions for advertising which, if successful, may have an adverse effect on advertising
expenditures and consequently our revenues.
Item 2.
Properties
Substantially all of our office space is leased from third parties with expiration dates ranging from one to twenty-five years.
Certain leases are subject to rent reviews or contain escalation clauses, and certain of our leases require the payment of various
operating expenses, which may also be subject to escalation. Physical properties include leasehold improvements, furniture, fixtures
and equipment located in our offices. We believe that facilities leased or owned by us are adequate for the purposes for which they are
currently used and are well maintained. See Note 19 to the Consolidated Financial Statements for a discussion of our lease
commitments.
Item 3.
Legal Proceedings
We are or have been involved in legal and administrative proceedings of various types. While any litigation contains an element of
uncertainty, we have no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on our
financial condition except as described below.
Federal Securities Class Actions
During the fourth quarter 2004, the settlement of thirteen class actions under the federal securities laws became final. The class
actions were filed against the Company and certain of our present and former directors and officers on behalf of a purported class of
purchasers of our stock shortly after our August 13, 2002 announcement regarding the restatement of our previously reported earnings
for the periods January 1, 1997 through March 31, 2002. These actions, which were all filed in the United States District Court for the
Southern District of New York, were consolidated by the court and lead counsel was appointed for all plaintiffs on November 15,
2002. On December 2, 2003, we reached an agreement in principle to settle the consolidated class action shareholder suits in federal
district court in New York. Under the terms of the settlement, we agreed to pay $115.0 million, comprised of $20.0 million in cash and
$95.0 million in shares of our common stock at a value of $14.50 per share. On November 4, 2004, the court entered an order granting
final approval of the settlement. The term of appeal for the settlement expired on December 6, 2004. During the fourth quarter of
2004, the $20.0 million cash portion of the settlement was paid into escrow and $0.8 million of the settlement shares were issued to
the plaintiffs’ counsel as payment of their fee. We recognized the cost of the settlement in 2003. For a discussion of the litigation
charge recorded principally in connection with the settlement, see Note 19 to the Consolidated Financial Statements.
10
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Derivative Actions
In the fourth quarter of 2004, the settlement of a shareholder derivative suit became final. The suit was filed in New York Supreme
Court, New York County, by a single shareholder acting on behalf of Interpublic against the Board of Directors and against our
auditors. This suit alleged a breach of fiduciary duties to our shareholders. On November 26, 2002, another shareholder derivative suit,
alleging the same breaches of fiduciary duties, was filed in New York Supreme Court, New York County. On January 26, 2004, we
reached an agreement in principle to settle these derivative actions, agreeing to institute certain corporate governance procedures
prescribed by the court. On June 11, 2004, the court entered an order granting preliminary approval to the proposed settlement. These
governance procedures have been adopted as part of our Corporate Governance Guidelines (which can be found on our website). The
court held a final approval and fairness hearing on October 22, 2004, and on November 4, 2004, the court entered an order granting
final approval of the settlement.
SEC Investigation
In January 2003, the SEC issued a formal order of investigation related to our restatements of earnings for periods dating back to
1997. On April 20, 2005, we received a subpoena from the SEC under authority of the order of investigation requiring production of
additional documents relating to the potential restatement we announced in March 2005. The SEC is investigating the restatement
detailed in Note 2 to the Consolidated Financial Statements. We are cooperating fully with the investigation.
Item 4.
Submission of Matters to a Vote of Security Holders
Not applicable.
11
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Price Range of Common Stock
PART II
Our common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “IPG.” The following table
provides the high and low closing sales prices per share for the periods shown below as reported on the NYSE. At August 31, 2005,
there were 16,275 registered holders of our common stock.
Period
2005:
Second Quarter
First Quarter
2004:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2003:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Dividend Policy
NYSE Sale Price
High
Low
$
$
$
$
$
$
$
$
$
$
13.28
13.68
13.50
13.62
16.43
17.19
16.41
15.44
14.55
15.38
$
$
$
$
$
$
$
$
$
$
12.11
11.50
10.95
10.51
13.73
14.86
13.55
12.94
9.30
8.01
No dividend was paid on our common stock during 2003, 2004, or the first three quarters of 2005. Our future dividend policy will
be determined on a quarter-by-quarter basis and will depend on earnings, financial condition, capital requirements and other factors.
For a discussion of the restrictions under our amended revolving credit facility, which limits our ability to declare or pay dividends,
see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources.
Transfer Agent and Registrar for Common Stock
The transfer agent and registrar for our common stock is:
Mellon Investor Services, Inc.
44 Wall Street, 6th Floor
New York, NY 10005
Tel: (877) 363-6398
Sales of Unregistered Securities
In the fourth quarter of 2004, we issued common stock without registration under the Securities Act in payment of deferred
compensation for acquisitions we made in earlier periods. The specific transactions were as follows:
• On November 22, 2004, we issued 29,015 shares of our common stock to a shareholder of a company in connection with the
purchase of 49% of the common stock of such company in the fourth quarter of 1999. The shares of our common stock had a
market value of $351,114 as of the
12
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
date of issuance and were issued without registration in reliance on Section 4(2) under the Securities Act, based on the status of
the shareholder as an accredited investor.
• On October 26, 2004, we issued 296,928 shares of our common stock to four former shareholders of a company as a final
deferred payment for 100% of the shares of the company, which we acquired in the third quarter of 2000. The shares of our
common stock were valued at $3,327,389 as of the date of issuance and were issued without registration in reliance on
Regulation S under the Securities Act.
• On October 19, 2004, we issued 115,838 shares of our common stock, and on November 18, 2004 we issued 242,713 shares of
our common stock, to four former shareholders of a company for shares we acquired in the first quarter of 1997 and in the
second quarter of 2004. The shares of our common stock were valued at $1,742,671 and $2,698,491, as of their respective dates
of issuance, and were issued without registration in reliance on Regulation S under the Securities Act.
Repurchase of Equity Securities
The following table provides information regarding our purchases of equity securities during the fourth quarter of 2004:
Total Number
of Shares
Purchased
10,285
2,461
9,657
22,403
Average
Price
Paid per
Share(2)
$
$
$
$
11.34
12.22
12.97
12.14
Total Number of
Shares
Purchased as Part
of
Publicly
Announced
Plans or Programs
—
—
—
—
Maximum
Number
of Shares
that May Yet
Be
Purchased
Under the
Plans
or Programs
—
—
—
—
October 1-31
November 1-30
December 1-31
Total(1)
(1) Consists of restricted shares of our common stock withheld under the terms of grants under employee stock compensation plans
to offset tax withholding obligations that occurred upon vesting and release of restricted shares (the “Withheld Shares”).
(2) The average price per month of the Withheld Shares was calculated by dividing the aggregate value of the tax withholding
obligations for each month by the aggregate number of shares of our common stock withheld each month.
13
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Item 6.
Selected Financial Data
The following financial data at December 31, 2004 and 2003 and for the years ended December 31, 2004, 2003 and 2002 has been
derived from the audited financial statements of the Company which appear elsewhere in this document. The audited financial
statements at December 31, 2003 and for the years ended December 31, 2003 and 2002 have been restated and the financial data
presented below reflects the restatement. The following financial data at December 31, 2002, 2001 and 2000 and for the years ended
December 31, 2001 and 2000 has been derived from unaudited financial statements and includes the effects of the restatement items
discussed in Item 8, Financial Statements and Supplementary Data, and Note 2, Restatement of Previously Issued Financial
Statements. The Selected Financial Data should be read in conjunction with:
• Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
• Item 8, Financial Statements and Supplementary Data, Note 2, Restatement of Previously Issued Financial Statements
• Item 8, Financial Statements and Supplementary Data, Note 20, Results by Quarter
14
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND SELECTED FINANCIAL DATA
For the Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
2001
(Restated)
2000
(Restated)
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Motorsports contract termination costs
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total expense and other income
Income (loss) from continuing operations before
provision for income taxes
Provision for (benefit of) income taxes
Income (loss) from continuing operations of
consolidated companies
Income applicable to minority interests (net of
tax)
Equity in net income (loss) of unconsolidated
affiliates (net of tax)
Income (loss) from continuing operations
Dividends on preferred stock
Net income (loss) from continuing operations
Income from discontinued operations (net of tax)
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
OTHER DATA
Cash dividends per share of common stock
Cash dividends per share of preferred stock
Capital expenditures
Actual number of employees
$ 6,387.0
$
(Amounts in Millions, Except Per Share Amounts)
6,598.5
6,161.7
6,059.1
$
$
$
6,872.2
3,733.5
2,249.8
62.2
322.2
113.6
6,481.3
(94.3)
(172.0)
(9.8)
50.7
(63.4)
32.5
(10.7)
(172.7)
(267.0)
262.2
(529.2)
3,500.6
2,225.7
172.9
294.0
—
6,193.2
(31.5)
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
(372.8)
242.7
(615.5)
(21.5)
(27.0)
5.8
(544.9)
19.8
(564.7)
6.5
2.4
(640.1)
—
(640.1)
101.0
(558.2)
$
(539.1)
(1.36)
0.02
(1.34)
(1.36)
0.02
(1.34)
415.3
415.3
—
2.69
(194.0)
43,700
$
$
$
$
$
$
$
(1.66)
0.26
(1.40)
(1.66)
0.26
(1.40)
385.5
385.5
—
—
(159.6)
43,400
$
$
$
$
$
$
$
$
3,396.7
2,248.7
7.9
130.0
—
5,783.3
275.8
(158.7)
—
30.6
(40.3)
—
8.3
(160.1)
115.7
106.4
9.3
(30.0)
5.9
(14.8)
—
(14.8)
31.5
16.7
(0.04)
0.08
0.04
(0.04)
0.08
0.04
376.1
376.1
0.38
—
(171.4)
45,800
$
$
$
$
$
$
$
$
3,634.5
2,398.5(1)
629.5
300.7
—
6,963.2
(364.7)
3,830.8
2,173.0(1)
158.3
—
—
6,162.1
710.1
(169.0)
—
41.7
(212.4)
—
14.5
(325.2)
(689.9)
(115.4)
(574.5)
(27.3)
3.2
(598.6)
—
(598.6)
15.5
(583.1)
(1.62)
0.04
(1.58)
(1.62)
0.04
(1.58)
369.0
369.0
0.38
—
(257.5)
50,500
$
$
$
$
$
$
$
$
(127.3)
—
57.4
(3.9)
—
45.3
(28.5)
681.6
305.9
375.7
(38.5)
(13.3)
323.9
—
323.9
6.4
330.3
0.90
0.02
0.92
0.87
0.02
0.89
359.6
370.5
0.37
—
(246.9)
58,400
$
$
$
$
$
$
$
$
(1)
Includes amortization expense of $161.0 and $132.3 in 2001 and 2000, respectively.
15
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Millions, Except Per Share Amounts)
ASSETS:
$
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowances
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current
assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of
amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee
benefits
Other non-current liabilities
Minority interests in consolidated
subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
TOTAL STOCKHOLDERS’
EQUITY
TOTAL LIABILITIES AND
$
$
2004
2003
(Restated)
As of December 31,
2002
(Restated)
2001
(Restated)
2000
(Restated)
$
$
$
$
$
$
1,550.4
420.0
4,907.5
345.2
261.0
152.6
7,636.7
722.9
274.2
168.7
3,141.6
37.6
290.6
4,635.6
12,272.3
6,128.7
1,108.6
325.9
7,563.2
1,936.0
590.7
408.9
55.2
2,990.8
10,554.0
1,871.9
195.1
4,650.3
303.3
279.7
232.4
7,532.7
697.9
378.3
246.8
3,267.9
43.0
279.3
4,913.2
12,445.9
5,614.7
1,256.7
316.9
7,188.3
2,198.7
548.6
326.7
64.8
3,138.8
10,327.1
$
$
$
953.2
30.7
4,610.1
387.7
103.0
389.6
6,474.3
851.1
534.3
326.5
3,320.9
82.4
315.5
5,430.7
11,905.0
5,370.8
1,273.9
841.9
7,486.6
1,822.2
534.9
270.7
68.0
2,695.8
10,182.4
1,718.3
2,118.8
1,722.6
$
$
$
938.1
21.2
4,653.1
358.4
136.0
300.1
6,406.9
871.0
514.0
334.6
2,933.9
102.2
277.7
5,033.4
11,440.3
4,711.2
1,536.5
428.5
6,676.2
2,484.6
438.6
177.3
84.0
3,184.5
9,860.7
1,579.6
848.8
26.6
5,599.6
473.2
—
235.0
7,183.2
845.6
410.1
463.0
2,996.0
87.8
264.6
5,067.1
12,250.3
5,901.5
1,342.1
538.0
7,781.6
1,533.8
525.5
163.6
93.1
2,316.0
10,097.6
2,152.7
STOCKHOLDERS’ EQUITY
$
12,272.3
$
12,445.9
$
11,905.0
$
11,440.3
$
12,250.3
16
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to
help you understand The Interpublic Group of Companies, Inc. and its subsidiaries (the “Company”, “we”, “us” or “our”). MD&A is
provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes. The results
included in this MD&A have been restated. Our MD&A includes the following sections:
OVERVIEW provides a description of our business, the drivers of our business, and how we analyze our business. It then provides
an analysis of our 2004 performance and a description of the significant events impacting 2004 and thereafter.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for 2004 compared to
2003 and 2003 compared to 2002.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, financing, contractual obligations and
derivatives and hedging activities.
INTERNAL CONTROL OVER FINANCIAL REPORTING provides a description of the status of our compliance with
Section 404 of the Sarbanes-Oxley Act of 2002 and related rules. For more detail, see Item 8, Financial Statements and Supplementary
Data, Note 2, Restatement of Previously Issued Financial Statements and Item 9A, Controls and Procedures.
RESTATEMENT provides a description and reconciliation of the restatement. For additional information, see Item 8, Financial
Statements and Supplementary Data, Note 2, Restatement of Previously Issued Financial Statements.
CRITICAL ACCOUNTING POLICIES provides a discussion of our accounting policies that require critical judgment,
assumptions and estimates.
OTHER MATTERS provides a discussion of our significant non-operational items which impact our financial statements, such as
the SEC investigation and material contingencies.
RECENT ACCOUNTING STANDARDS by reference to Note 1 to the Consolidated Financial Statements, provides a description
of accounting standards which we have not yet been required to implement and may be applicable to our operations, as well as those
significant accounting standards which were adopted during 2004.
OVERVIEW
Our Business
We are one of the world’s largest advertising and marketing services companies, comprised of hundreds of communication
agencies around the world that deliver custom marketing solutions on behalf of our clients. Our agencies cover the spectrum of
marketing disciplines and specialties, from traditional services such as consumer advertising and direct marketing, to services such as
experiential marketing and branded entertainment. With offices in approximately 130 countries and approximately 43,700 employees,
our agencies work with our clients to create global and local marketing campaigns that cross borders and media. These marketing
programs seek to build brands, influence consumer behavior and sell products.
We have organized our agencies into five global operating divisions and a group of leading stand-alone agencies. Four of these
divisions, McCann WorldGroup (“McCann”), The FCB Group (“FCB”), The Lowe Group (“Lowe”) and Draft Worldwide (“Draft”),
provide a distinct, comprehensive array of global communications and marketing services. The fifth global operating division, The
Constituent Management
17
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Group (“CMG”), including Weber Shandwick, FutureBrand, DeVries, Golin Harris, Jack Morton and Octagon Worldwide
(“Octagon”), provides clients with diversified services, including public relations, meeting and event production, sports and
entertainment marketing, corporate and brand identity and strategic marketing consulting.
Our leading stand-alone agencies provide clients with a full range of advertising and marketing services. These agencies partner
with our global operating groups as needed, and include Deutsch, Campbell-Ewald, Hill Holliday and The Martin Agency. We believe
this organizational structure allows us to provide comprehensive solutions for clients, enables stronger financial and operational
growth opportunities and allows us to improve operating efficiencies within our organization. We practice a decentralized
management style, providing agency management with a great deal of operational autonomy, while holding them broadly responsible
for their agencies’ financial and operational performance.
For financial reporting purposes, we have three reportable segments. The largest segment, Integrated Agency Networks (“IAN”),
is comprised of McCann, FCB, Lowe, Draft and our leading stand-alone agencies. CMG comprises our second reportable segment.
Our third reportable segment was comprised of our Motorsports operations, which were sold during 2004. IAN also includes our
media agencies, Initiative Media and Magna Global which are part of our leading stand-alone agencies, and Universal McCann which
is part of McCann. Our media offering creates integrated communications solutions, with services that cover the full spectrum of
communication needs, including channel strategy, planning and buying, consulting, production, and post-campaign analysis. See
Note 18 to the Consolidated Financial Statements for further discussion.
Business Drivers
We generate revenue from fees and commissions. Our primary sources of revenue are the planning and execution of advertising
programs in various media and the planning and execution of other marketing and communications programs. The fee and
commission amounts vary depending on the level of client spending or the time we incur performing the specific services required by
a client plus the gross-up of other costs.
Historically, revenues for creation, planning and placement of advertising were derived predominantly from commissions. These
services are now being provided on a negotiated fee basis and to a lesser extent on a commission basis. Fees are usually calculated to
reflect hourly rates plus proportional overhead and a mark-up. Many clients are now including an incentive compensation component
in their total compensation package. This provides added revenue based on achieving mutually agreed upon metrics within specified
time periods. Commissions are earned based on services provided, and are usually based as a percentage or fee over the total cost and
expense to complete the assignment. They can also be derived when clients pay us the gross rate billed by media and we pay for media
at a lower net rate. The difference is the commission that is earned by us, which is either retained in total or shared with the client
depending on the nature of the services agreement.
We pay the media charges with respect to contracts for advertising time or space that we place on behalf of our clients. To reduce
our risk from a client’s non-payment, we generally pay media charges only after we have received funds from our clients. Generally,
we act as the client’s agent rather than the primary obligor. In some instances we agree with the media provider that we will only be
liable to pay the media after the client has paid us for the media charges.
We also generate revenue in negotiated fees from our public relations, sales promotion, event marketing, and sports and
entertainment marketing and corporate and brand identity services.
18
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Our revenue is dependent upon the advertising, marketing and corporate communications requirements of our clients and tends to
be higher in the second half of the calendar year as a result of the holiday season and lower in the first half as a result of the
post-holiday slow-down of client activity. Our agencies generally have written contracts with their clients which dictate proportional
performance, monthly basis or completed contract revenue recognition. Fee revenue recognized on a completed contract basis also
contributes to the higher seasonal revenues experienced in the fourth quarter due to the majority of our contracts ending at
December 31. As is customary in the industry, these contracts provide for termination by either party on relatively short notice,
usually 90 days. See Note 1 to the Consolidated Financial Statements for further discussion on the revenue recognition accounting
policies.
Our revenue is driven by our ability to maintain and grow existing business as well as generate new business. Our business is
directly affected by economic conditions in the industries and regions we serve and by the marketing and advertising requirements and
practices of our clients and potential clients. When economic conditions decline, companies generally decrease advertising and
marketing budgets, and it becomes more difficult to achieve profitability. Our business is highly competitive, which tends to mitigate
our pricing power and that of our competition.
We believe that expanding the range of services we provide to our key clients is critical to our continued growth. We are focused
on strengthening our collaboration across agencies, which we believe will increase our ability to better service existing clients and win
new clients.
2004 Performance
The primary focus of our business analysis is on operating performance — specifically, changes in revenues and operating
expenses.
We analyze the increase or decrease in revenue by reviewing the components of the change, including: the impact of foreign
currency rate changes, the impact of acquisitions and divestitures, and the balance, which we refer to as organic revenue change. As
economic conditions and demand for our services can vary between geographic regions, we also analyze revenues by domestic and
international sources.
Our operating expenses are in two primary categories: salaries and related expenses, and office and general expenses. As with
revenue, we review the following components: impact of foreign currency rate changes, impact of acquisitions and divestitures, and
the organic component of the change. Salaries and related expenses tend to fluctuate with changes in revenues and are measured as a
percentage of revenues. Office and general expenses, which have both a fixed and variable component, tend not to vary as much with
revenue.
As a part of our restatement process we issued accounting guidance to our agencies to strengthen adherence to Staff Accounting
Bulletin 104, Revenue Recognition. Our policies are further explained in our revenue recognition policy discussion in both
management’s discussion and analysis and the footnotes. This accounting guidance governs the timing of when revenue is recognized.
Accordingly, if work is being performed in a given quarter but there is insufficient evidence on an arrangement, the related revenue
would be deferred to a future quarter when the evidence is obtained. However, our costs of services, on the other hand, are primarily
expensed as incurred, except that incremental direct costs may be deferred under a significant long term contract until complete. With
revenue being deferred until completion of the contract and costs primarily expensed as incurred, this will have a negative impact on
our operating margin until the revenue can be recognized and in the period of revenue recognition. While this will not affect cash
flow, it will affect organic revenue growth and margins and this effect is likely to be greater in comparing quarters than in comparing
full years.
19
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
In addition, the Company also issued guidelines to our agencies units to strengthen adherence to EITF 99-19, Reporting Revenue
Gross as a Principal Versus Net as an Agent. This accounting guidance governs when revenues should be recorded net of external
media or production cost and when it should be recorded gross. The guidance is very contract specific and can vary period to period
and agency by agency. While this accounting will not affect cash flow and profitability, it could affect changes in revenue growth.
Our financial performance over the past several years has lagged behind that of our industry peers, due to lower revenue growth,
as well as impairment and restructuring charges. We are working to improve our margins by restoring consistent revenue growth and
controlling expenses. Our success in doing so in 2004 was significantly limited by the cost of business priorities that we consider
urgent, such as improving our internal control over financial reporting, consolidating financial back office activities by creating a
shared service center, upgrading our information technology systems infrastructure, professional fees, and exiting the Motorsports
business. With the exception of salary-related expenses which have increased due to our additional headcount, we believe that most
other costs associated with these priorities are transitional in nature, but do not expect a decrease in total office and general expense
over the short term due to the significant professional fees required as a result of our internal control weaknesses. The cost of
remedying our internal control weaknesses will be significant in 2005 and 2006.
We have indicated that accelerating organic revenue growth and improving operating margin are key corporate metrics. The
following are the performance priorities and basis of analysis of our financial and operating performance:
• We seek to accelerate organic revenue growth by strengthening collaboration among our agencies and increasing the number of
marketing services used by each client. We have established a supplemental incentive plan, expanded internal tools and
resources, and heightened internal communications aimed at encouraging collaboration. We analyze our performance by
calculating the percentage increase in revenue related to organic growth between comparable periods.
• We seek to improve operating margin by increasing revenue and by controlling salaries and related expenses, as well as office
and general expenses. We analyze our performance by comparing revenue to prior periods and measuring salaries and related
expenses, as well as office and general expenses, as a percentage of revenue. We define operating margin as operating income
divided by reported revenue.
Organic revenue growth percentage (vs. prior year)
Operating margin percentage
Salaries and related expenses as a percentage of revenue
Office and general expenses as a percentage revenue
For the Years
Ended
December 31,
2004
2003
1.2%
(1.5)%
58.5%
35.2%
(3.0)%
(0.5)%
56.8%
36.1%
Organic revenue growth improved in 2004, but we have not yet reached our goal of matching peer group organic growth.
Domestic organic revenue growth was 2.5%, while international revenue decreased by 0.4% on an organic basis.
Operating margin during 2004 was impacted by cost increases and a number of charges. During 2004, we recorded asset
impairments of $322.2, restructuring charges of $62.2 and contract termination charges related to the Motorsports business of $113.6,
which together comprised a $31.1 increase in such charges as compared to 2003. Operating margin in 2003 was impacted by
approximately $294.0 of asset
20
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
impairment charges and $172.9 of restructuring charges. Additionally, in 2004, we recorded cost increases for salaries and related
expenses of $232.9 and professional fees of $87.6.
Significant 2004 Activity and Subsequent Events
Income Statement
• Long-lived asset impairment charges of $322.2 were recorded, including $311.9 of goodwill impairments primarily at CMG,
Lowe and Draft as a result of our annual impairment review. These were due to a decline in revenue, coupled with a drop in
industry valuation metrics. Refer to Note 8 of the Consolidated Financial Statements for additional information.
• Motorsports contract termination charges of $113.6 were recorded related to agreements with the British Racing Drivers Club
and the Formula One Administration Limited, which released us from certain guarantees and lease obligations. We have exited
this business and do not anticipate any additional material charges. Refer to Note 4 of the Consolidated Financial Statements for
additional information.
• Restructuring charges of $62.2 were recorded related to severance and termination costs and lease termination and other exit
costs under the 2003 and 2001 restructuring programs, net of $32.0 of reserve reversals due to changes in our original estimates.
These charges were primarily the result of vacating properties and employment terminations executed during 2004. Reserve
reversals recorded during 2004 were the result of changes in management’s estimates impacted by events and circumstances
which arose during the period. Refer to Note 5 of the Consolidated Financial Statements for additional information.
• Investment impairment charges of $63.4 were recorded primarily related to an investment in an unconsolidated German
advertising agency as a result of a decrease in projected operating results. Refer to Note 9 of the Consolidated Financial
Statements for additional information.
• Shareholder litigation settlement resulted in a reduction of expenses of $32.5, related to proceeds received of $20.0 from
insurance policies (which a receivable had not previously accounted for) and the reversal of $12.5 in settlement reserves due to
the decrease in share price between the tentative settlement date and the final settlement date as the share settlement was a fixed
number. Refer to Note 19 of the Consolidated Financial Statements for additional information.
• Prepayment penalty charges of $9.8 were recorded on the early retirement of $250.0 of the 7.875% Senior Unsecured Notes due
in 2005. Refer to Note 11 of the Consolidated Financial Statements for additional information.
• A total charge of $236.0 was recorded to increase our valuation allowance for deferred income tax assets primarily relating to
foreign net operating loss carry forwards. Refer to Note 10 of the Consolidated Financial Statements for additional information.
• Total salaries and related expenses and professional fees increased by approximately $232.9 and $87.6. These related primarily
to increased headcount, the audit of our restated financial statements and the requirements of the Sarbanes-Oxley Act and are
discussed in Consolidated Results of Operations — 2004 Compared to 2003.
Financing Activities
• We replaced our previous 364-day and five-year revolving credit facilities totaling $875.0, with 364-Day and Three-Year
Revolving Credit Facilities, maturing May 2007, totaling $700.0.
21
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
• We completed the issuance and sale of $250.0 aggregate principal amount of 5.40% Senior Unsecured Notes maturing 2009 and
$350.0 aggregate principal amount of 6.25% Senior Unsecured Notes maturing 2014.
• Proceeds from the two debt issuances were used to pay down $250.0 of the 7.875% Senior Unsecured Notes due 2005 and
redeem approximately $346.8 of the 1.87% Convertible Subordinated Notes in December 2004.
• All of the 1.80% Convertible Subordinate Notes were redeemed for approximately $246.0 in January 2004 using net proceeds
from offerings of $246.0 of convertible preferred stock and common stock in late 2003.
Subsequent to 2004
• We entered into waivers and amendments to our 364-Day and Three-year Revolving Credit Facilities, to waive any breach or
default related to not complying in a timely manner with our reporting requirements. In addition, financial covenants with
respect to our interest coverage ratio, debt to EBITDA ratio and minimum EBITDA for certain fiscal quarters were amended.
• In March 2005, we completed a consent solicitation to amend the indentures governing five series of our outstanding public debt
to provide that our failure to timely file our SEC reports would not constitute a default under the indentures until September 30,
2005.
• In July 2005, we completed the issuance and sale of $250.0 Floating Rate Notes maturing 2008. We used the proceeds to redeem
the 7.875% Senior Unsecured Notes maturing October 2005 with an aggregate principal amount of $250.0.
• Our Three-Year Revolving Credit Facility was amended and restated as of September 27, 2005. The effectiveness of the
amended Three-Year Revolving Credit Facility is subject to certain conditions. The amendment revises certain of the negative
and financial covenants under our existing Three-Year Revolving Credit Facility. The 364-day Revolving Credit Facility will
expire on September 30, 2005.
Management Changes
• In February 2004, Stephen Gatfield was hired as our Executive Vice President, Global Operations and Innovation.
• In May 2004, Nick Cyprus was hired as our Senior Vice President, Controller and Chief Accounting Officer.
• In June 2004, Robert Thompson was named our Executive Vice President and Chief Financial Officer. He resigned in July 2005.
• In July 2004, Michael Roth was hired as our Executive Chairman.
• In November 2004, Tony Wright was hired as Chief Executive Officer of Lowe Worldwide and Ed Powers was named Chief
Operating Officer of Lowe Worldwide.
Subsequent to 2004
• In January 2005, Michael Roth was named our Chairman and Chief Executive Officer. Concurrently, David Bell, our Chairman
and Chief Executive Officer since 2003 was named Co-Chairman.
22
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
• In May 2005, Steve Centrillo was hired as our Executive Vice President and Chief Growth Officer.
• In May 2005, Mark Rosenthal was hired as our Chairman and Chief Executive Officer of Media Operations.
• In June 2005, Steve Blamer, who had been hired as Chief Executive Officer of Foote, Cone and Belding Worldwide in
December 2004, assumed his responsibility following the expiration of a prior non-compete agreement.
• In July 2005, Frank Mergenthaler was hired as our Executive Vice President and Chief Financial Officer.
RESULTS OF OPERATIONS
Consolidated Results of Operations — 2004 Compared to 2003
REVENUE
The components of the 2004 change were as follows:
2003 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2004
Total
$
$ 6,161.7
237.7
(88.0)
75.6
225.3
$ 6,387.0
%
Change
3.9%
(1.4)%
1.2%
3.7%
$
$ 3,459.3
—
(35.4)
85.3
49.9
$ 3,509.2
Domestic
%
Change
—
(1.0)%
2.5%
1.4%
% of
Total
56.1%
54.9%
International
%
Change
8.8%
(1.9)%
(0.4)%
6.5%
$
$ 2,702.4
237.7
(52.6)
(9.7)
175.4
$ 2,877.8
% of
Total
43.9%
45.1%
For the year ended December 31, 2004, consolidated revenues increased $225.3, or 3.7%, as compared to 2003, which was
attributable to foreign currency exchange rate changes of $237.7 and organic revenue growth of $75.6, partially offset by the effect of
net acquisitions and divestitures of $88.0.
The increase due to foreign currency changes was attributable to the strengthening of the Euro and Pound Sterling in relation to the
US Dollar. The net effect of acquisitions and divestitures resulted largely from the sale of the Motorsports business during 2004.
During 2004, organic revenue change of 75.6, or 1.2%, was driven by an increase at IAN, partially offset by decrease at CMG.
The increase at IAN was a result of client wins, additional business from existing clients, and overall growth in domestic markets. The
decrease at CMG was as a result of weakness in demand for branding and sports marketing services, partially offset by growth in the
public relations business.
23
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
OPERATING EXPENSES
For the Years Ended December 31,
2004
$
% of
Revenue
2003
$
% of
Revenue
(Restated)
$
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and
other charges
Motorsports contract termination
costs
Total operating expenses
$
3,733.5
2,249.8
62.2
322.2
113.6
6,481.3
58.5% $
35.2%
$
3,500.6
2,225.7
172.9
294.0
—
6,193.2
Salaries and Related Expenses
The components of the 2004 change were as follows:
56.8% $
36.1%
$
Total
$ Change
% Change
232.9
24.1
(110.7)
28.2
113.6
288.1
6.7%
1.1%
(64.0)%
9.6%
—
4.7%
2003 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2004
$
3,500.6
129.4
(40.5)
144.0
232.9
3,733.5
$
$
% Change
3.7%
(1.2)%
4.1%
6.7%
% of
Revenue
56.8%
58.5%
Salaries and related expenses are the largest component of operating expenses and consist primarily of salaries and related
benefits, and performance incentives. During 2004, salaries and related expenses increased to 58.5% of revenues, compared to 56.8%
in 2003. In 2004, salaries and related expenses increased $144.0, excluding the increase related to foreign currency exchange rate
changes of $129.4 and a decrease related to net acquisitions and divestitures of $40.5.
Salaries and related expenses were impacted by changes in foreign currency rates, attributable to the strengthening of the Euro and
Pound Sterling in relation to the US Dollar. The increase due to foreign currency rate changes was partially offset by the impact of net
acquisitions and divestitures activity, which resulted largely from the sale of the Motorsports business during 2004.
The increase in salaries and related expenses, excluding the impact of foreign currency and net acquisitions and divestitures, was
primarily the result of increases in employee headcount at certain locations and increased utilization of temporary and freelance
staffing and higher performance incentive expense at a number of agencies that experienced an increase in operating results.
Furthermore, during the year, we hired additional personnel within our operating units and in the corporate group to support our back
office processes, including accounting and shared services initiatives, as well as our ongoing efforts in achieving Sarbanes-Oxley
compliance. We reduced staff at certain operations after client accounts were
24
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
lost. Cost savings associated with headcount reductions were partially offset by increased severance costs associate with the headcount
reductions.
Office and General Expenses
The components of the 2004 change were as follows:
2003 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2004
Total
$
2,225.7
102.9
(63.9)
(14.9)
24.1
2,249.8
$
$
% Change
4.6%
(2.9)%
(0.7)%
1.1%
% of
Revenue
36.1%
35.2%
Office and general expenses primarily consists of rent, office and equipment, depreciation, professional fees, other overhead
expenses and certain out-of-pocket expenses related to our revenue. During 2004, office and general expenses decreased to 35.2% of
revenues, compared to 36.1% in 2003. In 2004, office and general expenses decreased $14.9, excluding the increase related to foreign
currency exchange rate changes of $102.9 and a decrease related to net acquisitions and divestitures of $63.9.
Office and general expenses were impacted by changes in foreign currency rates, attributable to the strengthening of the Euro and
Pound Sterling in relation to the US Dollar. The increase due to foreign currency rate changes was offset by the impact of net
acquisitions and divestitures activity, which resulted largely from the sale of the Motorsports business in 2004.
The decrease in office and general expenses, excluding the impact of foreign currency and net acquisition and divestitures activity,
was primarily the result of lower occupancy and overhead costs, and a decrease related to charges recorded by CMG in 2003 to secure
certain sports television rights. These decreases, however, were partially offset by increases driven by a rise in professional fees as
part of our ongoing efforts in achieving Sarbanes-Oxley compliance, and the development of information technology systems and
processes related to our shared services initiatives.
25
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Restructuring Charges
During 2004 and 2003, we recorded net expense related to lease termination and other exit costs and severance and termination
costs for the 2003 and 2001 restructuring programs of $62.2 and $172.9, respectively, which included the impact of adjustments
resulting from changes in management’s estimates as described below. A summary of the net (income) and expense by segment is as
follows:
Lease Termination and
Other Exit Costs
2001
2003
Program
Program
Total
Severance and Termination Costs
2001
Program
2003
Program
Total
Total
$ 40.3
8.1
3.7
$ 52.1
$ (7.3) $ 33.0 $
4.0
(1.0)
12.1
2.7
$ (4.3) $ 47.8 $
14.1
5.1
0.3
19.5
$ (4.3)
(0.7)
(0.1)
$ (5.1)
$
$
9.8
4.4
0.2
14.4
$
$
42.8
16.5
2.9
62.2
$ 23.1
12.7
—
$
8.8
6.1
—
(2.2)
(1.3)
$ 33.6
$ 13.6
$ 31.9 $ 106.6
15.7
0.4
3.1
$ 47.2 $ 125.8
18.8
—
(3.5)
$ (0.1)
—
—
—
$ (0.1)
$ 106.5
15.7
0.4
3.1
$ 125.7
$ 138.4
34.5
0.4
(0.4)
$ 172.9
2004 Net (Income) Expense
IAN
CMG
Corporate
Total
2003 Net (Income) Expense (Restated)
IAN
CMG
Motorsports
Corporate
Total
Lease termination and other exit costs
2003 Program
Net expense related to lease termination and other exit costs recorded for 2004 were $52.1, comprised of charges of $67.8,
partially offset by adjustments to management estimates of $15.7. For 2003, net expense was $33.6, comprised of charges of $41.6
offset by similar adjustments of $8.0. These charges related to vacating 43 and 55 offices in 2004 and 2003, respectively, located
primarily in the US and Europe. Charges were recorded at net present value and were net of estimated sublease rental income. The
discount related to lease terminations is being amortized over the expected remaining term of the related lease.
In addition to amounts recorded as restructuring charges, we recorded charges of $11.1 and $16.5 during 2004 and 2003,
respectively, related to the accelerated amortization of leasehold improvements on properties included in the 2003 program. These
charges were included in office and general expenses on the Consolidated Statements of Operations.
2001 Program
Net (income) and expense related to lease termination and other exit costs of ($4.3) and $13.6, recorded for 2004 and 2003,
respectively, resulted exclusively from the impact of adjustments to management estimates. The 2001 program resulted in
approximately 180 offices being vacated worldwide.
26
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Adjustments to Estimates
Lease termination and other exit costs for the 2003 and 2001 restructuring programs included the net impact of adjustments for
changes in management estimates to decrease the restructuring reserves by $20.0 in 2004 and increase the reserve by $5.6 in 2003.
Adjustments to management estimates of net lease obligations included both increases and decreases to the restructuring reserve
balance as a result of several factors. The significant factors were our negotiation of terms upon the exit of leased properties, changes
in sublease rental income and utilization of previously vacated properties by certain of our agencies due to improved economic
conditions in certain markets, all of which occurred during the period recorded.
Severance and termination costs
2003 Program
Net expense related to severance and termination costs of $19.5 recorded for 2004 were comprised of charges of $26.4, partially
offset by adjustments to management estimates of $6.9. For 2003, net expenses of $125.8 was comprised of charges of $133.7 offset
by adjustments of $7.9. These charges related to a worldwide workforce reduction of approximately 400 employees in 2004 and 2,900
in 2003. The restructuring program affected employee groups across all levels and functions, including executive, regional and
account management and administrative, creative and media production personnel. The majority of the severance charges related to
the US and Europe, with the remainder in Asia and Latin America.
2001 Program
Net income related to severance and termination costs of $5.1 and $0.1 recorded for 2004 and 2003, respectively, resulted
exclusively from the impact of adjustments to management estimates. The 2001 program related to a worldwide reduction of
approximately 7,000 employees.
Adjustments to Estimates
Severance and termination costs associated with the 2003 and 2001 restructuring programs included the net impact of adjustments
for changes in management estimates to decrease the restructuring reserves by $12.0 in 2004 and $8.0 in 2003. Adjustments to
management estimates of severance and termination obligations included both increases and decreases to the restructuring reserve
balance as a result of several factors. The significant factors were the decrease in the number of terminated employees, change in
amounts paid to terminated employees and change in estimates of taxes and restricted stock payments related to terminated
employees, all of which occurred in the period recorded.
For additional information, see Note 5 to the Consolidated Financial Statements.
Long-Lived Asset Impairment and Other Charges
Long-lived assets include land, buildings, equipment, goodwill and other intangible assets. Buildings, equipment and other
intangible assets with finite lives are depreciated or amortized on a straight-line basis over their respective estimated useful lives. At
least annually, we review all long-lived assets for impairment. When necessary, we record an impairment charge for the amount that
the carrying value exceeds the fair value. See Note 1 to the Consolidated Financial Statements for fair value determination and
impairment testing methodologies.
27
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following table summarizes long-lived asset impairment and other charges:
Goodwill impairment
Fixed asset impairment
Other
Total
IAN
$ 220.2
2.0
4.9
$ 227.1
2004
Motor-
sports
$ —
3.0
—
3.0
$
CMG
$ 91.7
0.4
—
$ 92.1
For the Years Ended December 31,
2003 (Restated)
Total
$ 311.9
5.4
4.9
$ 322.2
IAN
$
0.4
2.3
9.1
$ 11.8
CMG
$ 218.0
—
0.4
$ 218.4
Motor-
sports
$ —
63.8
—
63.8
$
Total
$ 218.4
66.1
9.5
$ 294.0
The long-lived asset impairment charges recorded in 2004 and 2003 are due to the following:
2004 Impairments
IAN — During the third quarter of 2004, we recorded goodwill impairment charges of approximately $220.2 at The Partnership
reporting unit, which was comprised of, Lowe Worldwide, Draft Worldwide, Mullen, Dailey & Associates and BGW. Our long-term
projections showed previously unanticipated declines in discounted future operating cash flows due to recent client losses, reduced
client spending, and declining industry valuation metrics. These discounted future operating cash flow projections caused the
estimated fair value of The Partnership to be less than the book value. The Partnership was disbanded in the fourth quarter as of 2004.
The Partnership was subsequently disbanded in the fourth quarter of 2004 and the remaining goodwill was allocated based on the
relative fair value of the agencies at the time of disbandment. We considered the possibility of impairment at Lowe and Draft, the two
largest agencies previously within The Partnership. However, at this point we have determined that there is no discernible trigger
event for an additional impairment. We will continue to monitor the results and, should operating performance worsen, particularly at
Lowe we may conclude that a trigger event has occurred and impairment may then be required.
CMG — As a result of the annual impairment review, a goodwill impairment charge of $91.7 was recorded at our CMG reporting
unit, which is comprised of Weber Shandwick, Golin Harris, DeVries Public Relations, Octagon Worldwide and FutureBrand. The
fair value of CMG was adversely affected by declining industry market valuation metrics, specifically, a decrease in the EBITDA
multiples used in the underlying valuation calculations. The impact of the lower EBITDA multiples caused the calculated fair value of
CMG goodwill to be less than the related book value.
2003 Impairments
CMG — We recorded an impairment charge of $218.0 to reduce the carrying value of goodwill at Octagon. The Octagon
impairment charge reflects the reduction of the unit’s fair value due principally to poor financial performance in 2003 and lower than
expected future financial performance. Specifically, there was significant pricing pressure in both overseas and domestic TV rights
distribution, declining fees from athlete representation, and lower than anticipated proceeds from committed future events, including
ticket revenue and sponsorship.
Motorsports — We recorded fixed asset impairment charges of $63.8, consisting of $38.0 in connection with the sale of a business
comprised of the four owned auto racing circuits and $9.6 related to the sales of other Motorsports entities and a fixed asset
impairment of $16.2 for outlays that Motorsports was contractually required to spend to improve the racing facilities.
28
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
For additional information, see Note 8 to the Consolidated Financial Statements.
Motorsports Contract Termination Costs
As discussed in Note 4 to the Consolidated Financial Statements, during the year ended December 31, 2004, we recorded a pretax
charge of $113.6 related to a series of agreements with the British Racing Drivers Club and Formula One Administration Limited
which release us from certain guarantees and lease obligations in the United Kingdom. We have exited this business and do not
anticipate any additional material charges.
EXPENSE AND OTHER INCOME
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total
Interest Expense
For the Years Ended
December 31,
2004
$ (172.0)
(9.8)
50.7
(63.4)
32.5
(10.7)
$ (172.7)
2003
(Restated)
$
$
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
$ Change
% Change
$
$
35.0
15.0
11.4
8.1
160.1
(61.0)
168.6
(16.9)%
(60.5)%
29.0%
(11.3)%
(125.5)%
(121.3)%
(49.4)%
The decrease in interest expense was primarily due to the redemption of our $250.0 1.80% Convertible Subordinate Notes in
January 2004 and the early redemption of our borrowings under the Prudential Agreements during the third quarter of 2003.
Debt Prepayment Penalty
During the fourth quarter of 2004, a prepayment penalty of $9.8 was recorded related to the early retirement of $250.0 of the
7.875% Senior Unsecured Notes due in 2005. During the third quarter of 2003, we repaid our borrowings under the Prudential
Agreements, repaying $142.5 principal amount and incurring a prepayment penalty of $24.8.
Interest Income
The increase in interest income in 2004 was primarily due to an increase in our average balance of short-term investments held
during the year, as well as an increase in interest rates when compared to 2003.
Investment Impairments
During 2004, we recorded investment impairment charges of $63.4. The principal component of the charge was $50.9 related to
the impairment of an unconsolidated investment in a German advertising agency, Springer & Jacoby, as a result of a decrease in
projected operating results. Additionally, we recorded impairment charges of $4.7 related to unconsolidated affiliates primarily in
Israel, Brazil, Japan and India, and $7.8 related to several other available-for-sale investments.
29
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
During 2003, we recorded $71.5 of investment impairment charges related to 20 investments. The charge related principally to
investments in Fortune Promo 7 of $9.5 in the Middle East, Koch Tavares of $7.7 in Latin America, Daiko of $10.0 in Japan, Roche
Macaulay Partners of $7.9 in Canada, Springer & Jacoby of $6.5 in Germany and Global Hue of $6.9 in the US. The majority of the
impairment charges resulted from deteriorating economic conditions in the countries in which the agencies operate, due to the loss of
one or several key clients.
Litigation Charges
During 2004, with the settlement approved we received $20.0 from insurance proceeds which we recorded as a reduction in
litigation charges because we had not previously established a receivable. We also recorded a reduction of 12.5 relating to a decrease
in the share price between the tentative settlement date and the final settlement date.
During 2003, we recorded litigation charges of $127.6 for various legal matters, of which $115.0 related to a then-tentative
settlement of the class action shareholder suits discussed in Note 19 to the Consolidated Financial Statements. Under the terms of the
settlement, we were required to pay $20.0 in cash and issue 6.6 shares of our common stock. The ultimate amount of the litigation
charge related to the settlement was to be dependent upon our stock price at the time of the final settlement (as the number of shares
was fixed in the agreement), which took place in December 2004.
Other Income (Expense)
In 2004, the $10.7 other expense included $18.2 of net losses on the sale of 19 agencies. The losses related primarily to the sale of
Transworld Marketing, a US-based promotions agency, which resulted in a loss of $8.6, and a $6.2 loss for the final liquidation of the
Motorsports investment. See Note 4 to the Consolidated Financial Statements for further discussion of the Motorsports disposition.
These net losses were offset by gains of sale of Modem Media shares and other available-for-sale securities and miscellaneous
investment income of $0.8 and $6.7, respectively.
In 2003, other income of $50.3 included approximately 11.0 shares of Modem Media sold for net proceeds of approximately
$57.0, resulting in a pre-tax gain of $30.3. We also sold all of the approximately 11.7 shares of Taylor Nelson Sofres plc (“TNS”) we
had acquired through the sale of NFO WorldGroup Inc. (“NFO”), for approximately $42.0 of net proceeds. A pre-tax gain of $13.3
was recorded.
OTHER ITEMS
Income Taxes
Provision for income taxes
Effective tax rate
For the Years Ended
December 31,
2004
2003
(Restated)
$
262.2
98.2%
$
242.7
65.1%
Our effective tax rate was negatively impacted in both 2004 and 2003 by the establishment of valuation allowances, as described
below, restructuring charges, and non-deductible long-lived asset impairment charges. In 2004, our effective tax rate was also
impacted by pretax charges and related tax benefits resulting from the Motorsports contract termination costs. The difference between
the effective tax
30
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
rate and the statutory federal rate of 35% is also due to state and local taxes and the effect of non-US operations.
Valuation Allowance
Under Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, we are required, on a
quarterly basis, to evaluate the realizability of our deferred tax assets. SFAS No. 109 requires that a valuation allowance be established
when it is more likely than not that all or a portion of deferred tax assets will not be realized. In circumstances where there is sufficient
negative evidence, establishment of valuation allowance must be considered. We believe that cumulative losses in the most recent
three-year period represent sufficient negative evidence under the provisions of SFAS No. 109 and, as a result, we determined that
certain of our deferred tax assets required the establishment of a valuation allowance. The deferred tax assets for which an allowance
was established relate primarily to foreign net operating and US capital loss carryforwards.
During 2004, the valuation allowance of $236.0 was established in continuing operations on existing deferred tax assets and
current year losses with no benefit. The total valuation allowance as of December 31, 2004 was $488.6. Our income tax expense
recorded in the future will be reduced to the extent of offsetting decreases in our valuation allowance. The establishment or reversal of
valuation allowances could have a significant negative or positive impact on future earnings.
During 2003, the valuation allowance of $111.4 was established in continuing operations on existing deferred tax assets and losses
in 2003 with no benefit. In addition, $3.7 of valuation allowances were established for certain US capital and other loss carryforwards.
The total valuation allowance as of December 31, 2003 was $252.6.
For additional information, see Note 10 to the Consolidated Financial Statements.
Minority Interest and Unconsolidated Affiliates
Income applicable to minority interests, net of tax
Equity in net income of unconsolidated affiliates, net of tax
For the Years Ended
December 31,
2004
$
$
(21.5)
5.8
2003
(Restated)
$
$
(27.0)
2.4
The decrease in income applicable to minority interests was primarily due to lower earnings of majority-owned international
businesses, primarily in Europe, and the sale of majority-owned businesses in Latin America.
The increase in equity in net income of unconsolidated affiliates was primarily due to the impact of prior year losses at Modem
Media, which was sold in 2003, and the impact of higher 2003 losses at an unconsolidated investment in Brazil and a US-based sports
and entertainment event business.
31
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
NET INCOME (LOSS)
Loss from continuing operations
Less: preferred stock dividends
Net loss from continuing operations
Income from discontinued operations, net of taxes of $3.5
and $8.3, respectively
Net loss applicable to common stockholders
Loss from Continuing Operations
For the Years Ended
December 31,
2004
(544.9)
19.8
(564.7)
6.5
(558.2)
$
$
2003
(Restated)
$
$
(640.1)
—
(640.1)
101.0
(539.1)
$ Change
% Change
$
$
95.2
19.8
75.4
(94.5)
(19.1)
14.9%
—
11.8%
(93.6)%
3.5%
In 2004, our loss from continuing operations decreased by $95.2 or 14.9% as a result of an increase in revenue of $225.3 and a
decrease in expense and other income primarily driven by higher litigation costs in 2003, as a result of the shareholder suit settlement.
These changes were partially offset by an increase in operating expenses of $288.1, which includes Motorsports contract termination
costs of $113.6.
Income from Discontinued Operations
Recorded within income from discontinued operations is the impact of our sale of NFO, our research unit, to TNS in 2003. NFO is
classified in discontinued operations and the results of operations and cash flows of NFO have been removed from our results of
continuing operations and cash flows for all periods. During 2003, we completed the sale of NFO for $415.6 in cash ($376.7, net of
cash sold and expenses) and approximately 11.7 shares of TNS stock. We sold the TNS stock in December 2003 for net proceeds of
approximately $42.0. As a result of the sale of NFO, we recognized a pre-tax gain of $99.1 ($89.1, net of tax) in the third quarter of
2003 after certain post closing adjustments. The TNS shares sold resulted in a pre-tax gain of $13.3. In July 2004, we received an
additional $10.0 ($6.5, net of tax) from TNS as a final payment. For additional information, see Note 4 to the Consolidated Financial
Statements.
Segment Results of Operations — 2004 Compared to 2003
As discussed in Note 18 to the Consolidated Financial Statements, we have three reporting segments: our operating divisions,
IAN, CMG and Motorsports. We also report results for the corporate group. The profitability measure employed by our chief
operating decision makers for allocating resources to operating divisions and assessing operating division performance is operating
profit. For this purpose, amounts reported as segment operating profit exclude the impact of restructuring and impairment charges, as
we do not consider these charges when assessing operating division performance or when allocating resources. Segment profit
excludes interest income and expense, debt repayment penalties, investment impairments, litigation charges and other non-operating
income. The Motorsports business was sold during 2004. Other than long-lived asset impairment and contract termination costs, the
operating results of Motorsports are
32
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
not material to consolidated results, and therefore are not discussed in detail below. The following table summarizes revenue and
operating income by segment:
Revenue:
IAN
CMG
Motorsports
Consolidated revenue
Segment operating income (loss):
IAN
CMG
Motorsports
Corporate and other
For the Years Ended
December 31,
2004
2003
(Restated)
$
$
$
5,399.2
935.8
52.0
6,387.0
577.2
83.7
(127.6)
(243.2)
$
$
$
5,140.5
942.4
78.8
6,161.7
551.9
55.7
(43.6)
(128.6)
For the Years Ended December 31,
$ Change
% Change
5%
(0.7)%
(34.0)%
3.7%
4.6%
50.3%
193.3%
88.9%
$
$
$
258.7
(6.6)
(26.8)
225.3
25.2
28.0
(84.1)
(114.4)
2003 (Restated)
Corporate
Total
IAN
CMG Motorsports
Corporate
Total
2004
IAN CMG Motorsports
Reconciliation to segment
operating income:
Consolidated operating income
(loss)
Adjustments:
Restructuring charges
Long lived asset impairment and
other charges:
Segment operating income
$ 307.3
$ (24.9)
$
(130.6)
$ (246.1)
$
(94.3)
$ 401.7
$ (197.2)
$
(107.8)
$ (128.2)
$
(31.5)
(42.8)
(16.5)
—
(2.9)
(62.2)
(138.4)
(34.5)
(227.1)
$ 577.2
(92.1)
$ 83.7
(3.0)
(127.6)
$
—
$ (243.2)
(322.2)
(11.8)
$ 551.9
(218.4)
$
55.7
$
(0.4)
(63.8)
(43.6)
0.4
—
$ (128.6)
(172.9)
(294.0)
INTEGRATED AGENCY NETWORKS (“IAN”)
REVENUE
The components of the 2004 change were as follows:
2003 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2004
Total
$
$ 5,140.5
194.1
(40.0)
104.6
258.7
$ 5,399.2
%
Change
3.8%
(0.8)%
2.0%
5.0%
$
$ 2,864.4
—
(27.5)
96.4
68.9
$ 2,933.3
33
Domestic
%
Change
—
(1.0)%
3.4%
2.4%
% of
Total
55.7%
54.3%
$
$ 2,276.1
194.1
(12.5)
8.2
189.8
$ 2,465.9
International
%
Change
8.5%
(0.5)%
0.4%
8.3%
% of
Total
44.3%
45.7%
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
For the year ended December 31, 2004, IAN experienced net increases in revenue as compared to 2003 by $258.7, or 5.0%, which
was comprised of organic revenue growth of $104.6 and an increase in foreign currency exchange rate changes of $194.1, partially
offset by a decrease attributable to net acquisitions and divestitures of $40.0. The increase due to foreign currency was primarily
attributable to the strengthening of the Euro and Pound Sterling in relation to the US Dollar. This increase was partially offset by the
net effect of divestitures and acquisitions, primarily related to the sale of some small businesses at McCann, Lowe, and Draft, and
increased equity ownership in two small businesses at Lowe.
The organic revenue increase was primarily driven by increases at McCann, Draft, FCB, and Deutsch, partially offset by decreases
at Lowe. McCann experienced an organic revenue increase as a result of new client wins and increased business from existing clients,
primarily in our US and European agencies. Draft experienced an organic revenue increase mainly in the US due to client wins and
increased business by existing clients, partially offset by poor economic conditions in Europe and the closing of its field marketing
business in 2003. FCB experienced an organic revenue increase due to increased spending by existing clients and client wins, partially
offset by a decrease in revenues as a result of clients lost during the year, mainly in the US and Germany. Deutsch experienced
organic revenue growth stemming from new client wins and increased business from existing clients. Lowe experienced an organic
revenue decline, primarily the result of client losses and reduced business from major multinational clients.
SEGMENT OPERATING INCOME
Segment operating income
Operating margin
For the Years Ended
December 31,
2004
2003
(Restated)
$ Change
$
577.2
$
551.9
$
25.3
10.7%
10.7%
%
Change
4.6%
For the year ended December 31, 2004, IAN operating income increased by $25.3, or 4.6%, which was a result of an increase in
revenue of $258.7, offset by an increase in salaries and related expenses of $202.8 and increased office and general expenses of $30.6.
Segment operating income growth, excluding the impact of foreign currency and net effects of acquisitions and divestitures, was
primarily driven by increases at McCann, and to a lesser extent, Deutsch and FCB, partially offset by a decrease at Lowe. McCann
experienced an organic revenue increase with essentially flat operating expenses. Operating expenses at McCann reflect higher
compensation costs to support new client business and an increase in contractual compensation payments made to individuals for the
achievement of specific operational targets as part of certain prior year acquisition agreements. These increases were offset by lower
depreciation expense incurred as a result of limited capital purchases, as well as a decrease in bad debt expense due to improved
collection of accounts receivable. Deutsch and FCB experienced increases as a result of organic revenue increases, partially offset by
an increase in operating expense related to increased employee incentives and additional salaries and freelance costs to support the
increase in business activity. The decrease in operating income at Lowe was the result of a significant organic revenue decrease
partially offset by moderate decreases in operating expenses. The decrease in operating expenses at Lowe was the result of lower
headcount and reduced office space requirements.
34
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONSTITUENT MANAGEMENT GROUP (“CMG”)
REVENUE
The components of the 2004 change were as follows:
2003 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2004
Total
Domestic
International
$
$ 942.4
34.4
(11.0)
(30.0)
(6.6)
$ 935.8
%
Change
3.7%
(1.2)%
(3.2)%
(0.7)%
$
$ 593.2
—
(7.9)
(9.3)
(17.2)
$ 576.0
%
Change
—
(1.3)%
(1.6)%
(2.9)%
% of
Total
62.9%
61.6%
$
$ 349.2
34.4
(3.1)
(20.7)
10.6
$ 359.8
%
Change
9.9%
(0.9)%
(5.9)%
3.0%
% of
Total
37.1%
38.4%
For the year ended December 31, 2004, CMG experienced decreased revenues as compared to 2003 by $6.6, or 0.7%, which was
comprised of an organic revenue decrease of $30.0 and the impact of acquisitions and divestitures of $11.0, partially offset by an
increase in foreign currency exchange rate changes of $34.4. The increase due to foreign currency exchange rate was primarily
attributable to the strengthening of the Euro and Pound Sterling in relation to the US Dollar. Net effects of acquisitions and
divestitures primarily related to the disposition of three small businesses in 2004 and two small businesses in 2003.
The organic revenue decline was primarily driven by a decrease in the branding and sports marketing businesses, offset slightly by
growth in our public relations business.
SEGMENT OPERATING INCOME
Segment operating income
Operating margin
For the Years Ended
December 31,
2004
$
83.7
8.9%
2003
(Restated)
$
55.7
5.9%
$ Change
% Change
$
28.0
50.3%
For the year ended December 31, 2004, CMG operating income increased by $28.0, or 50.3%, which was the result of a $46.6
decrease in office and general expenses, offset by a $6.6 decrease in revenue and $12.0 increase in salary and related expenses.
Segment operating income growth, excluding the impact of foreign currency and net effects of acquisition and divestitures, was
primarily driven by an increase at sports marketing business, partially offset by an increase in CMG corporate office expense. While
there was organic revenue decrease sports marketing business operating expenses decreased at a higher rate than organic revenue
decrease due to a decrease related to charges recorded by CMG in 2003 to secure certain sports television rights. Increased corporate
office expenses was driven by higher expenses recorded for performance incentive awards as a result of improved revenue
performance and additional accruals for post employment and other benefits for management personnel.
35
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CORPORATE AND OTHER
Amounts in corporate and other include corporate office expenses and shared service center expenses, as well as certain other
centrally managed expenses which are not allocated to operating divisions. The following significant expenses are included in
corporate and other:
Salaries and related expenses
Professional fees
Rent and depreciation
Corporate Insurance
Bank fees
Other
Expenses allocated to operating divisions
Total corporate and other
For the Years Ended
December 31,
2004
151.2
143.4
38.0
29.7
2.8
11.4
(133.3)
243.2
$
$
2003
(Restated)
$
$
129.0
49.8
30.5
26.5
1.6
9.3
(118.1)
128.6
$ Change
% Change
$
$
22.2
93.6
7.5
3.2
1.2
2.1
(15.2)
114.6
17.2%
188.0%
24.6%
12.1%
75.0%
22.6%
(12.9)%
89.1%
Salaries, benefits and related expenses include salaries, pension, the cost of medical, dental and other insurance coverage and other
compensation-related expenses for corporate office employees. Professional fees include costs related to the preparation for
Sarbanes-Oxley Act compliance, the financial statement audit, legal counsel, information technology and other consulting fees. Rent
and depreciation includes rental expense and depreciation of leasehold improvements for properties occupied by corporate office
employees. Bank fees relates to our debt and credit facilities. The amounts of expenses allocated to operating segments are calculated
monthly based on a formula that uses the weighted average net revenues of the operating unit. The majority of the corporate costs
including most of the costs associated with internal control remediation and compliance are not allocated back to operating segments.
The increase in corporate and other expense of $114.6 or 89.1% is primarily related to the increase in professional fees and salaries
and related expenses. The increase in professional fees primarily resulted from costs associated with complying with the requirements
of the Sarbanes-Oxley Act. We also incurred increased expenses for the development of systems and processes related to our shared
services initiatives. The increase in payroll related expenses is due mainly to an increase in the use of temporary employees in order to
enhance monitoring controls at the corporate office as well as to support our significant ongoing efforts to achieve Sarbanes-Oxley
compliance. Increased headcount and expanded office space at the corporate office also contributed to this increase. Also, certain
contractual bonuses for management increased as compared to prior year.
36
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Consolidated Results of Operations — 2003 Compared to 2002
REVENUE
The components of the 2003 change were as follows:
2002 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2003 (Restated)
Total
$
%
Change
$
Domestic
%
Change
% of
Total
$
International
%
Change
$ 6,059.1
293.7
(11.8)
(179.3)
102.6
$ 6,161.7
$ 3,478.1
—
8.8
(27.6)
(18.8)
4.8%
(0.2)%
(3.0)%
1.7%
$ 3,459.3
—
0.3%
(0.8)%
(0.5)%
57.4% $ 2,581.0
293.7
(20.6)
(151.7)
121.4
56.1% $ 2,702.4
11.4%
(0.8%)
(5.9%)
4.7%
% of
Total
42.6%
43.9%
For the year ended December 31, 2003, consolidated revenues increased $102.6, or 1.7%, as compared to 2002, which was
attributable to foreign currency exchange rate changes of $293.7, partially offset by the effect of net acquisitions and dispositions of
$11.8 and organic revenue decrease of $179.3.
The increase due to foreign currency changes was primarily attributable to the strengthening of the Euro and Pound Sterling in
relation to the US Dollar. The net effect of acquisitions and divestitures resulted largely from the sale of a part of the Motorsports
business during 2003.
During 2003, organic revenue decline of $179.3, or 3.0%, was driven by decreases at IAN and CMG. The decrease at IAN was a
result of client losses as well as decreased business from existing multi-national clients. The decrease at CMG was a result of revenue
declines in our public relations business, driven by general economic factors in the US, partially offset by increases in our events and
sports marketing businesses.
OPERATING EXPENSES
For the Years Ended
December 31,
2003 (Restated)
2002 (Restated)
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other
charges
Total operating expenses
$
$ 3,500.6
2,225.7
172.9
294.0
$ 6,193.2
% of
Revenue
$
Revenue
$ Change
% Change
% of
56.8% $ 3,396.7
2,248.7
36.1%
7.9
2.8%
4.8%
130.0
$ 5,783.3
37
56.1% $
37.1%
0.1%
2.1%
$
103.9
(23.0)
165.0
164.0
409.9
3.1%
(1.0)%
2088.6%
126.2%
7.1%
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Salaries and Related Expenses
The components of the 2003 change were as follows:
2002 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2003 (Restated)
Total
$
3,396.7
156.7
(2.3)
(50.5)
103.9
3,500.6
$
$
% Change
4.6%
(0.1)%
(1.5)%
3.1%
% of
Revenue
56.1%
56.8%
Salaries and related expenses are the largest components of operating expenses and consist primarily of salaries and related
benefits and performance incentives. During 2003, salaries and related expenses increased to 56.8% of revenues, compared to 56.1%
in 2002. In 2003, salaries and related expenses decreased $50.5, excluding the increase related to foreign currency exchange rate
changes of $156.7 and a decrease related to net acquisitions and divestitures of $2.3.
Salaries and related expenses were impacted by changes in foreign currency rates, attributable to the strengthening of the Euro and
Pound Sterling in relation to the US Dollar.
The decrease in salaries and related expenses, excluding the impact of foreign currency and net acquisitions and divestitures, was
primarily the result of reduced payroll costs across our company due to a decrease in headcount and restructuring actions. This was
partially offset by increased performance incentive awards, employee benefits and related tax expenses relating to some agencies.
Office and General Expenses
The components of the 2003 change were as follows:
2002 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2003 (Restated)
Total
$
2,248.7
121.1
(13.4)
(130.7)
(23.0)
2,225.7
$
$
% Change
5.4%
(0.6)%
(5.8)%
(1.0)%
% of
Revenue
37.1%
36.1%
Office and general expenses primarily consists of rent, office and equipment, depreciation, professional fees, other overhead
expenses and certain out-of-pocket expenses related to our revenue. During 2003, office and general expenses decreased to 36.1% of
revenues compared to 37.1% in 2002. In 2003, office and general expenses decreased $130.7, excluding the increase related to foreign
currency exchange rate changes of $121.1 and a decrease related to net acquisitions and divestitures of $13.4.
Office and general expenses was impacted by changes in foreign currency rates, attributable to the strengthening of the Euro and
Pound Sterling in relation to the US Dollar.
38
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The decrease in office and general expenses, excluding the impact of foreign currency and net acquisition and divestitures activity,
was due mainly to the result of our efforts to control office and general expenses. Additionally, lower occupancy and overhead costs
were recorded in 2003 due to our restructuring program. These decreases were partially offset by charges recorded by CMG in 2003 to
secure certain sports television rights. We also experienced a significant increase in professional fees for work performed relating to
securities litigation, the SEC investigation, higher audit costs and costs associated with preparing for compliance with the
Sarbanes-Oxley Act, as well as the development of systems for our shared services initiatives.
Restructuring Charges
During 2003 and 2002, we recorded net expense related to lease termination and other exit costs and severance and termination
costs for the 2003 and 2001 restructuring programs of $172.9 and $7.9, respectively, which included the impact of adjustments
resulting from changes in management’s estimates as described below. A summary of the net (income) and expense by segment is as
follows:
Lease Termination and Other
Exit Costs
2001
2003
Program
Program
Total
Severance and Termination Costs
2001
2003
Program
2003 Net (Income) Expense (Restated)
IAN
CMG
Motorsports
Corporate
Total
2002 Net Expense (Restated)
IAN
CMG
Corporate
Total
Lease termination and other exit costs
2003 Program
$ 23.1
12.7
—
(2.2)
$ 33.6
$ —
—
—
$ —
$
8.8
6.1
—
(1.3)
$ 13.6
$
$
5.2
5.7
(4.3)
6.6
$ 31.9
18.8
—
(3.5)
$ 47.2
$
$
5.2
5.7
(4.3)
6.6
$
$
$
$
106.6
15.7
0.4
3.1
125.8
—
—
—
—
Program
Total
Total
$
(0.1)
—
—
—
(0.1)
$
$
$
7.9
(1.2)
(5.4)
1.3
$ 106.5
15.7
0.4
3.1
$ 125.7
$
$
7.9
(1.2)
(5.4)
1.3
$ 138.4
34.5
0.4
(0.4)
$ 172.9
$
$
13.1
4.5
(9.7)
7.9
Net expense related to lease termination and other exit costs recorded for 2003 was $33.6, comprised of charges of $41.6, partially
offset by adjustments to management estimates of $8.0. These charges related to vacating 55 offices in 2003, located primarily in the
US and Europe. Charges were recorded at net present value and were net of estimated sublease rental income. The discount related to
lease terminations is being amortized over the expected remaining term of the related lease.
In addition to amounts recorded as restructuring charges, we recorded charges of $16.5 during 2003 related to the accelerated
amortization of leasehold improvements on properties included in the 2003 program. These charges were included in office and
general expenses within the Consolidated Statements of Operations.
39
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
2001 Program
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Net expense related to lease termination and other exit costs of $13.6 and $6.6, recorded for 2003 and 2002 respectively, resulted
exclusively from the impact of adjustments to management estimates. The 2001 program resulted in approximately 180 offices being
vacated worldwide.
Adjustments to Estimates
Lease termination and other exit costs for the 2003 and 2001 restructuring programs included the net impact of adjustments for
changes in management estimates to increase the restructuring reserves by $5.6 and $6.6 in 2003 and 2002, respectively. Adjustments
to management estimates of net lease obligations included both increases and decreases to the restructuring reserve balance as a result
of several factors. The significant factors were our negotiation of terms upon the exit of leased properties, changes in sublease rental
income and utilization of previously vacated properties by certain of our agencies due to improved economic conditions in certain
markets, all of which occurred during the period recorded.
Severance and termination costs
2003 Program
Net expense related to severance and termination costs of $125.8 recorded for 2003 was comprised of charges of $133.7, partially
offset by adjustments to management estimates of $7.9. These charges related to a worldwide workforce reduction of approximately
2,900 employees in 2003. The restructuring program affected employee groups across all levels and functions, including executive,
regional and account management, and administrative, creative and media production personnel. The majority of the severance
charges related to the U.S. and Europe, with the remainder in Asia and Latin America.
2001 Program
Net (income) and expense related to severance and termination costs of ($0.1) and $1.3, recorded for 2003 and 2002, respectively,
resulted exclusively from the impact of adjustments to management estimates. The 2001 program related to a worldwide reduction of
approximately 7,000 employees.
Adjustments to Estimates
Severance and termination costs associated with the 2003 and 2001 restructuring programs included the net impact of adjustments
for changes in management estimates to decrease the restructuring reserve by $8.0 in 2003 and increase the restructuring reserve by
$1.3 in 2002. Adjustments to management estimates of severance and termination obligations included both increases and decreases to
the restructuring reserve balance as a result of several factors. The significant factors were the decrease in the number of terminated
employees, change in amounts paid to terminated employees and change in estimates of taxes and restricted stock payments related to
terminated employees, all of which occurred during the period recorded.
For additional information, see Note 5 to the Consolidated Financial Statements.
40
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Long-Lived Asset Impairment and Other Charges
The following table summarizes the long-lived asset impairment and other charges for 2003 and 2002:
For the Years Ended December 31,
2003
IAN
CMG
Motorsports
Total
IAN
$
0.4
2.3
9.1
$ 11.8
$ 218.0
—
0.4
$ 218.4
(Restated)
$
$
—
63.8
—
63.8
$ 218.4
66.1
9.5
$ 294.0
$ 2.9 $
—
—
$ 2.9 $
2002
Motorsports
(Restated)
82.1
33.0
12.0
127.1
Total
$
85.0
33.0
12.0
$ 130.0
Goodwill impairment
Fixed asset impairment
Other
Total
2003 Impairments
CMG — We recorded an impairment charge of $218.0 to reduce the carrying value of goodwill at Octagon. The Octagon
impairment charge reflects the reduction of the unit’s fair value due principally to poor financial performance in 2003 and lower than
expected future financial performance. Specifically, there was significant pricing pressure in both overseas and domestic TV rights
distribution, declining fees from athlete representation, and lower than anticipated proceeds from committed future events, including
ticket revenue and sponsorship.
Motorsports — We recorded fixed asset impairment charges of $63.8, consisting of $38.0 in connection with the sale of a business
comprised of the four owned auto racing circuits, $9.6 related to the sale of other Motorsports entities, and a fixed asset impairment of
$16.2 for outlays that Motorsports was contractually required to spend to improve the racing facilities.
2002 Impairments
Motorsports — Beginning in the second quarter of 2002 and continuing in subsequent quarters, certain Motorsports businesses
experienced significant operational difficulties. Some of the impairment indicators included significantly lower than anticipated
attendance at the marquee British Grand Prix race in July 2002 and a change in management at Motorsports in the third quarter of
2002. We performed an impairment test and concluded that certain asset groupings of Motorsports had a book value that exceeded
their fair market value. As a result, we recognized an impairment loss of $127.1, which is composed of $82.1 of goodwill impairment,
$33.0 of fixed asset impairment and $12.0 of other impairment.
For additional information, see Note 8 to the Consolidated Financial Statements.
41
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
EXPENSE AND OTHER INCOME
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income
Total
Interest Expense
For the Years Ended
December 31,
2003
(Restated)
2002
(Restated)
$ Change
% Change
$
$
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
$
$
(158.7)
—
30.6
(40.3)
—
8.3
(160.1)
$
$
(48.3)
(24.8)
8.7
(31.2)
(127.6)
42.0
(181.2)
30.4%
—
28.4%
77.4%
—
506.0%
113.2%
In 2003, interest expense increased by $48.3 to $207, primarily due to the issuance in March 2003 of $800.0 of 4.50% Convertible
Senior Notes maturing 2023. These proceeds were invested in April 2003, at which time the proceeds were used for the settlement of
the tender offer for the Zero-Coupon Convertible Senior Notes.
Debt Prepayment Penalty
During the third quarter of 2003, we repaid our borrowings under the Prudential Agreements, repaying $142.5 principal amount
and incurring a prepayment penalty of $24.8.
Interest Income
In 2003, interest income increased by $8.7 to $39.3 primarily due to higher cash balances resulting from the issuance of the
4.50% Convertible Senior Notes in March 2003, the proceeds from the sale of NFO in July 2003, and the proceeds from the equity
offerings in December 2003.
Investment Impairments
During 2003, we recorded $71.5 of investment impairment charges related to 20 investments. The charge related principally to
investments in Fortune Promo 7 of $9.5 in the Middle East, Koch Tavares of $7.7 in Latin America, Daiko of $10.0 in Japan, Roche
Macaulay Partners of $7.9 in Canada, Springer & Jacoby of $6.5 in Germany and GlobalHue of $6.9 in the US. The majority of the
impairment charges resulted from deteriorating economic conditions in the countries in which the agencies operate, due to the loss of
one or several key clients.
During 2002, we recorded $40.3 of investment impairment charges primarily related to Octagon investments. The largest
component of the write-off was a $28.4 charge, related to an investment in a German soccer team/franchise, based on current and
projected operating results.
Litigation Charges
During 2003, we recorded litigation charges of $127.6 for various legal matters, of which $115.0 related to a tentative settlement
of the class action shareholder suits discussed in Note 19 to the Consolidated Financial Statements. Under the terms of the settlement,
we were required to pay $20.0 in
42
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
cash and issue 6.6 shares of our common stock. The ultimate amount of the litigation charge related to the settlement was to be
dependent upon our stock price at the time of the final settlement, which took place in December 2004.
Other Income
In 2003, other income of $50.3 included approximately 11.0 shares of Modem Media sold for net proceeds of approximately $57.0
in December, resulting in a pre-tax gain of $30.3. Also in December, we sold all of the approximately 11.7 shares of TNS we had
acquired through the sale of NFO, for approximately $42.0 of net proceeds. A pre-tax gain of $13.3 was recorded.
OTHER ITEMS
Income Taxes
Provision for income taxes
Effective tax rate
For the Years Ended
December 31,
2003
(Restated)
$
242.7
65.1%
2002
(Restated)
$
106.4
91.9%
Our effective income tax rate was negatively impacted for 2003 and 2002 by the establishment of valuation allowances, as
described below, restructuring charges, and non-deductible long-lived asset impairment charges. The difference between the effective
tax rate and the statutory federal rate of 35% is also due to state and local taxes and the effect of non-US operations.
Valuation Allowance
During 2003, a valuation allowance of $111.4 was established in continuing operations on existing deferred tax assets and losses
with no benefits. The total valuation allowance as of December 31, 2003 was $252.6.
Minority Interest and Unconsolidated Affiliates
Income applicable to minority interests
Equity in net income of unconsolidated affiliates, net of tax
For the Years Ended
December 31,
2003
(Restated)
$
$
(27.0)
2.4
2002
(Restated)
$
$
(30.0)
5.9
The income applicable to minority interests was virtually unchanged. The decrease in equity in net income of unconsolidated
affiliates, was primarily due to a decrease in earnings in unconsolidated affiliates in Europe and Brazil.
43
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
NET INCOME (LOSS)
Loss from continuing operations
Income from discontinued operations net of taxes of
$8.3 and $22.4, respectively
Net income (loss) applicable to common
stockholders
$
$
Loss from Continuing Operations
For the Years Ended
December 31,
2003
(Restated)
(640.1)
2002
(Restated)
$
(14.8)
$ Change
% Change
$
(625.3)
4225.0%
220.6%
101.0
31.5
69.5
(539.1)
$
16.7
$
(555.8)
(3328.1)%
We recorded a loss from continuing operations in 2003 of $640.1 as compared to a loss from continuing operations in 2002 of
$14.8, a change of $625.3. This significant increase in our net loss was due to higher operating expenses of $409.9, and higher
expense and other income of $181.2. Significant increases in our operating expenses were due to restructuring charges and long-lived
asset impairment and other charges, which increased $165.0 and $164.0, respectively, from the prior year. Litigation charges of
$127.6 contributed to the increase in expense and other income.
Income from Discontinued Operations
As discussed in Consolidated Results of Operations — 2004 Compared to 2003 and in Note 4 to the Consolidated Financial
Statements, we have recorded the impact of our sale of NFO in income from discontinued operations. We completed the sale of NFO
in 2003. NFO is classified as discontinued operations and the results of operations and cash flows of NFO have been removed from
our results of continuing operations and cash flows for all periods.
Segment Results of Operations — 2003 Compared to 2002
As discussed in Note 18 to the Consolidated Financial Statements, we have three reporting segments: our operating divisions,
IAN, CMG and Motorsports. We also report results for the corporate group. Other than long-lived asset impairment and contract
termination costs, the operating results of Motorsports are not material to consolidated results, and therefore are not discussed in detail
below. The following table summarizes revenue and operating income by segment:
Revenue:
IAN
CMG
Motorsports
Consolidated revenue
For the Years Ended
December 31,
2003
(Restated)
2002
(Restated)
$ Change
% Change
$
$
5,140.5
942.4
78.8
6,161.7
44
$
$
4,994.7
970.8
93.6
6,059.1
$
$
145.8
(28.4)
(14.8)
102.6
2.9%
(2.9)%
(15.8)%
1.7%
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Segment operating income (loss):
IAN
CMG
Motorsports
Corporate and other
For the Years Ended
December 31,
2003
(Restated)
2002
(Restated)
$ Change
% Change
$
551.9
55.7
(43.5)
(128.7)
$
550.7
47.5
(82.2)
(102.3)
$
1.2
8.2
38.7
(26.4)
(0.2)%
17.3%
(47.1)%
25.8%
2003 (Restated)
2002 (Restated)
For the Years Ended December 31,
IAN
CMG Motorsports
Corporate
Total
IAN CMG Motorsports
Corporate
Total
Reconciliation to
segment operating
income:
Consolidated operating
income (loss)
Adjustments:
Restructuring charges
Long lived asset
impairment and other
charges:
Segment operating
income (loss)
$ 401.7
$ (197.2)
$ (107.7)
$ (128.3)
$
(31.5)
$ 534.7
$ 43.0
$ (209.3)
$
(92.6)
$
275.8
(138.4)
(34.5)
(0.4)
0.4
(172.9)
(13.1)
(4.5)
—
9.7
(7.9)
(11.8)
(218.4)
(63.8)
—
(294.0)
(2.9)
—
(127.1)
—
(130.0)
$ 551.9
$
55.7
$
(43.5)
$ (128.7)
$ 550.7
$ 47.5
$
(82.2)
$ (102.3)
INTEGRATED AGENCY NETWORKS (“IAN”)
REVENUE
The components of the 2003 change were as follows:
Total
$
%
Change
$
%
Change
% of
Total
$
%
Change
Domestic
International
2002 (Restated)
Foreign currency changes
Net acquisitions/divestitures
Organic
Total change
2003 (Restated)
$ 4,994.7
244.6
9.9
(108.7)
145.8
$ 5,140.5
4.9%
0.2%
(2.2)%
2.9%
$ 2,857.1
—
9.6
(2.3)
7.3
$ 2,864.4
0.0%
0.3%
(0.1)%
0.3%
57.2% $ 2,137.6
244.6
0.3
(106.4)
138.5
55.7% $ 2,276.1
11.4%
0.0%
(5.0)%
6.5%
44.3%
% of
Total
42.8%
For the year ended December 31, 2003, IAN experienced a net increase in revenue as compared to 2002 by $145.8, or 2.9%, which
was due to the effect of an increase in foreign currency exchange rate changes of $244.6 and net acquisitions and divestitures of $9.9,
offset by an organic revenue decrease of $108.7. The increase due to foreign currency rate changes was primarily attributable to the
strengthening of the Euro and Pound Sterling in relation to the US Dollar. The slight increase resulting from net acquisitions and
divestitures primarily related to a small acquisition at McCann.
45
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The organic revenue decrease was primarily driven by the results of Lowe. Lowe reported an organic revenue decrease as
compared to 2002, due to the loss of local clients in certain international markets, as well as a decline in business from existing
multinational clients in certain European markets.
SEGMENT OPERATING INCOME
Segment operating income
Operating margin
For the Years Ended
December 31,
2003
(Restated)
2002
(Restated)
$
551.9
10.7%
$
550.7
11.1%
$ Change
%
Change
$
1.2
0.2%
For the year ended December 31, 2003, IAN operating income increased by $1.2, or 0.2%, which was due to an increase in
revenue of $145.8, offset by increased salaries and related expenses of $142.7 and an increase of $1.8 in office and general expense.
Segment operating income increase, excluding the impact of foreign currency and net effects of acquisitions and divestitures, was
primarily driven by increases at McCann and Initiative Media and decreases at FCB and Campbell-Ewald. At FCB, the organic
revenue increase was offset by significantly higher operating expenses. Increased operating expenses at FCB primarily resulted from a
rise in performance incentive awards, and higher rent expense associated with excess space. At Campbell-Ewald, operating expenses
rose more than the organic revenue increase. Campbell-Ewald experienced higher expenses in salaries and related benefits for
increased headcount to support organic revenue growth. McCann experienced relatively flat revenues with a decline in operating
expenses. Operating expenses declined primarily due to lower compensation from a reduced headcount and lower bad debts. Initiative
Media experienced an organic revenue increase, while operating expenses remained relatively flat.
CONSTITUENT MANAGEMENT GROUP (“CMG”)
REVENUE
The components of the 2003 change were as follows:
Total
$%
Change
$
2002 (Restated)
Foreign currency changes
Net acquisitions/
divestitures
Organic
Total change
2003 (Restated)
$ 970.8
38.6
(1.8)
(65.2)
(28.4)
$ 942.4
4.0%
(0.2)%
(6.7)%
(2.9)%
$
620.1
—
(0.2)
(26.7)
(26.9)
593.2
$
Domestic
%
Change
—
% of Total
63.9%
$
0.0%
(4.3)%
(4.3)%
International
%
Change
% of Total
36.1%
11.0%
(0.5)%
(11.0)%
(0.4)%
$
350.7
38.6
(1.6)
(38.5)
(1.5)
62.9%
$
349.2
37.1%
For the year ended December 31, 2003, CMG experienced a net decrease in revenues as compared to 2002 of $28.4, or 2.9%,
which was comprised of an organic revenue decrease of $65.2 and the impact of acquisitions and divestitures of $1.8, offset by an
increase due to foreign currency exchange rate changes of $38.6. The effect of currency exchange rate was primarily attributable to the
strengthening of the Euro and Pound Sterling in relation to the US Dollar.
46
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Organic revenue decline resulted from reduced demand for our services within our public relations business in the US and
international markets as well as decreased demand for other project related business, offset partially by modest gains in our events and
sports marketing business.
Segment Operating Income
Segment operating income
Operating margin
For the Years Ended
December 31,
2003
(Restated)
$
55.7
2002
(Restated)
$
47.5
5.9%
4.9%
$ Change
% Change
$
8.2
17.2%
For the year ended December 31, 2003, CMG operating income increased by $8.2, or 17.2%, which was the result of a $31.0
decrease in salary and related expenses and a $5.6 decrease in office and general expenses, offset by a $28.4 decrease in revenue.
Segment operating income growth, excluding the impact of foreign currency and net effects of the acquisitions and divestitures,
was primarily driven by increases in the branding and public relations businesses, offset by decreased operating income in sports
marketing. Both brand and public relations businesses experienced organic revenue declines as well as significantly decreased
operating expenses. The decreased operating expenses in branding were primarily driven by a decrease in bad debt expense as a result
of improved collection activity, decreased payroll related expenses due to lower headcount as a result of restructuring actions taken in
the public relations and branding business, as well as a decrease in expenses recorded for performance incentive awards. Operating
income declined at Octagon despite organic revenue growth as a result of significant increases in operating expenses. Operating
expenses in sports marketing rose as a result of certain sports television rights.
CORPORATE AND OTHER
Amounts in corporate and other include corporate office expenses and shared service center expenses, as well as certain other
centrally managed expenses which are not allocated to each operating division. The following significant expenses are included in
corporate and other:
Salaries, benefits and related expenses
Professional fees
Rent and depreciation
Corporate insurance
Bank fees
Other
Expenses allocated to segments
Total corporate and other
For the Years Ended
December 31,
2003
(Restated)
2002
(Restated)
$
Change
% Change
$
$
129.0
49.8
30.5
26.5
1.6
9.3
(118.1)
128.6
47
$
$
131.1
28.5
26.5
12.5
3.7
17.7
(117.7)
102.3
$
$
(2.1)
21.3
4.0
14.0
(2.1)
(8.4)
(0.4)
26.3
1.6%
74.7%
15.1%
112.0%
(56.8)%
(47.5)%
0.3%
25.7%
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Salaries and related expenses include salaries, insurance, pension and bonus expense for Corporate Office employees. Professional
fees include costs related to the preparation for Sarbanes-Oxley Act compliance, financial statement audit, legal, information
technology and other consulting fees. Rent and depreciation includes rental expense and depreciation of leasehold improvements for
properties occupied by corporate office employees. Bank fees relate to debt and credit facilities managed by the Corporate Office. The
amount of expense allocated to operating segments is calculated monthly based on a formula that uses the weighted average revenues
of the operating unit. The majority of the corporate costs including most of the costs associated with internal control remediation and
compliance are not allocated back to operating segment.
The increase in corporate and other expense of $26.4 or 25.8% is primarily related to an increase in professional fees increased as
a result of higher legal fees incurred from securities litigation and SEC investigation, higher audit costs and costs associated with
preparing for compliance with the Sarbanes-Oxley Act. In addition, salaries, benefits, and related expenses increased as a result of
accruals for performance incentive awards.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW OVERVIEW
Operating cash flow
Our cash provided by operating activities was $455.5, compared to $499.7 in 2003 and $878.9 in 2002. The decrease in cash
provided by operating activities in 2004 was primarily attributable to the decrease in year-over-year changes in receivables and
liabilities. The decrease in cash provided by operating activities in 2003 was primarily attributable to the lower earnings levels in 2003
resulting from continued softness in client demand for advertising and marketing services and our restructuring program.
We conduct media buying on behalf of clients, which affects our working capital and operating cash flow. In most of our
businesses, we collect funds from our clients which we use, on their behalf, to pay production costs and media costs. The amounts
involved substantially exceed our revenues, and the current assets and current liabilities on our balance sheet reflect these
pass-through arrangements. Our assets include both cash received and accounts receivable from customers for these pass-through
arrangements, while our liabilities include amounts owed on behalf of customers to media and production suppliers. Generally, we pay
production and media charges only after we have received funds from our clients, and our risk from client nonpayment has historically
not been significant.
Funding requirements
Our most significant funding requirements include: non-cancelable operating lease obligations, capital expenditures, payments in
respect of past acquisitions, interest payments, preferred stock dividends and taxes. We have not paid dividends on our common stock
since 2002.
We have no scheduled maturities of long-term debt until 2008, as a result of transactions undertaken in 2005. Our outstanding debt
and preferred stock are described below under Long-Term Debt and Convertible Preferred Stock. In January 2004, we redeemed
$250.0 of debt. In November 2004, we refinanced $250.0 of debt through November 2009 and $350.0 of debt through November
2014, and in July 2005 we refinanced $250.0 of debt due to mature in 2005 through July 2008. These transactions are described below
under Redemption and Repurchase of Long-Term Debt.
Our capital expenditures are primarily to upgrade computer and telecommunications systems and to modernize offices. Our
principal bank credit facility as amended limits the amounts we can spend on
48
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
capital expenditures in any calendar year to $210.0. Our capital expenditures were $194.0 in 2004, $159.6 in 2003 and $171.4 in 2002.
We acquired a large number of agencies through 2001, but in recent years the number and value of acquisitions have been
significantly less. Cash paid for new acquisitions was approximately $14.6 in 2004, $4.0 in 2003 and $48.2 in 2002. However, under
the terms of certain of our past acquisitions, we have long-term obligations to pay additional consideration or to purchase additional
equity interests in certain consolidated or unconsolidated subsidiaries if specified conditions are met. Some of the consideration under
these arrangements is in shares of our common stock, but most is in cash. We made cash payments for past acquisitions of $161.7 in
2004, $221.2 in 2003 and $240.0 in 2002. Our projected obligations for 2005 and beyond are set forth below under Contractual
Obligations.
Certain media companies in various international locations require advertising agencies to post a letter of credit to support
commitments to purchase media placements. Primarily, we obtain these letters of credit from our principal bank syndicate under the
credit facilities described under Credit Arrangements below. The outstanding amount of letters of credit was $165.4 and $160.1 as of
December 31, 2004 and 2003, respectively. These letters of credit have not been drawn upon in recent years.
Sources of funds
At December 31, 2004 our total of cash and cash equivalents plus short-term marketable securities was $1,970.4. The total was
$2,067.0 at December 31, 2003, which included proceeds from securities sold in December 2003 that we used in January 2004 to
retire $250.0 of outstanding debt.
We have financed ourselves through access to the capital markets by issuing debt securities, convertible preferred stock and
common stock. Our outstanding debt securities and convertible preferred stock are described under Long-Term Debt, Convertible
Senior Notes and Convertible Preferred Stock below. As a result of the disclaimer of opinion by PwC on Management’s Assessment
on Internal Control over Financial Reporting, the SEC considers our SEC filings not to be current for purposes of certain of the SEC’s
rules. As a result, we are unable to use “short-form” registration (registration that allows us to incorporate by reference our
Form 10-K, Form 10-Q and other SEC reports into our registration statements) or, for most purposes, shelf registration, until twelve
complete months have passed after we file an annual report containing an audit report on internal control over financial reporting that
does not disclaim an opinion.
In July 2005, we issued $250.0 of Floating Rate Notes due 2008 in a private placement to refinance maturing debt, as described
below.
We have committed and uncommitted credit lines and the terms of our revolving credit facilities are described below. We have not
drawn on our committed facilities during 2004 or 2003, although we use them to issue letters of credit, as described above. Our
outstanding borrowings under uncommitted credit facilities were $67.8 and $69.8 as of December 31, 2004 and 2003, respectively.
We use uncommitted credit lines for working capital needs at some of our operations outside the United States. If we lose access to
these credit lines, we may be required to provide funding directly to some overseas operations. We maintain our committed credit
facilities primarily as stand-by short-term liquidity.
49
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Liquidity outlook
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
We expect our operating cash flow and cash on hand to be sufficient to meet our anticipated operating requirements for the next
twelve months. We have no significant scheduled amounts of long-term debt due until 2008. We continue to have a level of cash and
cash equivalents that we consider to be conservative. We consider this approach to be important as we address the consequences of the
restatement, including increased cash requirements resulting, among other things, from higher professional fees and from the liabilities
we have recognized in the restatement. Accordingly we may seek to raise additional financing, if market conditions applicable to our
Company permit us to do so on favorable terms, in order to enhance our financial flexibility. There can be no assurance that such
financing will be completed on terms that are favorable to us, if at all.
Substantially all of our operating cash flow is generated by subsidiaries. Our liquid assets are held primarily at the holding
company level, but also at our larger subsidiaries. The legal or contractual restrictions on our ability to transfer funds within the group,
whether in the form of dividends, loans or advances, do not significantly reduce our financial flexibility.
FINANCING
Long-Term Debt
A summary of our long-term debt is as follows:
1.80% Convertible Subordinated Notes due 2004 (less unamortized discount of $5.9)
1.87% Convertible Subordinated Notes due 2006 (less unamortized discount of $23.5)
7.875% Senior Unsecured Notes due 2005
7.25% Senior Unsecured Notes due 2011
5.40% Senior Unsecured Notes due 2009 (less unamortized discount of $0.3)
6.25% Senior Unsecured Notes due 2014 (less unamortized discount of $1.0)
4.50% Convertible Senior Notes due 2023
Other notes payable and capitalized leases — at interest rates from 4.5% to 22.23%
Total long-term debt
Less: current portion
Long-term debt, excluding current portion
December 31,
2004
2003
$
$
—
—
255.0
500.0
249.7
347.3
800.0
42.1
2,194.1
258.1
1,936.0
$
$
244.1
337.5
522.1
500.0
—
—
800.0
42.1
2,445.8
247.1
2,198.7
Exposure to interest rate movements is reduced by interest rate swap agreements. As a result of these agreements, the effective
interest rate for the 6.25% Senior Unsecured Notes differs from its stated rate.
50
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Annual repayments of long-term debt as of December 31, 2004 are scheduled as follows:
2005
2006
2007
2008
2009
Thereafter
Total long-term debt
$
$
258.1
3.9
2.1
1.6
250.5
1,677.9
2,194.1
Redemption and Repurchase of Long-Term Debt
In January 2004, we redeemed the 1.80% Convertible Subordinated Notes with an aggregate principal amount of $250.0 at
maturity at an aggregate price of approximately $246.0, which included the principal amount of the Notes plus original issue discount
and accrued interest to the redemption date. To redeem these Convertible Subordinated Notes, we used approximately $246.0 of the
net proceeds from the 2003 Common and Mandatory Convertible Preferred Stock offerings as discussed below.
In November 2004, we tendered for $250.0 of the $500.0 outstanding face value 7.875% Senior Unsecured Notes at an aggregate
price of approximately $263.1, which included the principal amount of the Notes plus accrued interest to the tender date. A
prepayment premium of $9.8 was recorded on the early retirement of $250.0 of these Notes. In December 2004, we redeemed our
outstanding 1.87% Convertible Subordinated Notes with an aggregate principal amount of approximately $361.0 at maturity at an
aggregate price of approximately $346.8, which included the principal amount of the Notes plus accrued interest to the redemption
date. To tender for the 7.875% Senior Unsecured Notes and redeem the 1.87% Convertible Subordinated Notes, we used
approximately $250.0 and $350.0, respectively, of the net proceeds from the sale and issuance in November 2004 of the 5.40% Senior
Unsecured Notes due November 2009 and 6.25% Senior Unsecured Notes due November 2014.
In August 2005, we redeemed the remainder of the outstanding 7.875% Senior Unsecured Notes with an aggregate principal
amount of approximately $250.0 at maturity at an aggregate price of approximately $258.6, which included the principal amount of
the Notes plus accrued interest to the redemption date. To redeem these Notes we used the proceeds from the sale and issuance in July
2005 of $250.0 Floating Rate Notes due in July 2008.
Consent Solicitation
In March 2005, we completed a consent solicitation to amend the indentures governing five series of our outstanding public debt
to provide, among other things, that our failure to file with the trustee our SEC reports, including our 2004 Annual Report on
Form 10-K and Quarterly Reports for the first and second quarter of 2005 on Form 10-Q, would not constitute a default under the
indentures until September 30, 2005.
The indenture governing our 4.50% Convertible Senior Notes was also amended to provide for: (1) an extension from March 15,
2005 to September 15, 2009 of the date on or after which we may redeem the 4.50% Notes and (2) an additional “make-whole”
adjustment to the conversion rate in the event of a change of control meeting specified conditions.
Convertible Senior Notes
The 4.50% Convertible Senior Notes (“4.50% Notes”) are convertible to common stock at a conversion price of $12.42 per share,
subject to adjustment in specified circumstances. They are convertible at any time if the average price of our common stock for 20
trading days immediately
51
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
preceding the conversion date is greater than or equal to a specified percentage, beginning at 120% in 2003 and declining 0.5% each
year until it reaches 110% at maturity, of the conversion price. They are also convertible, regardless of the price of our common stock,
if: (i) we call the 4.50% Notes for redemption; (ii) we make specified distributions to shareholders; (iii) we become 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) or (iv) the credit ratings assigned to the 4.50% Notes by any two of Moody’s Investors Service, Standard & Poor’s and
Fitch Ratings are lower than Ba2, BB and BB, respectively, or the 4.50% Notes are no longer rated by at least two of these ratings
services. Because of our current credit ratings, the 4.50% Notes are currently convertible into approximately 64.4 shares of our
common stock.
We, at the investors’ option, may be required to redeem the 4.50% Notes for cash on March 15, 2008 and may also be required to
redeem the 4.50% Notes at the investors’ option on March 15, 2013 and March 15, 2018, for cash or common stock or a combination
of both, at our election. Additionally, investors may require us to redeem the 4.50% Notes in the event of certain change of control
events that occur prior to March 15, 2008, for cash or common stock or a combination of both, at our election. If at any time on or
after March 13, 2003 we pay cash dividends on our common stock, we will pay contingent interest in an amount equal to 100% of the
per share cash dividend paid on the common stock multiplied by the number of shares of common stock issuable upon conversion of
the 4.50% Notes. At our option, we may redeem the 4.50% Notes on or after September 15, 2009 for cash. The redemption price in
each of these instances will be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any.
The 4.50% Notes also provide for an additional “make-whole” adjustment to the conversion rate in the event of a change of control
meeting specified conditions.
Credit Arrangements
We have committed and uncommitted lines of credit with various banks that permit borrowings at variable interest rates. At
December 31, 2004 and 2003, there were no borrowings under our committed facilities, however, there were borrowings under the
uncommitted facilities made by several of our international subsidiaries totaling $67.8 and $69.8, respectively. We have guaranteed
the repayment of some of these borrowings by our subsidiaries. The weighted-average interest rate on outstanding balances under the
uncommitted short-term facilities at December 31, 2004 and 2003 was approximately 5% in each year. A summary of our credit
facilities is as follows:
Committed
364-Day Revolving Credit
Facility
Three-Year Revolving Credit
Facility
Five-Year Revolving Credit
Facility
Other Facilities
Uncommitted
International
Total
Facility
2004
Amount
Outstanding
Total
Available
Total
Facility
2003
Amount
Outstanding
Total
Available
December 31,
$ 250.0
$
450.0
—
0.8
$ 700.8
$ 738.1
$
$
—
—
—
—
—
67.8
$
250.0
$ 500.0
$
284.6*
—
—
0.8
535.4
375.0
0.8
$ 875.8
670.3
$ 744.8
$
$
$
$
—
—
—
—
—
69.8
$
339.9**
—
375.0
0.8
715.7
675.0
$
$
* Amount available is reduced by $165.4 of letters of credit issued under the Three-Year Revolving Credit Facility at December 31,
2004.
52
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
** Amount available is reduced by $160.1 of letters of credit issued under the 364-Day Revolving Credit Facility at December 31,
2003.
Our primary bank credit agreements are two credit facilities, a 364-day revolving credit facility (“364-Day Revolving Credit
Facility”) and a three-year revolving credit facility (“Three-Year Revolving Credit Facility” and, together with the 364-Day Revolving
Credit Facility, the “Revolving Credit Facilities”). The 364-Day Revolving Credit Facility provides for borrowings of up to $250.0
and expires on September 30, 2005. The Three-Year Revolving Credit Facility expires on May 9, 2007 and provides for borrowings of
up to $450.0, of which $200.0 is available for the issuance of letters of credit.
Our Three-Year Revolving Credit Facility was amended and restated as of September 27, 2005. The effectiveness of the amended
Three-Year Revolving Credit Facility is subject to certain conditions as described below.
The terms of the amended Three-Year Revolving Credit Facility do not permit us: (i) to make cash acquisitions in excess of $50.0
until October 2006, or thereafter in excess of $50.0 until expiration of the agreement in May 2007, subject to increases equal to the net
cash proceeds received in the applicable period from any disposition of assets; (ii) to make capital expenditures in excess of $210.0
annually; (iii) to repurchase or to declare or to pay dividends on our capital stock (except for any convertible preferred stock,
convertible trust preferred instrument or similar security, which includes our outstanding 5.40% Series A Mandatory Convertible
Preferred), except that we may repurchase our capital stock in connection with the exercise of options by our employees or with
proceeds contemporaneously received from an issue of new shares of our capital stock; and (iv) to incur new debt at our subsidiaries,
other than unsecured debt incurred in the ordinary course of business, which may not exceed $10.0 in the aggregate with respect to our
US subsidiaries.
The amended Three-Year Revolving Credit Facility also sets forth revised financial covenants. These require that, as of the fiscal
quarter ended September 30, 2005 and each fiscal quarter thereafter, we maintain (i) an interest coverage ratio of not less than that set
forth opposite the corresponding quarter in the table below:
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
53
Ratio
2.15 to 1
1.75 to 1
1.85 to 1
1.45 to 1
1.75 to 1
2.15 to 1
2.50 to 1
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
(ii) a debt to EBITDA ratio of not greater than that set forth opposite the corresponding quarter in the table below:
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Ratio
5.20 to 1
6.30 to 1
5.65 to 1
6.65 to 1
5.15 to 1
4.15 to 1
3.90 to 1
and (iii) minimum levels of EBITDA for the four fiscal quarters then ended of not less than that set forth opposite the corresponding
quarter in the table below:
Four Fiscal Quarters Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Amount
435.0
360.0
400.0
340.0
440.0
545.0
585.0
$
$
$
$
$
$
$
The terms used in these ratios, including EBITDA, interest coverage and debt, are subject to specific definitions set forth in the
agreement. Under the definition set forth in the Three-Year Revolving Credit Facility, EBITDA is determined by adding to net income
or loss the following items: interest expense, income tax expense, depreciation expense, amortization expense, and certain specified
cash payments and non-cash charges subject to limitations on time and amount set forth in the agreement. We expect to be in
compliance with all covenants under our Three-Year Revolving Credit Facility, as amended and restated, for the next twelve months.
Before agreeing to the amendments, the lenders reviewed preliminary drafts of the Consolidated Financial Statements included in
this Annual Report and in our quarterly reports on Form 10-Q for the first two quarters of 2005. One condition to effectiveness of the
amendments is that we have not received, on or before October 4, 2005 notice from the lenders that have a majority in amount of the
revolving credit commitments that the Consolidated Financial Statements in this Annual Report and our quarterly reports, and the
financial data contained in the notes thereto, are not substantially similar to the preliminary consolidated financial statements we
provided to them. If we receive such a notice, the amended agreement will not become effective. In that event, we will continue to be
subject to the financial covenants that were previously applicable under the Three-Year Revolving Credit Facility, as amended in June
2005 with respect to periods through the second quarter of 2005. We were in compliance with those covenants through June 30, 2005,
but there can be no assurance that we will be in compliance when we report financial information through the third quarter of 2005.
54
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Credit Agency Ratings
Our current long-term debt credit ratings as of September 30, 2005 are Baa3 with negative outlook, BB- with negative outlook and
B+ with negative outlook, as reported by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, respectively. Although a
ratings downgrade by any of the ratings agencies will not trigger an acceleration of any of our indebtedness, a downgrade may
adversely affect our ability to access capital and would likely result in more stringent covenants and higher interest rates under the
terms of any new indebtedness.
Our credit ratings at year-end 2004 and 2003 were as follows:
Senior
2004
December 31,
Senior
2003
Unsecured Subordinated*
Outlook
Unsecured Subordinated
Outlook
Moody’s
Standard & Poor’s
Fitch
Baa3
BB+
BB+
—
—
—
Stable
Credit watch Negative
Stable
Baa3
BB+
BB+
Ba1
BB-
BB-
Credit watch Negative
Stable
Stable
* As of December 31, 2004, we had no Subordinated debt outstanding.
Convertible Preferred Stock
In December 2003 we issued 7.5 shares of Series A Mandatory Convertible Preferred Stock (“Preferred Stock”). The Preferred
Stock carries a dividend yield of 5.375%. On the automatic conversion date in December 2006, each share of the Preferred Stock will
convert, subject to adjustment, to between 3.0358 and 3.7037 shares of common stock, depending on the then-current market price of
our common stock. Under certain circumstances, the Preferred Stock may be converted prior to maturity at our option or at the option
of the holders.
Payment of Dividends
We have not paid any dividends on our common stock since December of 2002. As previously discussed, our ability to declare or
pay dividends on common stock is currently restricted by the terms of our Revolving Credit Facilities. We pay annual dividends on
each share of Preferred Stock in the amount of $2.6875. Dividends are cumulative from the date of issuance and are payable on each
payment date to the extent that dividends are not restricted under the Revolving Credit Facilities and assets are legally available to pay
dividends. In addition to the stated annual dividend, if at any time on or before December 16, 2006, we pay a cash dividend on our
common stock, the holders of Preferred Stock participate in such distributions via adjustments to the conversion ratio, thereby
increasing the number of common shares into which the Preferred Stock will ultimately convert.
CONTRACTUAL OBLIGATIONS
The following summarizes our estimated contractual obligations at December 31, 2004, and the effect on our liquidity and cash
flow in future periods:
Long-term debt
Interest payments
Non-cancelable operating lease obligations
2005
$ 258.1
$ 133.0
$ 269.9
2006
2007
2008
$
3.9
$ 125.5
$ 243.5
$
2.1
$ 125.5
$ 212.9
$
1.6
$ 121.0
$ 186.5
2009
$ 250.5
$ 107.7
$ 155.5
Thereafter
$
$
$
1,677.9
667.9
828.4
Total
$ 2,194.1
$ 1,280.6
$ 1,896.7
55
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Restatement Related Matters
As a result of the restatement review (discussed more fully in Note 2), the Company has recorded additional liabilities with regard
to Vendor Discounts or Credits, Internal Investigations and International Compensation Agreements which amount to $242.3, $114.8
(including $37.5 of additional vendor discounts or credits) and $40.3, respectively, as of December 31, 2004. The Company believes
that these amounts represent our best estimates of our ultimate liabilities in each of these cases based on facts and documents reviewed
and are sufficient to cover any obligations that we may have to our clients, vendors, and various governmental organizations in the
jurisdictions involved. The Company estimates it will pay approximately $250 related to these liabilities over the next 24 months.
We have contingent obligations under guarantees of certain obligations of our subsidiaries (“parent company guarantees”) relating
principally to lines of credit, guarantees of certain media payables and operating leases of certain subsidiaries. The amount of such
parent company guarantees was approximately $601.8 and $658.0 at December 31, 2004 and 2003, respectively. In the event of
non-payment by the subsidiary of the obligations covered by the guarantees, we would be obliged to pay the amounts. As of
December 31, 2004, there are no assets pledged as security for amounts owed or guaranteed.
We have not included obligations under our pension and postretirement benefit plans in the contractual obligations table. Our
funding policy regarding our funded pension plan is to contribute amounts necessary to satisfy minimum pension funding
requirements plus such additional amounts from time to time as are determined to be appropriate to improve the plans’ funded status.
The funded status of our pension plans is dependent upon many factors, including returns on invested assets, level of market interest
rates and levels of voluntary contributions to the plans. Declines in long-term interest rates have had a negative impact on the funded
status of the plans. During 2004, we made voluntary cash contributions of $32.1 to our domestic pension plans only. We can
contribute cash to these plans at our discretion; however we do not expect to make any contributions to our postretirement benefits
plans or domestic pension plans during 2005. We expect to contribute $24.3 to our international plans in 2005.
We have structured certain acquisitions with additional contingent purchase price obligations in order to reduce the potential risk
associated with negative future performance of the acquired entity. In addition, we have entered into agreements that may require us to
purchase additional equity interests in certain consolidated and unconsolidated subsidiaries. The amounts relating to these transactions
are based on estimates of the future financial performance of the acquired entity, the timing of the exercise of these rights, changes in
foreign currency exchange rates and other factors. In accordance with GAAP, we have not recorded a liability for these items on the
balance sheet since the definitive amounts payable are not determinable or distributable. When the contingent acquisition obligations
have been met and the consideration is distributable, we will record the fair value of this consideration as an additional cost of the
acquired entity. The following table details the estimated liability and the estimated amount that would be paid under such options, in
the event of exercise at the earliest exercise date. All payments are contingent upon achieving projected operating performance targets
and satisfying other conditions specified in the related agreements and are subject to revisions as the earn-out periods progress.
56
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following contingent acquisition obligations are net of compensation expense, except as noted below, as defined by the terms
and conditions of the respective acquisition agreements and employment terms of the former owners of the acquired businesses. This
future expense will not be allocated to the assets and liabilities acquired. As of December 31, 2004, our estimated contingent
acquisition obligations are as follows:
Deferred Acquisition Payments
Cash
Stock
Put Options with Consolidated Affiliates*
Cash
Stock
Put Options with Unconsolidated Affiliates*
Cash
Stock
Call Options with Consolidated Affiliates*
Cash
Stock
Subtotal — Cash
Subtotal — Stock
Total Contingent Acquisition Payments
2005
2006
2007
2008
2009
Thereafter
Total
$
48.0
12.4
30.2
0.1
5.4
0.8
$
5.7
5.4
1.8
0.1
3.4
0.9
2.1
$
—
$ 0.9
—
$ 4.3
—
$
9.5
—
3.4
—
3.0
—
3.9
—
3.0
0.9
2.2
—
4.2
—
87.8
$
$
13.3
$ 101.1
1.1
0.5
$ 12.0
$
6.9
$ 18.9
—
—
$ 15.5
$ —
$ 15.5
—
—
$ 7.3
$ 0.9
$ 8.2
—
—
$ 9.5
$ —
$ 9.5
$
$
$
—
—
7.3
—
1.4
0.3
4.8
—
13.5
0.3
13.8
$
61.0
17.8
55.2
0.2
19.3
2.9
10.1
0.5
$ 145.6
$
21.4
$ 167.0
In accounting for acquisitions, we recognize deferred payments and purchases of additional interests after the effective date of
purchase that are contingent upon the future employment of owners as compensation expense in our Consolidated Statement of
Operations. As of December 31, 2004, our estimated contingent acquisition payments with associated compensation expense impacts
are as follows:
Compensation Expense — Related Payments
Cash
Stock
Subtotal
Total Payments
34.1
$
1.8
$
$
35.9
$ 137.0
4.9
$
0.2
$
$
5.1
$ 24.0
$
2.1
$ —
$
2.1
$ 17.6
$ 1.4
$ —
$ 1.4
$ 9.6
$ —
$ —
$ —
$ 9.5
$
$
$
$
1.3
—
1.3
15.1
43.8
$
2.0
$
$
45.8
$ 212.8
* We have entered into certain acquisitions that contain both put and call options with similar terms and conditions. In such instances,
we have included the related estimated contingent acquisition obligations with Put Options.
The 2005 obligations relate primarily to acquisitions that were completed prior to December 31, 2001.
DERIVATIVES AND HEDGING ACTIVITIES
We periodically enter into interest rate swap agreements and forward contracts to manage exposure to interest rate fluctuations and
to mitigate foreign exchange volatility. During the fourth quarter of 2004, we executed three interest rate swaps which synthetically
converted our $350.0, 6.25% Senior Unsecured Notes due November 2014, of fixed rate debt to floating rates. Fair value adjustments
decreased the carrying amount of our debt outstanding at December 31, 2004 by approximately $1.7. In January 2005,
57
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
we executed an interest rate swap which synthetically converted an additional $150.0 of the $500.0, 7.25% Senior Unsecured Notes
due August 2011, of fixed rate debt to floating rates. We entered into the swaps to hedge a portion of our floating interest rate
exposure on our cash investments. In May of 2005, we terminated all of our long-term interest rate swap agreements covering the
$350.0, 6.25% Senior Unsecured Notes and $150.0 of the $500.0, 7.25% Senior Unsecured Notes. In connection with the interest rate
swap termination, our net cash receipts were approximately $1.1, which will be recorded as an offset to interest expense over the
remaining life of the related debt.
We have entered into foreign currency transactions in which various foreign currencies are bought or sold forward. These
contracts were entered into to meet currency requirements arising from specific transactions. The changes in value of these forward
contracts were reflected in our Consolidated Statement of Operations. As of December 31, 2004 and 2003, we had contracts covering
approximately $1.8 and $2.4, respectively, of notional amount of currency and the fair value of the forward contracts was negligible.
The terms of the 4.50% Convertible Senior Notes include two embedded derivative instruments. The fair value of the two
derivatives on December 31, 2004 was immaterial.
INTERNAL CONTROL OVER FINANCIAL REPORTING
We have identified numerous material weaknesses in our internal control over financial reporting, as set forth in greater detail in
Item 8, Management’s Assessment on Internal Control Over Financial Reporting and Item 9A, Controls and Procedures, of this report.
Each of our material weaknesses results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. As a result, we have assessed that our internal control over financial reporting
was not effective as of December 31, 2004. Management will, however, be unable to determine whether the elements of internal
control over financial reporting related directly to preparing the financial statements for external purposes, as well as the preparation
and calculation of the provision for income taxes, were operating effectively as of December 31, 2004 because internal controls in
place at year-end have been extensively modified prior to the Company’s evaluation of these controls which can no longer be
observed or assessed.
The report of PricewaterhouseCoopers LLP (“PwC”), our independent registered public accounting firm, on our internal control
over financial reporting disclaims an opinion on management’s assessment and on the effectiveness of our internal control over
financial reporting. Until we file an annual report containing an audit report on our internal control over financial reporting that does
not disclaim an opinion on our assessment or on the effectiveness of our internal control over financial reporting, we are subject to
certain limitations under the US federal securities laws as further described in Item 1, Business-Risk Factors.
We are in the process of developing and implementing remedial measures to address the material weaknesses in our internal
control over financial reporting. However, because of our decentralized structure and our many disparate accounting systems of
varying quality and sophistication, we have extensive work remaining to remedy these material weaknesses. While we have made
considerable progress, we have yet to complete the formal work plan for remedying the identified material weaknesses. At present,
there can be no assurance as to when the remediation plan will be completed or when it will be implemented. Until our remedial
efforts are completed, we will continue to incur the expenses and management burdens associated with the manual procedures and
additional resources required to prepare our Consolidated Financial Statements. There will also continue to be a substantial risk that
we will be unable to make future SEC filings on time. These developments, and the effect on our actual or perceived liquidity and
credit standing, could have material adverse effects on our financial condition and further adverse affects
58
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
on our business or our liquidity that we cannot predict. We discuss these risks under Risk Factors in Item 1 of this Annual Report.
RESTATEMENT
In connection with our work to comply with Section 404 of the Sarbanes-Oxley Act of 2002, we identified errors in our accounting
and previously reported financial results. In March 2005, we announced that we would delay filing our Annual Report on Form 10-K,
and began a comprehensive review of previously reported financial information. The scope of our review included the analysis of
accounting for acquisitions, revenue and leases, internal investigations into potential employee misconduct, as well as other
miscellaneous areas impacted by the identified material weaknesses. The review, conducted under the direction of our senior
management with the oversight of the Audit Committee of the Board of Directors, included our operating agencies and consisted of an
extensive examination of financial information and significant transactions.
Our procedures were substantially manual and involved hundreds of our employees and external consultants and took over six
months to complete. These procedures included examining the accounting for more than 400 acquisitions, leases at approximately 370
entities, approximately 10,000 account reconciliations and account analyses and over 300,000 intercompany transactions, as well as a
comprehensive review of over 20,000 client contracts with respect to timing of revenue recognition, vendor related discounts or
credits and income statement classification. In addition, we are in various stages of completing approximately 50 internal
investigations addressing employee misconduct predominantly outside the US. In order to complete this work, we have hired or
replaced hundreds of temporary and permanent accountants. Management believes the scope and process of its internal review of
previously reported financial information was sufficient to identify issues of a material nature that could affect our Consolidated
Financial Statements and all dates and periods presented herein have been restated to fairly present the results of our operations.
The errors in our previously reported financial information, and the failure to prevent them or detect them in our financial
reporting process, were largely attributable to weak internal controls, our decentralized operational structure, general lack of
compliance with our policies and procedures, numerous disparate operating information technology systems, inadequate oversight by
management at various levels within our organization, and an inadequate staff of competent accounting personnel with an appropriate
level of knowledge of GAAP. We concluded that our control environment has not progressed sufficiently to serve as an effective
foundation for all other components of internal control.
As a result of our review, we determined that a restatement of previously reported financial information was required. Our
previously reported financial information should no longer be relied upon. Accordingly, we have restated our previously reported
financial information for the years ended December 31, 2003, 2002, 2001, and 2000 and our previously reported financial information
for the first, second and third quarters of 2004 and 2003 (the “restatement”). The restatement also affects periods prior to 2000, which
is reflected as an adjustment to opening retained earnings as of January 1, 2000. The restatement covers a number of separate matters,
each of which is described below and in further detail in Item 8, Financial Statements and Supplementary Data, Note 2, Restatement
of Previously Issued Financial Statements.
The law firm of Dewey Ballantine LLP was retained to advise the Audit Committee of the Board of Directors regarding the
discharge of its obligations. The scope of the Dewey Ballantine LLP work included oversight of the internal investigations into
potential employee misconduct being conducted by our internal audit group and the overall restatement process conducted by
management. Dewey Ballantine LLP
59
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
retained a forensic accounting firm to assist with its work involving the internal investigations and review of the overall restatement
process.
For the quarterly impact of the restatement issue and the restated financial results for the first, second and third quarters of 2004,
see Item 8, Financial Statements and Supplementary Data, Note 20, Results by Quarter.
The following tables summarize the impact of all of these adjustments on previously reported revenue; net income (loss) from
continuing operations and earnings per share; and assets, liabilities, and stockholders’ equity. The overall impact on stockholders’
equity of the restatement adjustments as of September 30, 2004, the date for which we last published financial statements, is
approximately $550 million or 27.5% of the previously reported September 30, 2004 equity balance.
As previously reported
Revenue Recognition Related to Vendor Discounts or
Credits
Revenue Recognition related to Customer Contracts
Revenue Presentation
Pre-Acquisition Earnings
Internal Investigations
Other Adjustments
Total Adjustments
As restated
For the Years Ended December 31,
Impact of Adjustments on Revenue
2003
5,863.4
$
2002
5,737.5
$
2001
6,352.7
$
2000
6,728.5
$
(50.6)
(18.7)
355.6
—
(7.2)
19.2
298.3
6,161.7
$
60
(40.2)
(8.6)
358.5
(2.5)
(6.1)
20.5
321.6
6,059.1
$
(42.8)
(3.6)
340.2
(4.2)
(2.9)
(40.9)
245.8
6,598.5
$
(25.9)
(6.8)
264.3
(42.2)
(4.6)
(41.1)
143.7
6,872.2
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
For the Year Ended December 31, 2003
For the Year Ended December 31, 2002
Basic
Earnings
(Loss) Per
Share of
Common
Net Income
(Loss)
Stock
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
Basic
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
As previously reported
$
(552.9)
$
(1.43)
$
(1.43)
$
68.0
$
0.18
$
Revenue Recognition Related to
Vendor Discounts or Credits
Revenue Recognition Related to
Customer Contracts
Future Obligations Related to Prior
Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated
Weighted-average shares:
(45.4)
(15.8)
(24.2)
—
(18.6)
(8.8)
(2.5)
28.1
(87.2)
(640.1)
$
(0.12)
(0.04)
(0.06)
—
(0.05)
(0.02)
(0.01)
0.07
(0.23)
(1.66)
385.5
$
(0.12)
(0.04)
(0.06)
—
(0.05)
(0.02)
(0.01)
0.07
(0.23)
(1.66)
385.5
$
(32.9)
(4.5)
(13.8)
(0.7)
(14.4)
(8.5)
(0.3)
(7.7)
(82.8)
(14.8)
$
(0.09)
(0.01)
(0.04)
—
(0.04)
(0.02)
—
(0.02)
(0.22)
(0.04)
376.1
$
$
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
0.18
(0.09)
(0.01)
(0.04)
—
(0.04)
(0.02)
—
(0.02)
(0.22)
(0.04)
376.1
For the Year Ended December 31, 2001
Basic
Earnings
Diluted
(Loss) Per
Share of
Common
Net Income
(Loss)
Stock
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
Basic
Earnings
(Loss) Per
Share of
Common
Stock
For the Year Ended December 31, 2000
As previously reported
$
(550.1)
$
(1.49)
$
(1.49)
$
386.4
$
1.07
$
Revenue Recognition Related to
Vendor Discounts or Credits
Revenue Recognition Related to
Customer Contracts
Future Obligations Related to Prior
Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated
Weighted-average shares
(35.7)
(2.8)
(14.0)
2.8
(10.9)
(4.4)
(2.9)
19.4
(48.5)
(598.6)
$
(0.10)
(0.01)
(0.04)
0.01
(0.03)
(0.01)
(0.01)
0.06
(0.14)
(1.62)
369.0
$
(0.10)
(0.01)
(0.04)
0.01
(0.03)
(0.01)
(0.01)
0.06
(0.13)
(1.62)
369.0
(19.6)
(4.3)
(10.1)
(5.1)
(3.7)
(4.6)
(7.0)
(8.1)
(62.5)
323.9
$
(0.05)
(0.01)
(0.03)
(0.01)
(0.01)
(0.01)
(0.02)
(0.03)
(0.17)
0.90
359.6
$
$
$
61
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
1.04
(0.05)
(0.01)
(0.03)
(0.01)
(0.01)
(0.01)
(0.02)
(0.03)
(0.17)
0.87
370.5
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Impact of Adjustments on Consolidated Balance Sheet Accounts
As previously reported
Revenue Recognition
Related to Vendor
Discounts or Credits
Revenue Recognition
Related to Customer
Contracts
Future Obligations Related
to Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International
Compensation
Arrangements
Accounting for Leases
Other Adjustments
Total Adjustments
As restated
Total
Assets
$ 12,234.5
As of December 31, 2003
Total
Liabilities
Stockholders’
Equity
$
9,628.6
$
2,605.9
Total
Assets
$ 11,793.7
As of December 31, 2002
Total
Liabilities
Stockholders’
Equity
$
9,693.7
$
2,100.0
36.3
198.5
(162.2)
26.7
130.8
(104.1)
33.6
(2.3)
(38.6)
9.1
122.7
64.2
(2.6)
61.4
(89.1)
(66.5)
(36.0)
(52.3)
37.5
(5.0)
(17.1)
(3.4)
101.1
37.2
(2.6)
27.6
(63.6)
(42.2)
(14.5)
(31.1)
2.8
38.9
131.6
211.4
$ 12,445.9
29.2
67.6
157.5
698.5
$ 10,327.1
$
(26.4)
(28.7)
(25.9)
(487.1)
2,118.8
2.1
38.3
32.2
111.3
$ 11,905.0
19.6
61.7
113.3
488.7
$ 10,182.4
$
(17.5)
(23.3)
(81.1)
(377.4)
1,722.6
Impact of Adjustments on Consolidated Balance Sheet Accounts
Total
Assets
$ 11,375.3
As of December 31, 2001
Total
Liabilities
$ 9,535.2
$
Stockholders’
Equity
1,840.1
Total
Assets
$ 12,253.6
As of December 31, 2000
Total
Liabilities
Stockholders’
Equity
$
9,883.3
$
2,370.3
19.8
85.8
(66.0)
11.1
42.3
(31.3)
(51.5)
(15.0)
(17.5)
(4.9)
(5.0)
(19.6)
(72.8)
(217.6)
2,152.7
32.6
(0.6)
(16.5)
(1.4)
86.3
28.3
(2.6)
14.0
(53.7)
(28.8)
(14.0)
(15.4)
31.1
(0.5)
(20.2)
0.5
82.5
14.6
(2.7)
5.4
Arrangements
Accounting for Leases
Other Adjustments
Total Adjustments
As restated
1.2
46.2
(16.3)
65.0
$ 11,440.3
10.2
67.6
35.9
325.5
$ 9,860.7
(9.0)
(21.4)
(52.2)
(260.5)
1,579.6
—
37.9
(63.2)
(3.3)
$ 12,250.3
5.0
57.4
9.8
214.3
$ 10,097.6
$
$
62
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
As previously reported
Revenue Recognition
Related to Vendor
Discounts or Credits
Revenue Recognition
Related to Customer
Contracts
Future Obligations Related
to Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
As previously reported at December 31, 1999
Revenue Recognition Related to Vendor Discounts or Credits
Revenue Recognition Related to Customer Contracts
Future Obligations Related to Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated at January 1, 2000
Description of Restatement Adjustments:
Revenue Recognition
Revenue Recognition related to Vendor Discounts or Credits:
Impact of
Adjustments on
Retained Earnings
1,320.4
(16.9)
(75.0)
(5.2)
(31.8)
(1.1)
(21.4)
(13.6)
(165.0)
1,155.4
$
$
We receive rebates, discounts, and other credits from our vendors and media outlets for the acquisition of goods and services that
are entered into on behalf of our clients. The expenses include the purchase of various forms of media, including television, radio, and
print advertising space, or production costs, such as the creation of advertising campaigns, commercials, and print advertisements.
Revenues in the advertising and communicative services business are frequently recorded net of third party costs as the business is
primarily an agent for its clients. Since these costs are billed to clients, there are times when vendor discounts, credits, or price
differences can affect the net revenue recorded by the agency. These third party discounts, rebates, or price differences are frequently
referred to as credits.
Our contracts are typically “fixed-fee arrangements” or “cost-based arrangements.” In “fixed-fee arrangements,” the amount we
charge our clients is comprised of a fee for our services. The fee we earn, however, is not affected by the level of expenses incurred.
Therefore, any rebates or credits received in servicing these accounts do not create a liability to the client. In “cost-based
arrangements,” we earn a percentage commission or flat fee based on or incremental to the expenses incurred. In these cases, rebates
or credits received may accrue to the benefit of our clients and create a liability payable to the client. The implication and
interpretation of cost language included in our contracts can vary across international and domestic markets in which we operate and
can affect whether or not we have a liability to the client.
Without adequate contract review procedures the operating practice and the accounting in some of our agencies, predominantly
outside the United States, relied on local customs and practices. As a result, in some instances, our accounting for the vendor discount
was inconsistent with the underlying contractual requirements, which necessitated accounting adjustments. To correct for improperly
recorded revenue, we have established a liability to refund these credits, discounts and rebates to our customers in accordance with our
contractual obligations.
As part of the restatement, we have performed an extensive review of our client contracts and local law to determine the impact of
improperly recognizing these media and vendor credits as additional revenue instead of recognizing a liability to our clients. We have
determined our exposure to each type of these credits by agency, reviewed our legal obligations considering our client contracts and
local law, and
63
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
established a liability as necessary. Where it was impractical to review client contracts we have estimated our exposure. If our estimate
is incorrect we may need to materially adjust our liability.
In order to remediate this issue, we are in the process of issuing a formal policy to require proper transparency in our contracts,
and proper handling and accounting for these types of vendor discounts or credits received in the normal course of business.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2000; we have recorded an adjustment of $(16.9) to retained earnings at January 1, 2000
related to vendor discounts or credits.
Revenue Recognition Related to Vendor Discounts or Credits
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
2003
Impact of Restatement
2002
2001
2000
(50.6)
(53.3)
(7.9)
(45.4)
9.6
67.7
(40.2)
(41.4)
(8.5)
(32.9)
7.0
45.0
(42.8)
(48.8)
(13.0)
(35.7)
8.7
43.4
(25.9)
(26.7)
(7.1)
(19.6)
7.0
25.6
Revenue Recognition related to Customer Contracts:
We recognize revenue when persuasive evidence of an arrangement exists, there is fixed and determinable pricing, and upon
completion of the earnings process in accordance with the terms of the arrangement with our clients, which is generally as services are
performed and/or when the media placements or production are completed.
For project based arrangements, revenue is recognized based upon the agreement that we have in place with our customers. Our
fees are generally recognized as earned, based on the proportional performance method of revenue recognition in situations where our
fee is reconcilable to the actual hours incurred to service the client, as detailed in a contractual staffing plan, or where the fee is earned
on a per hour basis, with the amount of revenue recognized in both situations limited to the amount realizable per the terms of the
client contract. Where it is determined that the contractual staffing plan is incomplete or there is no staffing plan, we defer the
recognition of revenue until the period in which all work is completed. For retainer-based arrangements, fees are recognized on a
straight line or monthly basis when service is provided, essentially on a pro rata basis, and the terms of the contract support that
accounting. We require explicit language in the contract evidencing that our obligation to the client for services rendered is satisfied
on a monthly basis. We evaluate the termination provisions of the contract for a determination of amounts realizable at an interim
date. Where it is determined that the terms of the contract do not clearly support monthly recognition of revenue, we defer the
recognition of revenue until the period in which all work is completed.
In certain transactions with our customers the persuasive evidence of the customer arrangement was not always adequate to
support revenue recognition, or the timing of revenue recognition did not appropriately follow the specific contract terms. As part of
our review, we reviewed significant client contracts to ensure that revenue was recognized in accordance with the terms of the contract
and/or with our policies as outlined above.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
We have established the following terms as the specific criteria to be followed consistently across our global operating divisions.
For adequate persuasive evidence of arrangements, we required signed contractual agreements or in lieu of a signed contract, other
evidence or documentation from our customers was required in the period in which revenue was recognized. This evidence was
required to define our compensation, to give a clear indication of how revenue was to be earned, and to describe how our obligation to
the client was to be satisfied. In the absence of persuasive evidence of an arrangement or detailed invoices indicating the level of
services performed were not available, we deferred the recognition of revenue for the entire contract, until we could assure that all
internal work was completed. Where it was determined that persuasive evidence was lacking or insufficient, we deferred the
recognition of revenue until that period in which persuasive evidence was obtained, cash was received accompanied by a detailed
customer invoice, or all work was completed.
In connection with the restatement, we have established a formal policy with specific guidelines and tools as to how revenue
should be recorded under the following bases: proportional performance, monthly, completed contract, or in accordance with other
quantitative or qualitative goals as specified by the contract. We also plan to create a central tracking system that will detail all
arrangements with clients which will assist in ensuring that all criteria for proper revenue recognition are met and properly classified.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2000; we have recorded an adjustment of $75.0 to retained earnings at January 1, 2000 related
to customer contracts.
Revenue Recognition Related to Customer Contracts
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
2003
Impact of Restatement
2001
2002
2000
(18.7)
(17.2)
(1.4)
(15.8)
(8.6)
(6.7)
(2.1)
(4.5)
(3.9)
21.6
4.9
14.8
(3.6)
(3.6)
(0.9)
(2.8)
1.5
3.7
(6.8)
(6.8)
(2.5)
(4.3)
3.4
7.6
Accounting for Reimbursement of Out-of-Pocket Expenses:
We incur incidental out-of-pocket expenses in the course of providing services to our clients, for which we are reimbursed by our
clients. These relate to travel, meals, and other incidental expenses. Under EITF 01-14, Income Statement Characterization of
Reimbursements Received for “Out-of-Pocket” Expenses Incurred, the reimbursements should be recorded as revenue and operating
expenses in the Consolidated Statement of Operations.
Prior to 2004, we incorrectly recorded some of these reimbursements of out-of-pocket expenses as a reduction of operating
expenses. The effect was to report both revenue and expense net of these out-of-pocket expenses and reimbursements. In 2004, we
established a formal policy detailing the proper classification of these expense reimbursements.
We reviewed significant activity for all financial periods prior to 2004 to identify instances in which this error was made. In the
restatement, we have reported client reimbursements of out-of-pocket expenses as revenue in all periods. Compared to our previously
published Consolidated Financial Statements, the
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
effect of the restatement is to increase revenue and expense amounts, with no effect on operating income, and to reduce operating
margin in percentage terms.
Gross versus Net Revenue Presentation:
We incur and pay certain expenses on behalf of our clients typically relating to the cost of media purchases or production work.
We invoice our clients for these expenses in addition to our fees for services provided. EITF 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, sets forth criteria for the judgment whether revenue should be recognized based on the gross amount
billed to the customer or net of amounts paid to suppliers. Because we are broadly considered an advertising agency based on our
primary lines of business and only in certain situations would we record revenue other than on a net basis. Accordingly, we generally
record revenue net of pass-through charges as we believe the relative strength of the key indicators, taken as a whole, suggest we
generally act as an agent on behalf of our clients in our primary lines of business.
We reviewed our lines of business and evaluated our status as a principal or agent, and we reviewed significant transactions to
ensure the proper accounting for revenue. We assessed whether the agency or the third-party supplier is the primary obligor for
services provided to the client. We evaluated the terms of our client agreements as part of this assessment. In addition we gave
appropriate consideration to other key indicators, such as latitude in establishing price and discretion in supplier selection, and less
consideration to others, such as credit risk.
We determined that for certain of our businesses, primarily sales promotion, event, sports and entertainment marketing and
corporate and brand identity services, the relative strength of the indicators suggests we act as a principal. Accordingly, under
EITF 99-19, we accounted for revenue on a net basis in error. In the restatement, for those businesses we have recorded the gross
amount billed to the client as revenue consistently on a historical basis. Compared to our previously published Consolidated Financial
Statements, the effect of the restatement is to increase revenue and expense by equal amounts, with no effect on operating income or
balance sheet accounts, and to reduce operating margin in percentage terms.
We have defined specific criteria which our personnel can use to evaluate whether we are acting as a principal or an agent in their
arrangements with clients.
The impact on our Consolidated Financial Statements for the Accounting for Out-of-Pocket Expenses and Gross versus Net
Revenue Presentation is presented in the following table:
Revenue Presentation
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Accounting for Acquisitions
Future Obligations related to Prior Acquisitions:
2003
355.6
—
—
—
Impact of Restatement
2002
2001
358.5
—
—
—
340.2
—
—
—
2000
264.3
—
—
—
The terms of our acquisitions generally provide for initial payment on the date of sale and contingent amounts over succeeding
years, calculated based on the growth and financial performance of the business or the retention of key personnel. As a result, we
maintain contingent obligations related to acquisitions
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
made in prior years, such as deferred payments and put options. Deferred payments, or “earn-outs,” generally tie the aggregate price
ultimately paid for an acquisition to the business’ performance and are included in the terms of the original purchase to minimize our
risk associated with potential future negative changes in the performance of the acquired entity during the post-acquisition transition
period. Earn-outs are typically contingent upon the achievement of projected operating performance targets, as specified in the
purchase contract. For those acquisitions where we purchase partial ownership interest in a business, there are often matching put and
call options issued. These put and call options are not fixed, rather they are based on a formula that approximates fair value. Put
options require us to purchase additional equity interests in the future. Put option amounts to be paid are typically accounted for when
the put option is exercised, except in instances where put option payments are specifically contingent upon the future employment of
key personnel, in which case compensation expense is accrued prior to when the related put option is exercised. Call options entitle us
to acquire additional equity interests in the future. Call option amounts to be paid are contingent upon our decision to exercise our
option. Therefore, purchases of additional interests related to call options are accounted for when the related call option is exercised.
In accounting for acquisitions, we recognize deferred payments and purchases of additional interests after the effective date of
purchase, as an increase to goodwill and other intangibles, or as compensation expense, depending on the terms of the purchase
contract. EITF 95-8, Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination, provides criteria for this determination. In some instances, earn-out or put option payments were not properly
accounted for as compensation expense. The effect of this error was to understate compensation expense and, in most instances, to
overstate goodwill.
We reviewed our acquisitions through 2004, including all contingent future obligations as of December 31, 2004, and we have
recorded adjustments to compensation expense and goodwill in periods where contingent acquisition obligations were recorded
inappropriately.
We will require that future acquisition-related transactions be approved by our operating management as well as members of our
Controllers, Corporate Development and Tax groups prior to execution of the related agreement. Our central repository of related
information has been reviewed for completeness and accuracy and updated to ensure that it contains critical files and data. We plan to
update our policies concerning the proper accounting for future obligations related to our acquisitions. The restatement also affects
periods prior to 2000; we have recorded an adjustment of $5.2 to retained earnings at January 1, 2000.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table:
Future Obligations Related to Prior Acquisitions
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Pre-Acquisition Earnings:
2003
Impact of Restatement
2002
2001
2000
—
—
—
(23.6)
(13.8)
(14.0)
—
—
—
(24.2)
(13.8)
(14.0)
2.8
27.0
(4.5)
8.9
(0.1)
13.7
—
(10.1)
—
(10.1)
(0.0)
9.8
It was not uncommon during the period 1996 through 2002 for us to account for the revenues and expenses of certain entities
acquired from a point in time that was earlier than the date of closing. In those cases we incorrectly recorded the acquired business’
revenues and expenses in our Consolidated Financial Statements for that year as of January 1, although the acquisition closed
subsequent to that date, typically in the latter half of the year. This incorrect recognition of revenue and expenses prior to the closing
date was recorded either as an adjustment in the month of purchase, or by adjusting prior months’ accounting results. As a result of
these misstatements of revenues and expenses, we recorded additional goodwill on our balance sheet to offset the increase to income.
In doing so, we recorded amortization expense on an inflated goodwill balance until the adoption of SFAS No. 142, Goodwill and
Other Intangible Assets, at January 1, 2002, when we ceased amortizing goodwill.
As part of the restatement, we reviewed financial books and records associated with the accounting at the time of acquisition and
utilized quantitative analytics to understand revenue and expenses recorded related to the acquisition. As a result of our review we
identified 142 acquisitions where we had inappropriately recognized earnings prior to our effective legal ownership of the acquired
entities.
We have calculated the impact of this incorrect practice through the review of purchase contracts for the substantial majority of
acquisitions made since 1996. For those entities identified as having recorded pre-acquisition earnings, we identified the actual closing
date of each acquisition and used this as the cutoff date to determine the amount of pre-acquisition earnings improperly recorded. For
those entities identified with pre-acquisition earnings recognition, we also adjusted the goodwill balance for the error. Since the
goodwill balance was misstated we also recalculated the appropriate amortization of goodwill from the date of acquisition.
We have also created a central repository for acquisition data. Accounting for all future acquisitions must be reviewed and
evaluated with the appropriate management oversight prior to the acquisition being finalized and must include members of our
Controllers, Treasury, Corporate Development and Tax groups to prevent this type of inappropriate accounting in future periods.
We have recorded adjustments as part of the restatement to reduce our consolidated revenues, expenses and goodwill balances in
the years where pre-acquisition earnings were recorded inappropriately. We have also made adjustments to amortization expense that
was recorded on our misstated goodwill balance.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2000; we have recorded an adjustment of $31.8 to retained earnings at January 1, 2000 related
to pre-acquisition earnings recognition.
Pre-Acquisition Earnings
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Internal Investigations
2003
—
—
—
—
(0.4)
(0.0)
Impact of Restatement
2002
2001
2000
(2.5)
(1.2)
(0.1)
(0.7)
(0.5)
0.1
(4.2)
1.5
(0.6)
2.8
3.7
0.1
(42.2)
(9.9)
(4.6)
(5.1)
(1.5)
0.0
Instances of possible employee misconduct have come to our attention through our anti-fraud program, internal and external audit
work, and the expanded scope of our work on the restatement. Our corporate risk management group investigates these matters,
frequently with the assistance of outside forensic accountants and legal counsel. It prepares a written report documenting the
investigation, its findings, and recommended actions. The report is then presented to corporate management and the Audit Committee
of the Board of Directors for review. If we conclude that there has been misconduct, we take appropriate personnel action, which may
include termination, and if recommended by counsel, we notify the appropriate governmental and regulatory authorities of violations
of law, and take legal action if appropriate to recover our losses.
The restatement includes the correction of certain unintentional errors in our accounting that were discovered as a result of these
investigations and primarily relate to agencies outside the United States. However, certain of these investigations revealed instances of
deliberate falsification of accounting records, evasion of taxes in jurisdictions outside the United States, inappropriate charges to
clients, diversion of corporate assets, non-compliance with local laws and regulations, and other improprieties. These errors were not
prevented or detected earlier because of material weaknesses in our control environment and decentralized operating structure. In a
number of these cases, the activities appear to have had the purpose of improving the reported financial performance of the operating
unit involved. In a number of cases, we believe the purpose included reducing the personal tax burdens of the individuals involved.
In an effort to improve the Company’s internal control over financial reporting relating to employee misconduct, the Company has
developed an extensive remediation plan. This plan includes specific responses to the findings of each of the internal investigations
referred to below, as well as an enhanced, Company-wide compliance program. The remediation plan has been developed by
management in consultation with outside advisors and has been approved by the Audit Committee.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The table below sets forth the impact of this element of the restatement on our Consolidated Financial Statements for the years
2000 through 2003. The restatement also reflects periods prior to 2000; we have recorded an adjustment of $1.1 in our retained
earnings at January 1, 2000.
Internal Investigations
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
2003
Impact of Restatement
2001
2002
2000
(7.2)
(17.3)
1.2
(18.6)
12.6
30.3
(6.1)
(12.7)
1.9
(14.4)
(2.1)
8.8
(2.9)
(10.3)
0.7
(10.9)
(1.9)
5.6
(4.6)
(4.0)
(0.3)
(3.7)
0.5
4.3
We believe that the liabilities we have recognized relating to the investigations are our best estimate of our ultimate liability based
on the facts and documents reviewed to date. While the vast majority of the investigations have yielded adjustments to our prior period
financial statements reflected in the restatement, several of them are still continuing, and others may arise in the future. Management
has recorded its best estimate of probable exposure based on the facts that it had at the time. We cannot predict what any ongoing
investigation may uncover and what, if any, remedial actions may have to be taken. It is possible that we will be required to pay
material fines, penalties, interest or other amounts associated with these investigations.
Below is a summary of the cases that we have investigated that have resulted in a restatement of our prior period financial results
greater than $5.0. These instances represent approximately 80% of the aggregate cumulative adjustments recorded as a result of our
internal investigations.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of $31.8 including
taxes, penalties and interest of $10.0 relating to errors we identified at our McCann agency in Turkey. These errors are
attributable primarily to the retention of vendor discounts that should have been remitted to clients, the improper valuation of a
previously acquired business and over-billing clients for payments to vendors. Our information to date indicates that these
activities involved misconduct by local senior management. When the investigation is concluded, we will determine the
appropriate personnel actions, which could include terminations of local senior management.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of $14.5 relating to
errors identified at our FCB agency in Turkey. These errors were attributable primarily to inappropriate charges to customers and
evasion of local taxes. Our information to date indicates that these activities involved misconduct by local senior management.
When the investigation is concluded, we will determine the appropriate personnel actions, which could include terminations of
local senior management.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of $10.8 relating to
errors we identified at Media First in New York City. These errors are attributable primarily to inadequate recordkeeping but
also included payment of certain employee salaries through accounts payable and without appropriate tax withholdings. The
errors resulted in
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
increased earn-out payments. Some management personnel at the agency involved in this activity have been terminated.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 to 2004 of $10.5 relating to errors we
identified at our FCB agency in Spain. These errors are attributable to the use of companies that were formed to account for the
production and media volume discounts received from production suppliers on a separate set of books and records. As a result,
discounts and rebates to which clients may have been entitled under local law were concealed to prevent detection in the event of
a client audit. In addition, compensation was paid to an agency executive’s personal service company out of these companies
without proper withholding for income taxes. At the same location, we have also recorded adjustments with a cumulative impact
of $4.2. These errors are attributable to the inappropriate recognition of certain discounts and benefits that should have been
remitted to clients. We plan to divest our interest in FCB Spain and sign an affiliation agreement with the management there with
an appropriate control structure to assure future business is properly conducted.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of $12.7 relating to
errors we identified at our McCann agency in Greece. These errors are attributable primarily to retention of vendor discounts in
excess of the level permitted under Greek law and the purchase of prepaid media on a speculative basis without the appropriate
client commitment. In addition, we identified inappropriate related-party transactions and evidence of improper gifts. The senior
officer and other management personnel at the agency have been terminated and parts of the agency’s business have been
divested.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of approximately $7.2
relating to errors we identified at our McCann agency in the Netherlands. These errors are attributable to the recognition as
revenue of certain discounts and benefits that should have been returned to clients or vendors. We have terminated and/or
replaced local financial and operating management.
• We have recorded adjustments with a cumulative impact on net income for the years 2000 through 2004 of $8.6 relating to errors
identified at five McCann agencies in Azerbaijan, Ukraine, Uzbekistan, Bulgaria and Kazakhstan. These errors were attributable
to failure to record and pay compensation-related taxes, value added taxes and corporate income taxes, and to inadequate record
keeping. Management in these jurisdictions paid certain employees as contractors, often in cash, without accounting for the
payments. In three of these countries, income and expenses were recorded by a service company located outside these
jurisdictions to avoid corporate tax or value added tax. We have sold or are in the process of selling all of these entities. In the
case of the Ukraine, we plan on signing an affiliation agreement with the management there with appropriate controls in place to
assure our business is properly conducted.
In addition, the other investigations that had an impact of less than $5.0 each have resulted in adjustments with a cumulative
impact on net income for the years 2000 through 2004 of $11.9. The errors were similar in nature to those described above. We have
terminated, or are in the process of terminating, the employees involved in these occurrences.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Review of International Compensation Arrangements
Over the past 18 months, we have undertaken an extensive review of employment compensation practices across our organization.
While most practices were found to be acceptable, we have identified some practices in certain jurisdictions that required additional
review. The key areas are as follows:
Personal Service Companies. The advertising industry and many other service industries frequently make use of freelancers, who
are typically treated as independent contractors and not subjected to the regulations that apply to an employee-employer relationship.
In certain instances, particularly in Europe and Latin America, it is common for individuals to establish a personal service company
(“PSC”), in which case the hiring company will normally contract directly with the PSC for the services of the individual. In every
jurisdiction that was reviewed, PSC arrangements are legal and often customary and socially acceptable. However, in certain
circumstances, if the individual does not meet the established criteria, the PSC structure is not a permissible vehicle and could result in
an avoidance of personal income tax and social tax by the individual and, in the case of the company, an avoidance of social tax. We
reviewed every situation where one of our agencies had indicated that it contracted with a PSC and determined that in a number of
instances, the use of a PSC was not supportable.
Payment of Personal Expenses Outside the Normal Payroll Mechanism. We have also identified in certain countries, including
some in which such a practice was customary and socially acceptable, instances where expenses that can be considered personal in
nature were reimbursed to an individual employee outside the payroll mechanism. The practice resulted in the payment not being
reported through the normal payroll system and no appropriate tax withholdings being made. We have identified those instances
where we believe such practice should have been reported through the payroll system.
Split Salary Payments. We identified certain instances where an individual employee received compensation from a jurisdiction
outside the jurisdiction in which he was primarily employed (home country). In such instances, the paying company normally would
not report or withhold local income tax on such salary payments, relying on the employee to report and remit the appropriate taxes to
the country of employment. We have identified those instances where either the paying entity or the local employing entity had an
affirmative obligation to report and withhold personal income and social taxes.
Equity Grants and Retirement Payments. In a number of instances we identified stock option and restricted stock or retirement
annuities granted to employees outside the US and upon exercise or vesting, neither the US company nor the local company reported
the compensation arising therefrom or withheld applicable local tax. Instead the agency notified each employee of the employee’s
obligation to report and withhold in the respective local country of residence or employment. We have identified certain jurisdictions
where we or the local employing agency should have withheld on or reported the compensation to the local authorities.
Independent Contractor/ Employees. A common issue in our industry is the retention of services by individuals in the capacity of
an independent contractor instead of as an employee. There are specific criteria in every jurisdiction in which we do business which
establish whether an individual is to be characterized as an employee or as an independent contractor. In a number of instances we
have identified individuals who were classified as independent contractors but should have been considered employees.
As it relates to the 5 issues, Personal Service Companies, payment of personal expenses outside the normal payroll mechanism,
split salary payments, equity grants and retirement payments, and independent contractors/ employees, we have recorded adjustments
with a cumulative impact on net income for the years 2000 through 2003 of $26.8, of which $9.9 related to PSCs.
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The table below sets forth the impact of this element of the restatement on our Consolidated Financial Statements for the years
2000 through 2003. The restatement also reflects periods prior to 2000; we have recorded an adjustment of $1.3 in our retained
earnings at January 1, 2000.
International Compensation Arrangements
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Accounting for Lease Related Expenses
Impact of Restatement
2003
2002
2001
2000
—
—
—
(9.6)
(0.7)
(8.8)
0.7
9.6
(9.4)
(0.9)
(8.5)
0.9
9.4
(5.2)
(0.8)
(4.4)
0.8
5.2
—
(5.0)
(0.4)
(4.6)
0.4
5.0
Substantially all of our office space is leased from third parties. Certain of our lease contracts contain rent holidays, various
escalation clauses, or landlord/tenant incentives. While it is our policy to record leases properly, in some instances we did not account
for these lease provisions in accordance with GAAP, specifically, SFAS No. 13, Accounting for Leases, FASB Technical Bulletin
(“FTB”) 85-3, Accounting for Operating Leases with Scheduled Rent Increases, FTB 88-1, Issues Related to Accounting for Leases,
and SFAS No. 143, Accounting for Asset Retirement Obligations. In particular: we recorded rent expense for operating leases on a
cash basis, without consideration for rent holidays; we did not appropriately record or amortize landlord/tenant incentives, and in some
cases, netted reimbursements with leasehold improvement assets; we did not properly record or amortize leasehold improvements over
the appropriate periods, and in some cases, inappropriately amortized leasehold improvement over terms that included assumptions of
lease renewals; we did not completely or accurately record asset retirement obligations related to leasehold improvement assets; and
for lease properties that were part of either our 2001 or 2003 restructuring programs, these errors also impacted amounts previously
recorded for restructuring.
We have reviewed our significant lease arrangements in place as of December 31, 2004. We reviewed rental costs, including costs
related to fixed rent escalation clauses and rent holidays, and correctly recorded them on a straight-line basis over the lease term. We
ensured that landlord/tenant incentives are recorded as leasehold improvement assets and amortized over the shorter of the economic
useful life or the lease term. We ensured that funds received are recorded as deferred rent and amortized as reductions to rent expense
over the lease term. For leasehold improvements, we recorded adjustments to amortize the related assets over the shorter of the
economic useful life or the lease term, and ensured that the lease renewal is “reasonably assured” as that term is contemplated by
SFAS No. 13 when the amortization period includes a renewal period. We ensured that asset retirement obligations are recorded
completely and accurately in the period in which they are incurred and a reasonable estimate of fair value can be made, and that the
amortization of the asset and accretion of the discounted liability is recognized ratably over the useful life of the leasehold
improvement asset. For leased properties that were part of either our 2001 or 2003 restructuring programs, we ensured that prior
period rent costs have been recorded on a straight-line basis prior to time of restructuring and that deferred rent credit balances have
been appropriately taken into consideration in the calculation of the related restructuring reserve at time of restructuring.
73
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
We have revised and expanded guidelines to assist personnel in analyzing and recording lease related expenses in the Consolidated
Statement of Operation.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2000; we have recorded an adjustment of $21.4 to retained earnings at January 1, 2000 related
to lease expenses.
Accounting for Leases
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Other Adjustments
2003
Impact of Restatement
2002
2001
2000
—
(0.6)
1.6
(2.5)
—
0.2
0.2
(0.3)
—
(4.0)
(1.4)
(2.9)
0.5
5.9
(7.8)
(5.9)
8.3
10.1
—
(10.9)
(4.0)
(7.0)
10.0
16.3
We have identified other adjustments to our Consolidated Financial Statements which do not conform to GAAP. We had
previously not performed account reconciliations timely. As a result of the restatement we reconciled significant balance sheet and
income statement accounts and determined that some accounts required adjustment. In our examination of accounts, we have
identified a number of matters that require correction, the most significant of which are discussed below.
Tax Provision: Based on our review of a global licensing structure in the Octagon Group that had been put in place prior to our
acquisition of that group in 1998, it was determined that the licensing structure had resulted in incorrectly allocating reported income
for statutory and income tax purposes for all years since acquisition. Based on established transfer pricing principles it is our view that
the income in question should have been allocated to and reported partially within the U.K. and partially within the U.S., resulting in
additional income taxes. The corrected amount of tax for years 1998 through 2003 has been recorded, including interest and penalties,
and will be remitted to the respective governments. We have disclosed this change to the tax authorities in the U.S. and in the U.K.
Deconsolidation of Entities: We noted several instances where an entity was fully consolidated in error. In these cases, the entity
was erroneously consolidated in financial results for certain years for which we did not have effective control of the entity, and
accordingly in the restatement, we recorded an adjustment to deconsolidate these entities for those years.
Pension Expense Associated with Foreign Plans: Adjustments were recorded to properly state the pension expense associated with
foreign plans for all years presented. Such adjustments resulted in increased pension expense for previously unidentified plans.
Goodwill and Investment Impairments: Adjustments were necessary to reclass goodwill and investment impairments in the
appropriate periods where the triggering event was identified to have occurred. Certain impairments had been recorded in subsequent
periods and were accounted for in the appropriate periods.
Foreign Currency Translation Adjustments: Adjustments were made to properly state the foreign currency translation adjustment
and the foreign currency gains or losses accounts for all periods. Certain
74
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
amounts that had previously been recorded in the wrong periods have now been adjusted and accounted for in the appropriate periods.
Classification Revisions: Adjustments were made to reclassify certain balance sheet, income and expense account balances for
consistent application of GAAP and our policies and procedures. Such reclassification adjustments included the presentation of bank
overdrafts as a liability rather than a credit balance in an asset account, intercompany accounts that had been incorrectly recorded as
accounts receivable, accounts payable or other non-intercompany accounts, reclassifications of long-term and short-term assets and
liabilities and other miscellaneous income and expense account reclassifications. Certain adjustments had been recorded in subsequent
periods and were accounted for in the appropriate periods.
Auction rate securities have been reclassified from cash equivalents to short-term marketable securities for each of the periods
presented in the accompanying Consolidated Balance Sheet based upon our evaluation of the maturity dates associated with the
underlying bonds. Auction rate securities are variable rate bonds tied to short-term interest rates with maturities on the face of the
securities in excess of 90 days. Auction rate securities have interest rate resets, at predetermined short-term intervals, usually between
7 and 35 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid during a
given period is based upon the interest rate determined during the prior auction. Although these securities are issued and rated as
long-term bonds, they are priced and traded as short-term instruments because of the significant degree of market liquidity provided
through the interest rate resets. We had previously classified these instruments as cash equivalents if the period between interest rate
resets was 90 days or less.
Other Adjustments: We also have corrected certain known errors that were previously not recorded because in each such case we
believed at the time that the amount of any such error was not material to our consolidated financial statements. Principally, these
types of adjustments consist of numerous minor items. We wrote off unsubstantiated balances related to unbillable third party charges,
the reversal of over accrued job costs, and fixed asset write-offs for items that should not have been capitalized, could not be
accounted for or were not in use.
As part of our remediation of our material control weaknesses, we are in the process of hiring additional personnel with knowledge
of GAAP to assist in timely reconciliations of our accounts, to ensure substantiation of amounts recorded, recognition of appropriate
cut-off, and management oversight of key accounts.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2000; we have recorded an adjustment of $13.6 to retained earnings at January 1, 2000 related
to these miscellaneous other adjustments.
Other Adjustments
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
2003
Impact of Restatement
2002
2001
$ 19.2
38.2
(3.9)
$ 28.1
$ 20.5
1.8
(2.1)
$ (7.7)
$ 74.8
$ 43.6
$ 44.1
$ 72.9
$
$
$
$
(40.9)
(13.6)
34.0
(19.4)
21.1
23.6
2000
$
$
$
$
(41.2)
(21.7)
(6.6)
(8.1)
(31.4)
(26.5)
75
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following tables present the effect of the restatement adjustments on the Consolidated Statement of Operations for the years
ended December 31, 2003, 2002, 2001, and 2000:
CONSOLIDATED STATEMENT OF OPERATIONS
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income
Total expense and other income
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Loss from continuing operations
Income from discontinued operations (net of tax)
LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
76
Year Ended December 31, 2003
As Previously
Reported
$
5,863.4
Effect of
Restatement
$
298.3
As
Restated
$
6,161.7
3,451.8
1,896.9
175.6
286.9
5,811.2
52.2
(172.8)
(24.8)
38.9
(84.9)
(127.6)
50.0
(321.2)
(269.0)
254.0
(523.0)
(30.9)
1.0
(552.9)
101.2
(451.7)
(1.43)
0.26
(1.17)
(1.43)
0.26
(1.17)
385.5
385.5
$
$
$
$
$
48.8
328.8
(2.7)
7.1
382.0
(83.7)
(34.2)
—
0.4
13.4
—
0.3
(20.1)
(103.8)
(11.3)
(92.5)
3.9
1.4
(87.2)
(0.2)
(87.4)
(0.23)
—
(0.23)
(0.23)
—
(0.23)
—
—
$
$
$
$
$
3,500.6
2,225.7
172.9
294.0
6,193.2
(31.5)
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
(372.8)
242.7
(615.5)
(27.0)
2.4
(640.1)
101.0
(539.1)
(1.66)
0.26
(1.40)
(1.66)
0.26
(1.40)
385.5
385.5
$
$
$
$
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2002
As Previously
Reported
$
5,737.5
Effect of
Restatement
321.6
$
As
Restated
$
6,059.1
3,350.0
1,889.3
12.1
127.1
5,378.5
359.0
(145.6)
29.8
(39.7)
7.9
(147.6)
211.4
117.9
93.5
(30.5)
5.0
68.0
31.5
99.5
0.18
0.08
0.26
0.18
0.08
0.26
376.1
381.3
46.7
359.4
(4.2)
2.9
404.8
(83.2)
(13.1)
0.8
(0.6)
0.4
(12.5)
(95.7)
(11.5)
(84.2)
0.5
0.9
(82.8)
(82.8)
(0.22)
—
(0.22)
(0.22)
—
(0.22)
—
(5.2)
$
$
$
$
$
3,396.7
2,248.7
7.9
130.0
5,783.3
275.8
(158.7)
30.6
(40.3)
8.3
(160.1)
115.7
106.4
9.3
(30.0)
5.9
(14.8)
31.5
16.7
(0.04)
0.08
0.04
(0.04)
0.08
0.04
376.1
376.1
$
$
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income
Total expense and other income
Income from continuing operations before provision for income
taxes
Provision for income taxes
Income from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Income (loss) from continuing operations
Income from discontinued operations (net of tax)
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
$
$
$
$
$
77
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2001
As Previously
Reported
$
6,352.7
Effect of
Restatement
$
245.8
As
Restated
$
6,598.5
3,620.9
2,060.7
634.5
303.1
6,619.2
(266.5)
(164.6)
41.8
(210.8)
13.7
(319.9)
(586.4)
(66.1)
(520.3)
(29.4)
(0.4)
(550.1)
15.6
(534.5)
(1.49)
0.04
(1.45)
(1.49)
0.04
(1.45)
369.0
369.0
13.6
337.8
(5.0)
(2.4)
344.0
(98.2)
(4.4)
(0.1)
(1.6)
0.8
(5.3)
(103.5)
(49.3)
(54.2)
2.1
3.6
(48.5)
(0.1)
(48.6)
(0.13)
—
(0.13)
(0.13)
—
(0.13)
—
—
$
$
$
$
$
3,634.5
2,398.5
629.5
300.7
6,963.2
(364.7)
(169.0)
41.7
(212.4)
14.5
(325.2)
(689.9)
(115.4)
(574.5)
(27.3)
3.2
(598.6)
15.5
(583.1)
(1.62)
0.04
(1.58)
(1.62)
0.04
(1.58)
369.0
369.0
$
$
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income
Total expense and other income
Loss from continuing operations before provision for income taxes
Benefit for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Loss from continuing operations
Income from discontinued operations (net of tax)
LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
$
$
$
$
$
78
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 2000
As Previously
Reported
$
6,728.5
Effect of
Restatement
143.7
$
As
Restated
$
6,872.2
3,845.7
1,918.6
159.1
5,923.4
805.1
(126.3)
57.5
—
42.6
(26.2)
778.9
332.1
446.8
(42.2)
(18.2)
386.4
6.4
392.8
1.07
0.02
1.09
1.04
0.02
1.06
359.6
370.5
$
$
$
$
$
(14.9)
254.4
(0.8)
238.7
(95.0)
(1.0)
(0.1)
(3.9)
2.7
(2.3)
(97.3)
(26.2)
(71.1)
3.7
4.9
(62.5)
—
(62.5)
(0.17)
—
(0.17)
(0.17)
—
(0.17)
—
—
$
$
$
$
$
3,830.8
2,173.0
158.3
6,162.1
710.1
(127.3)
57.4
(3.9)
45.3
(28.5)
681.6
305.9
375.7
(38.5)
(13.3)
323.9
6.4
330.3
0.90
0.02
0.92
0.87
0.02
0.89
359.6
370.5
$
$
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Total operating expenses
OPERATING INCOME
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income
Total expense and other income
Income from continuing operations before provision for income taxes
Provision for income taxes
Income from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in loss of unconsolidated affiliates (net of tax)
Income from continuing operations
Income from discontinued operations (net of tax)
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS
Earnings per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
79
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following tables present the effect of the restatement adjustments on the Consolidated Balance Sheet as of December 31, 2003,
2002, 2001, and 2000:
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2003
As Previously
Reported
Effect of
Restatement
As
Restated
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $134.1
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
2,005.7
—
4,632.4
242.1
201.7
267.8
7,349.7
657.1
344.5
248.6
3,310.6
42.0
282.0
4,884.8
12,234.5
5,299.2
1,042.7
282.6
6,624.5
2,191.7
539.8
202.6
70.0
3,004.1
9,628.6
2,605.9
12,234.5
80
$
$
$
$
(133.8)
195.1
17.9
61.2
78.0
(35.4)
183.0
40.8
33.8
(1.8)
(42.7)
1.0
(2.7)
28.4
211.4
315.5
214.0
34.3
563.8
7.0
8.8
124.1
(5.2)
134.7
698.5
(487.1)
211.4
$
$
$
$
1,871.9
195.1
4,650.3
303.3
279.7
232.4
7,532.7
697.9
378.3
246.8
3,267.9
43.0
279.3
4,913.2
12,445.9
5,614.7
1,256.7
316.9
7,188.3
2,198.7
548.6
326.7
64.8
3,138.8
10,327.1
2,118.8
12,445.9
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2002
As Previously
Reported
Effect of
Restatement
As
Restated
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $139.8
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
933.0
—
4,517.6
407.6
37.0
427.1
6,322.3
825.7
509.9
357.3
3,377.1
81.6
319.8
5,471.4
11,793.7
5,125.5
1,144.0
820.3
7,089.8
1,817.7
526.1
189.7
70.4
2,603.9
9,693.7
2,100.0
11,793.7
81
$
$
$
$
20.2
30.7
92.5
(19.9)
66.0
(37.5)
152.0
25.4
24.4
(30.8)
(56.2)
0.8
(4.3)
(40.7)
111.3
245.3
129.9
21.6
396.8
4.5
8.8
81.0
(2.4)
91.9
488.7
(377.4)
111.3
$
$
$
$
953.2
30.7
4,610.1
387.7
103.0
389.6
6,474.3
851.1
534.3
326.5
3,320.9
82.4
315.5
5,430.7
11,905.0
5,370.8
1,273.9
841.9
7,486.6
1,822.2
534.9
270.7
68.0
2,695.8
10,182.4
1,722.6
11,905.0
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2001
As Previously
Reported
Effect of
Restatement
As
Restated
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $90.7
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
935.2
—
4,673.2
325.5
80.0
337.6
6,351.5
847.7
495.0
302.8
2,994.3
102.2
281.8
5,023.8
11,375.3
4,555.5
1,445.9
428.4
6,429.8
2,480.6
431.7
103.8
89.3
3,105.4
9,535.2
1,840.1
11,375.3
82
$
$
$
$
2.9
21.2
(20.1)
32.9
56.0
(37.5)
55.4
23.3
19.0
31.8
(60.4)
—
(4.1)
9.6
65.0
155.7
90.6
0.1
246.4
4.0
6.9
73.5
(5.3)
79.1
325.5
(260.5)
65.0
$
$
$
$
938.1
21.2
4,653.1
358.4
136.0
300.1
6,406.9
871.0
514.0
334.6
2,933.9
102.2
277.7
5,033.4
11,440.3
4,711.2
1,536.5
428.5
6,676.2
2,484.6
438.6
177.3
84.0
3,184.5
9,860.7
1,579.6
11,440.3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2000
As Previously
Reported
Effect of
Restatement
As
Restated
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $84.1
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
844.6
—
5,643.5
436.7
—
277.8
7,202.6
825.0
382.5
420.0
3,146.9
—
276.6
5,051.0
12,253.6
5,781.6
1,293.4
549.3
7,624.3
1,531.8
519.8
106.8
100.6
2,259.0
9,883.3
2,370.3
12,253.6
83
$
$
$
4.2
26.6
(43.9)
36.5
—
(42.8)
(19.4)
20.6
27.6
43.0
(150.9)
87.8
(12.0)
16.1
(3.3)
119.9
48.7
(11.3)
157.3
2.0
5.7
56.8
(7.5)
57.0
214.3
(217.6)
(3.3)
$
$
$
$
848.8
26.6
5,599.6
473.2
—
235.0
7,183.2
845.6
410.1
463.0
2,996.0
87.8
264.6
5,067.1
12,250.3
5,901.5
1,342.1
538.0
7,781.6
1,533.8
525.5
163.6
93.1
2,316.0
10,097.6
2,152.7
12,250.3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United
States of America. Preparation of the financial statements and related disclosures requires us to make judgments, assumptions and
estimates that affect the amounts reported in the Consolidated Financial Statements and disclosed in the accompanying notes. We
believe that of our significant accounting policies, the following critical accounting policies involve a higher degree of judgment
and/or complexity. We consider these accounting estimates to be critical because changes in the assumptions or estimates have the
potential to materially impact our financial statements. On an ongoing basis, we evaluate our judgments, assumptions and estimates
based on historical experience and various other factors that are believed to be reasonable under the circumstances. Management
discussed with our Audit Committee the development, selection and disclosure of our critical accounting policies and estimates and
the application of these policies and estimates. Actual results may differ from these estimates under different assumptions or
conditions.
Revenue Recognition
Our primary sources of revenue are from the planning and execution of advertising programs in various media and the planning
and execution of other marketing and communications programs. The revenue for these services is recognized when all of the
following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable;
(iii) collectibility is reasonably assured; and (iv) services have been performed.
Depending on the terms of the client contract, fees for services performed can be recognized three ways: proportional
performance, straight-line or monthly basis or completed contract. Fees are generally recognized as earned based on the proportional
performance method of revenue recognition in situations where our fee is reconcilable to the actual hours incurred to service the client
as detailed in a contractual staffing plan or where the fee is earned on a per hour basis with the amount of revenue recognized in both
situations limited to the amount realizable per the terms of the client contract. We believe an input based measure (the ‘hour’) is
appropriate in situations where the client arrangement essentially functions as a time and out of pocket expense contract and the client
receives the benefit of the services provided throughout the contract term. Fees are recognized on a straight-line or monthly basis
when service is provided essentially on a pro rata basis and the terms of the contract support monthly basis accounting. Certain fees
(such as for major marketing events) are deferred until contract completion as the final act is so significant in relation to the service
transaction taken as a whole. Fees are also recognized on a completed contract basis when the terms of the contract do not otherwise
qualify for proportional performance, monthly basis recognition or the client agreement calls for the delivery of discrete projects.
Incremental direct costs incurred related to contracts where revenue is accounted for on a completed contract basis are expensed as
incurred. Commissions are generally earned on the date of the broadcast or publication.
Contractual arrangements with clients may also include performance incentive provisions designed to link a portion of the revenue
to our performance relative to both qualitative and quantitative goals. Performance incentives are recognized as revenue for
quantitative targets when the target has been achieved and for qualitative targets when confirmation of the incentive is received.
Therefore, depending on the respective client contract, revenue can contain various arrangements involving fees for services
performed, commissions, performance incentive provisions or a mixture of the three.
We receive credits, discounts, and other rebates from our vendors and media outlets for transactions entered into on behalf of our
clients, which are passed through to our clients in accordance with
84
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
contractual provisions. If a pass-through is not required, then these credits are a reduction of vendor cost, and are recorded as additions
to revenue. In connection with the restatement, where it was impractical to review client contracts, we have estimated our exposure
using statistical methods. If our estimate is insufficient, we may be required to recognize additional liabilities.
Substantially all of our revenue is recorded as the net amount of our gross billings less pass-through expenses charged to a client.
In most cases, the amount that is billed to clients significantly exceeds the amount of revenue that is earned and reflected in our
financial statements, because of various pass-through expenses such as production and media costs. In compliance with Emerging
Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, we assess whether the agency or
the third-party supplier is the primary obligor. We evaluate the terms of our client agreements as part of this assessment. In addition,
we give appropriate consideration to other key indicators such as latitude in establishing price, discretion in supplier selection and
credit risk to the vendor. Because we broadly operate as an advertising agency based on our primary lines of business and given the
industry practice to generally record revenue on a net versus gross basis, we believe that there must be strong evidence in place to
overcome the presumption of net revenue accounting. Accordingly, we generally record revenue net of pass-through charges as we
believe the key indicators of the business suggest we generally act as an agent on behalf of our clients in our primary lines of business.
In those businesses (primarily sales promotion, event, sports and entertainment marketing and corporate and brand identity services)
where the key indicators suggest we act as a principal, we record the gross amount billed to the client as revenue.
In accordance with EITF 01-14, Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses
Incurred, we record the reimbursements received for incidental expenses as revenue.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is estimated based on the aging of accounts receivable, reviews of client credit reports,
industry trends and economic indicators, as well as analysis of recent payment history for specific customers. The estimate is based
largely on a formula-driven calculation but is supplemented with economic indicators and knowledge of potential write-offs of
specific client accounts. Though we consider the balance to be adequate, changes in general domestic and international economic
conditions in specific markets could have a material impact on the required reserve balance. A 10% increase in the allowance for
doubtful accounts would result in a $13.6 increase in bad debt expense for 2004.
Income Taxes
The provision for income taxes includes federal, state, local and foreign taxes. 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. We evaluate the realizability of our deferred tax assets and
establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
The realization of our deferred tax assets is primarily dependent on future earnings. Any reduction in estimated forecasted results
may require that we record additional valuation allowances against our deferred tax assets. Once a valuation allowance has been
established, it will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that such assets
will be realized. An
85
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
ongoing pattern of sustained profitability will generally be considered as sufficient positive evidence. If the allowance is reversed in a
future period, our income tax provision will be reduced to the extent of the reversal. Accordingly, the establishment and reversal of
valuation allowances has had and could have a significant negative or positive impact on our future earnings. See Note 10 to the
Consolidated Financial Statements for further information.
We measure deferred tax assets and liabilities using enacted tax rates that, if changed, would result in either an increase or
decrease in the provision for income taxes in the period of change.
It is our intention to reinvest undistributed earnings of our foreign subsidiaries and thereby postpone their remittance. While the
American Jobs Creation Act of 2004 (the “Jobs Act”) creates a temporary incentive for U.S. corporations to repatriate undistributed
international earnings by providing an 85% dividends received deduction, we have reviewed the provisions and determined not to take
advantage of this provision to repatriate undistributed earnings of our foreign subsidiaries to the U.S. However, we will continue to
monitor our circumstances and if there is a change which makes the use of this provision advantageous, we will be able to adopt it
prior to December 31, 2005.
Land, Buildings and Equipment
Certain events or changes in circumstances could cause us to conclude that impairment indicators exist and that the asset values
associated with a given operation have become impaired. If the total of the expected future undiscounted future cash flows is less than
the carrying value of the asset, we recognize an impairment loss in the financial statements. The impairment loss is calculated by
subtracting the imputed fair value from the carrying value of the asset. At least annually, we review all fixed assets for impairment.
Any resulting impairment loss could have a material impact on our financial condition and results of operations.
The assignment of useful lives to buildings and equipment involves significant judgments and the use of estimates. We depreciate
fixed assets using the straight-line method over the asset’s assigned useful life. A one-year decrease in the useful lives of these assets
would result in a $18.4 increase in annual depreciation expense.
Investments
We regularly review our cost and equity investments to determine whether a significant event or change in circumstances has
occurred that may have an adverse effect on the fair value of each investment. In the event a decline in fair value of an investment
occurs, we must determine if the decline in market value has been other than temporary. We consider our investments strategic and
long-term in nature, so we must determine if the fair value decline is recoverable within a reasonable period. For investments
accounted for using the cost basis or equity basis, we evaluate fair value based on specific information (valuation methodologies,
estimates of appraisals, financial statements, etc.) in addition to quoted market price, if applicable. Other factors indicative of an other
than temporary decline include recurring operating losses, credit defaults and subsequent rounds of financing with pricing that is
below the cost basis of the investment. This list is not all-inclusive; we consider all known quantitative and qualitative factors in
determining if an other than temporary decline in value of an investment has occurred. Our assessments of fair value represent our best
estimates at the time of impairment review. If different fair values were estimated, this could have a material impact on our
Consolidated Financial Statements. We recorded an investment impairment of $63.4 for the year ended December 31, 2004 primarily
related to a decrease in projected operating results of an unconsolidated investment. See Note 9 to the Consolidated Financial
Statements for further information.
86
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Goodwill and Other Intangible Assets
We account for our business combinations using the purchase accounting method. The total costs of the acquisitions are allocated
to the underlying net assets, based on their respective estimated fair market values. Considering the characteristics of advertising,
specialized marketing and communication services companies, our acquisitions usually do not have significant amounts of tangible
and other intangible net assets. As a result, a substantial portion of the purchase price is allocated to goodwill. Determining the fair
market value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant
estimates, including but not limited to, future cash inflows and outflows, discount rates, asset lives, and market multiples.
We have three types of intangible assets: (1) goodwill; (2) other intangible assets with indefinite lives not subject to amortization;
and (3) other intangible assets with definite lives subject to amortization. We perform a review annually of all intangible assets as of
September 30th or whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable.
Events or circumstances that might require the need for more frequent tests include, but are not limited to, the loss of a number of
significant clients, the identification of other impaired assets within a reporting unit, negative financial performance, the disposition of
a significant portion of a reporting unit, or a significant adverse change in business climate or regulations.
We evaluate the recoverability of goodwill at a reporting unit level and test for impairment at least annually. Reporting units are
either the entities at the operating segment level or one level below the operating segment level. We identified 13 reporting units for
the 2004 impairment testing. All goodwill relates to, and is assigned directly to, specific reporting units.
The first step of the impairment test is a comparison of the fair value of a reporting unit to its carrying value. Goodwill allocated to
a reporting unit whose fair value is equal to or greater than its carrying value is not impaired and no further testing is required. If the
fair value of a reporting unit’s goodwill is less than its carrying value, a second impairment step will be performed to determine if
impairment exists. The second step of the goodwill impairment test is a comparison of the implied fair value of a reporting unit’s
goodwill to its carrying value. Goodwill of a reporting unit is impaired when its carrying value exceeds its implied fair value. Impaired
goodwill is written down to its implied fair value with a charge to expense in the period the impairment is identified.
The fair value of a reporting unit is estimated using our projections of discounted future operating cash flows (without interest) of
the unit. Such projections require the use of significant estimates and assumptions as to matters such as future revenue growth, profit
margins, capital expenditures, assumed tax rates and discount rates. We believe that the estimates and assumptions made are
reasonable but are susceptible to change from period to period. Additionally, our strategic decisions or changes in market valuation
multiples could lead to further impairment charges. Actual results of operations, cash flows and other factors used in a discounted cash
flow valuation will likely differ from the estimates used and it is possible that differences and changes could be material.
Other intangible assets include customer lists, trade names and customer relationships. Intangible assets with indefinite lives not
subject to amortization are tested for impairment in the same manner as goodwill as described above. Intangible assets with definitive
lives subject to amortization are amortized on a straight-line basis with estimated useful lives generally ranging from 1 to 15 years and
are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. If the
total of the expected future undiscounted cash flows is less than the carrying value of the asset, a loss is recognized for the difference
between fair value and the carrying value of the asset in the period the impairment is identified.
87
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
Our annual impairment review as of September 30, 2004 resulted in impairment charges of $311.9 that were recorded at three
reporting units. See Notes 7 and 8 to the Consolidated Financial Statements for further information.
The excess of the low range of the fair value over the carrying value for each of the non-impaired reporting units ranged from
approximately $6.4 to approximately $1,501.9. In order to evaluate the sensitivity of the fair value calculations on the goodwill
impairment test, we applied a hypothetical 10% decrease to the fair values of each reporting unit. This hypothetical 10% decrease
would result in excess fair value over carrying value for each of the non-impaired reporting units ranging from approximately $3.4 to
approximately $871.9.
Acquisitions
The majority of our acquisitions include an initial payment at the time of closing and provide for additional contingent purchase
price payments over a specified time. The initial purchase price of an acquisition is allocated to identifiable assets acquired and
liabilities assumed based on estimated fair values with any excess being recorded as goodwill. These contingent payments
(“earn-outs”) are calculated based on estimates of the future financial performance of the acquired entity, the timing of the exercise of
these rights, changes in foreign currency exchange rates and other factors. Earn-out payments are either recorded as an increase to
goodwill and other intangibles or expensed as compensation based on the acquisition agreement and the terms of employment for the
former owners of the acquired businesses. Earn-out payments are recorded within the financial statements once the contingent
acquisition obligations have been met and the consideration is distributable. See the Liquidity and Capital Resources section of this
report and Note 19 to the Consolidated Financial Statements for further information regarding future contingent acquisition
obligations.
Restructuring Reserves
When appropriate, we establish restructuring reserves for severance and termination costs and lease termination and other exit
costs related to our restructuring programs. We have established reserves for restructuring programs initiated in 2001 and 2003. The
reserves reflect our best estimates for the costs of the plans. However, actual results may differ from the estimated amounts based on,
but not limited to, changes in demand for advertising services and unexpected usage of leased properties. Comparison of actual results
to estimates may materially impact the amount of the restructuring charges. In 2004, we recorded adjustments to the restructuring
reserves of $22.6 and $9.4 for changes in management estimates related to the 2003 and 2001 programs, respectively. We will
continue to monitor our restructuring reserves and may adjust the current balances based on future events. See Note 5 to the
Consolidated Financial Statements for further information.
Pension and Postretirement Benefits
We use numerous actuarial assumptions and methods in the determination of our pension and postretirement benefit costs and
obligations. The discount rate is the major assumption, which impacts our benefit cost and recorded obligations for pension and
postretirement plans. Discount rates used for our benefit plans attempt to match the duration of the underlying liability with highly
rated securities that could be used to effectively settle the obligation. For 2004, a 25 basis point decrease in the discount rate would
have increased our net benefit cost by approximately $1.8. See Note 14 to the Consolidated Financial Statements for further
information.
88
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
OTHER MATTERS
SEC Investigation
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
(Amounts in Millions, Except Per Share Amounts)
In January 2003, the SEC issued a formal order of investigation related to our restatements of earnings for periods dating back to
1997. On April 20, 2005, we received a subpoena from the SEC under authority of the order of investigation requiring production of
additional documents relating to the potential restatement we announced in March 2005. The SEC is investigating the restatement
detailed in Note 2 to the Consolidated Financial Statements. We are cooperating fully with the investigation.
RECENT ACCOUNTING STANDARDS
Please refer to Note 1 to our Consolidated Financial Statements for a complete description of recent accounting pronouncements
that have affected us or may affect us.
89
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
(Amounts in Millions, Except Per Share Amounts)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risks related to interest rates and foreign currency rates. From time to
time, we use derivatives, pursuant to established guidelines and policies, to manage some portion of these risks. Derivative
instruments utilized in our hedging activities are viewed as risk management tools, involve little complexity and are not used for
trading or speculative purposes. See Note 16 to the Consolidated Financial Statements.
Interest Rates
Our exposure to market risk for changes in interest rates relates primarily to our debt obligations. At December 31, 2004, a
significant portion (81.1%) of our debt obligations bore interest 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 approximately $16.3 if market rates were to increase by 10%
and would increase by approximately $19.5 if market rates were to decrease by 10%. For that portion of the debt that bore interest at
variable rates, based on outstanding amounts and rates at December 31, 2004, interest expense and cash out-flow would increase or
decrease by approximately $1.8 if market rates were to increase or decrease by 10%, respectively. From time to time we have used
interest rate swaps to manage the mix of our fixed and floating rate debt obligations. In May 2005, we terminated all our existing
long-term interest rate swap agreements, and currently have none outstanding.
Foreign Currencies
We face translation and transaction risks related to changes in foreign currency exchange rates. Amounts invested in our foreign
operations are translated into US 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 our
Consolidated Balance Sheet. Our foreign subsidiaries generally collect revenues and pay expenses in currencies other than the
US Dollar, mitigating transaction risk. Since the functional currency of our 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 US Dollars depending upon whether the US Dollar
weakens or strengthens against other currencies. Therefore, changes in exchange rates may either positively or negatively affect our
consolidated revenues and expenses (as expressed in US 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 and were not significant in the
year ended December 31, 2004. We have 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.
90
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Item 8. Financial Statements and Supplementary Data
INDEX
Management’s Assessment on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years
ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Valuation and Qualifying Accounts for the years ended December 31, 2004, 2003 and 2002
91
Page
92
99
105
106
107
108
110
205
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
MANAGEMENT’S ASSESSMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to
provide assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles in the United States of America (“GAAP”). We recognize that because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures may deteriorate.
To evaluate the effectiveness of our internal control over financial reporting, management used the criteria described in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness (within the meaning of PCAOB Auditing Standard No. 2) in internal control over financial reporting is a
control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or detected.
Management’s assessment is that our internal control over financial reporting was not effective as of December 31, 2004 because
of the material weaknesses identified and described below. We will, however, be unable to determine whether the elements of internal
control over financial reporting related directly to preparing the financial statements for external purposes, as well as the preparation
and calculation of the provision for income taxes, were operating effectively as of December 31, 2004, because the internal controls in
place at year-end have been extensively modified prior to the Company’s evaluation of these controls and can no longer be observed
or assessed. Although we have not completed our assessment of the effectiveness of the Company’s internal control over financial
reporting, the following describes the material weaknesses in internal control over financial reporting that have been identified by us
as of December 31, 2004. It is possible had we been able to complete our assessment that additional material weaknesses may have
been identified. The items are grouped according to the components of the COSO framework to which they relate. As a result of these
material weaknesses, we did not prevent or detect errors in our financial statements, which led to the restatement we have made in this
annual report.
Control Environment
1. The Company did not maintain an effective control environment. Specifically, controls were not designed and in place to ensure
compliance with the Company’s policies and procedures, including those contained in the Company’s Code of Conduct. Further, the
Company did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and
training in the application of accounting principles generally accepted in the United States (GAAP) commensurate with the
Company’s financial reporting requirements. The Company also failed to implement processes to ensure periodic monitoring of its
existing internal control activities over financial reporting. By placing, heavy reliance on manual procedures without quality control
review and other monitoring controls in place to adequately identify and assess significant risks that may impact financial statements
and related disclosures. This deficiency resulted in a control environment that allowed instances of falsified books and records,
violations of laws, regulations and the Company’s policies, misappropriation of assets and improper customer charges and dealings
with vendors resulting in the restatement and audit adjustments described below. This deficiency has had a pervasive impact on the
Company’s control environment and has contributed to the material weaknesses described below.
Control Activities
2. The Company did not maintain effective controls over the accounting for purchase business combinations. Specifically, the
Company did not have controls designed and in place to ensure the
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completeness, accuracy and valuation of revenue and expenses of acquired companies related to periods after the closing date of the
transactions. In addition, the Company did not maintain effective controls to ensure the completeness, accuracy and valuation of assets
and liabilities recorded for compensatory earn-out and put arrangements or derivatives embedded within acquisition transactions. This
deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the 2003
and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements and
certain interim periods, which primarily impacted revenue, salaries and related expenses, office and general expenses, long lived
assets and other charges, goodwill, accrued liabilities, deferred compensation and employee benefits, other non-current liabilities and
accumulated deficit.
3. The Company did not maintain effective controls over the accuracy and presentation and disclosure of recording of revenue.
Specifically, controls were not designed and in place to ensure that customer contracts were authorized, that customer contracts were
analyzed to select the appropriate method of revenue recognition, and billable job costs were compared to client cost estimates to
ensure that no amounts were owed to clients. In addition, controls were not designed and in place to ensure that revenue transactions
were analyzed for appropriate presentation and disclosure of billable client pass-through expenses or for recognition of revenue on a
gross or net basis. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted revenue, office and general expenses, accounts
receivable, net, expenditures billable to clients, accounts payable, accrued liabilities and accumulated deficit.
4. The Company did not maintain effective controls to ensure that certain financial statement transactions were appropriately
initiated, authorized, processed, documented and accurately recorded. This was primarily evident in the following specific areas:
client contracts, incentives and rebates;
i.
ii. write-offs of aged accounts receivable, expenditures billable to clients and amounts billable to clients;
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
fixed assets purchases, disposals, and leases;
accounts payable and accrued liabilities;
payments made for employee compensation;
cash and cash equivalents, wire transfers, and foreign currency transactions;
arrangements with derivative instruments;
intercompany transactions;
purchase of equity of investments in unconsolidated entities; and
purchase, disposal or write-off of intangible assets.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the
2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements
and certain interim periods, which impacted substantially all accounts in the consolidated financial statements.
5. The Company did not maintain effective controls over the complete and accurate recording of leases in accordance with GAAP.
Specifically, the Company did not completely evaluate and accurately account for leases with rent holidays, rent escalation clauses,
leasehold improvements or asset retirement obligations associated with real estate leases where leasehold improvements are made.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the
2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements
and certain interim periods, which primarily impacted office and general expenses, restructuring charges, land, buildings and
equipment, net, accounts payable, accrued liabilities, other non-current liabilities, and accumulated deficit.
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6. The Company did not maintain effective controls over the accounting for income taxes in operations outside of the United
States to ensure amounts are accurately accounted for in accordance with GAAP. Specifically, the Company did not have controls
designed and in place to ensure that accounting personnel performed the following: recorded income tax provision between current
and deferred tax accounts in the balance sheet; reconciled prior years’ income tax returns to the appropriate period income tax
provision computations; timely identified income tax exposures and contingencies, including interest and penalties; and reconciled tax
accounts to tax filings. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted accrued liabilities, deferred income taxes, other
non-current liabilities and the provision for income taxes.
7. The Company did not maintain effective controls over reporting local income tax in the local statutory accounts or local income
tax returns in operations outside of the United States. Specifically, the Company did not have controls designed and in place to ensure
that accounting personnel adhere to policy and procedures regarding compliance with local laws and regulations, and reconcile its
accounts between GAAP and local income tax reporting. This resulted in the violation of local tax regulations and incomplete and
inaccurate recording of income taxes in the Company’s consolidated financial statements. This deficiency resulted in a restatement of
2004 (first three interim periods) and 2003 interim consolidated financial statements, the 2003 and 2002 annual consolidated financial
statements and audit adjustments to the 2004 annual consolidated financial statements and certain interim periods, which impacted
accrued liabilities, deferred income taxes, other non-current liabilities and the provision for income taxes.
8. The Company did not maintain effective controls relating to the completeness and accuracy of local payroll and compensation
related liabilities in certain operations outside of the United States. Specifically the Company did not have controls designed and in
place to identify instances where local reporting regulations and payroll tax withholding requirements were not met. A number of
compensation practices were identified which were either not supportable under local law or were not fully in accordance with the
Company’s policies and procedures. This resulted in improperly omitting, and in certain instances purposefully omitting, certain
liabilities in the consolidated financial statements. This deficiency resulted in a restatement of 2004 (first three interim periods) and
2003 interim consolidated financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to
the 2004 annual consolidated financial statements and certain interim periods, which impacted salaries and other related expense and
accrued expenses.
9. The Company did not maintain effective controls over the accuracy and completeness of the processing and monitoring of
intercompany transactions, including appropriate authorization for intercompany charges. Specifically, controls were not designed and
in place to ensure that intercompany balances were accurately classified and completely reported in the Company’s consolidated
financial statements, and intercompany confirmations were not completed timely or accurately between the Company’s agencies to
ensure proper elimination as part of the consolidation process. This control deficiency resulted in immaterial adjustments to the
consolidated financial statements.
10. The Company did not maintain effective controls over the reconciliation of certain financial statement accounts. Specifically,
controls were not designed and in place to ensure that the Company’s accounts were accurate and agreed to detailed support. This
deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the 2003
and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements and
certain interim periods, which impacted substantially all accounts in the Company’s consolidated financial statements.
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11. The Company did not maintain effective control over the monitoring of financial statement accounts to value and record them
in a timely, accurate and complete manner. Specifically, controls were not designed and in place to:
i. compare revenue recorded to amounts billed to clients;
ii. identify contracts with potential client rebates;
iii. analyze collectibility of aged accounts receivable or expenditures billable to clients;
iv. compare billable job costs to client cost estimates;
v. review fixed asset records for under utilized, missing or fully depreciated assets;
vi. ensure that the underlying records support liabilities related to employee compensation, including an inventory of foreign
employee pension plans, census data to calculate pension liabilities and changes made to benefit plans which impact the
Company’s compliance with certain employment and tax regulations;
vii. review intercompany balances for appropriate classification;
viii. review foreign currency translation adjustments;
ix. analyze accrued expenses and underlying equity of investments in unconsolidated entities;
x. test intangible assets for impairments; or
xi. review equity accounts for appropriate roll-forward.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements,
the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial
statements and certain interim periods, which impacted substantially all accounts in the Company’s consolidated financial
statements.
12. The Company did not maintain effective controls over the period end financial reporting process. Specifically, controls were
not designed and in place to ensure that (i) journal entries, both recurring and non-recurring, were reviewed and approved, (ii) timely
and complete reviews of the financial statements were performed by personnel with knowledge sufficient to reach appropriate
accounting conclusions, and (iii) a reconciliation of its legal entity financial results to the financial results recorded in the consolidated
financial statements was performed. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim
consolidated financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004
annual consolidated financial statements and certain interim periods, which impacted substantially all accounts in the Company’s
consolidated financial statements.
13. The Company did not maintain effective controls over the safeguarding of assets. Specifically, at certain of the Company’s
international locations, controls were not designed and in place to segregate responsibility and authority between initiating, processing
and recording of transactions which impacted many accounts in the Company’s consolidated financial statements. This deficiency
resulted in certain improper transactions being entered into and those transactions being recorded or not recorded in the Company’s
financial statements. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted substantially all accounts in the Company’s
consolidated financial statements.
14. The Company did not maintain effective controls over independent service providers. Specifically, the Company was unable to
document, test, and evaluate controls at third party vendors to which the Company outsources its employee benefit enrollment process
and certain payroll processing services in
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North America. This control deficiency did not result in an adjustment to the consolidated financial statements.
15. The Company did not maintain effective controls over access to the Company’s financial applications and data. Specifically,
controls were not designed and in place to ensure that access to certain financial applications and data at certain locations were
adequately restricted. In addition, the Company did not adequately monitor the access to financial applications and data. This control
deficiency has had a pervasive impact on the Company’s information technology control environment.
16. The Company did not maintain effective controls over spreadsheets used in the Company’s financial reporting process.
Specifically, controls were not designed and in place to ensure that access was restricted to appropriate personnel, and that
unauthorized modification of the data or formulas within spreadsheets was prevented. This control deficiency did not result in material
adjustments to the consolidated financial statements.
Information and Communication
17. The Company did not maintain effective controls over the communication of policies and procedures. Specifically, controls
were not designed and in place to ensure corporate communications, including the Company’s code of conduct, were received by
personnel across the Company. This deficiency has had a pervasive impact on the Company’s control environment and has
contributed to the material weaknesses described above.
Monitoring
18. The Company did not maintain effective controls over monitoring the performance of proper application of the Company’s
internal controls over financial reporting and related policies and procedures. Specifically, controls were not designed and in place to
ensure that the Company identifies and remediates control deficiencies timely. This deficiency has had a pervasive impact on the
Company’s control environment and has contributed to the many material weaknesses described above.
Each of the above control deficiencies could result in a misstatement of account balances or disclosure, including the
aforementioned accounts identified in the material weaknesses above, that would result in a material misstatement to the annual or
interim consolidated financial statements that would not be prevented or detected.
PricewaterhouseCoopers LLP (PwC), our independent registered public accounting firm, has not completed their audit of our
internal control over financial reporting as of December 31, 2004. PwC’s report on our internal control over financial reporting
disclaims an opinion on our assessment and on the effectiveness of our internal control over financial reporting. Refer to PwC’s report
within Item 8.
REMEDIATION OF MATERIAL WEAKNESSES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
We have extensive work remaining to remedy the material weaknesses described above. The magnitude of the work is attributable
partly to our significantly decentralized structure and the number of our disparate accounting systems of varying quality and
sophistication. We are in the process of developing a comprehensive remediation plan to address our deficiencies and expect that this
plan will extend into the 2006 fiscal year. The following list describes remedial actions that have been implemented to date.
Meeting with management of our financial and operating units to ensure their understanding of the procedures to be followed and
requirements to be met prior to executing required internal management certification letters to accompany the financial statements
they submit. These meetings have been occurring and will continue.
Requiring Interpublic Group Code of Conduct compliance certifications by all significant management of the Company and our
agencies prior to the submission of the financial and operating unit’s
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financial statements. This measure has already been implemented for our largest 400 entities (by revenue) and will continue to be
implemented at other entities through 2005.
Continuing a focused effort to establish controls to deter and detect fraud with significant oversight and input by our Board of
Directors and Audit Committee, including, but not limited to, ensuring proper follow-up and resolution of whistleblowers’
assertions.
Creating a centralized Project Management Office (“PMO”), charged with preparing management to report on our internal control
over financial reporting by developing a centralized reporting process for our entities with respect to monitoring the
documentation, testing and remediation associated with the assessment of internal control over financial reporting. The PMO, as
well as the centralized reporting process, has been implemented.
Implementing a new enterprise-wide resource-planning software system, currently anticipated to be implemented at select entities
during the latter part of 2005 with continuing rollout through early 2007. This implementation will allow for more transparency in
the reporting of our results of operations and will also allow for numerous controls to be automated as part of the system.
Continuing the development throughout 2005 and 2006 of a shared service center program to consolidate various financial
transactional functions to attain efficiencies and controls surrounding these activities.
Reorganizing and restructuring our Corporate Controllers Group by hiring additional qualified personnel and revising the
reporting structure. We are also continuing our assessment of the accounting departments at our agencies and, in some cases, have
already either replaced personnel or hired additional resources. This assessment is expected to continue throughout 2005, while
the remediation may extend into the first half of 2006 before our agencies are fully staffed to levels we consider appropriate.
Instituting plans to modify the compensation structure of our top 300 managers to better align internal control environments with
compensation, with approximately one-third of their bonuses to be based on improvements made to their respective internal
control environments.
With assistance from the Corporate Controllers Group and the Internal Control Group, we have conducted surprise audits of
selected income statement items and balance sheet accounts at various financial and operating units to ensure accuracy of results.
Updating and enhancing accounting and finance-related policies and procedures. The maintenance of policies is a constantly
evolving process subject to continuous update, and in that regard, we have recently issued or in the process of updated policies
with respect to revenue recognition, accounting for expenditures under real estate leases, and the processing of inter-company
transactions among others.
Establishing an ongoing program of continuing professional education for financial employees in various areas and disciplines,
including revenue recognition and ethics.
Establishing standard global manual documentation requirements at the local reporting levels for the assessment of processing and
monitoring of inter-company transactions, appropriate revenue recognition and the proper recognition of expenditures under real
estate leases.
Establishing and continuing to improve ongoing analytical review procedures, at the local reporting levels as well as the
consolidated level, as part of the monthly closing process and continuing the detailed monthly results analysis and meetings with
all significant entities by the Corporate Controllers Group.
Establishing revised quarterly reporting for tax accounts, update and enhance tax related policies and procedures, and increase tax
training at regional and local levels. We also hired a team of professionals solely responsible for interacting with all levels of
financial personnel in the agencies to ensure that the tax reporting information is being provided timely and accurately.
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Engaging outside professional tax advisors to review local income tax returns of each subsidiary outside of the US prior to filing
in order to ensure they are filed on a timely basis and are prepared in accordance with local law and regulations.
Requiring written approval of a corporate committee consisting of senior representatives of the human resources, tax, legal and
accounting functions for any non-traditional employment arrangement or payroll practice. In addition, all existing non-traditional
employment arrangements must be reviewed by senior agency financial executives and a formal plan proposed to eliminate those
arrangements which are not supportable under both local law and practice as well as our policies and procedures.
Given the presence of material weaknesses in our internal control over financial reporting, there is more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. Our financial reporting
process includes extensive procedures we undertake in order to obtain assurance regarding the reliability of our published financial
statements, notwithstanding the material weaknesses in internal control. We have significantly expanded our year-end closing
procedures. We have expanded our review of customer contracts and agreements to address revenue recognition issues. We have
increased our review procedures for lease accounting, expenditures billable to clients, receivables and inter-company transactions. In
addition, we have other procedures to strengthen account analysis and reconciliations. All of the above mentioned procedures have
been designed to help compensate for our material weaknesses in order to provide assurance that the financial statements are free of
material inaccuracies or omissions of material fact. As a result, management, to the best of its knowledge, believes that (i) this report
does not contain any untrue statements of a material fact or omits any material fact and (ii) the consolidated financial statements and
other financial information included in this report for the year ended December 31, 2004 have been prepared in conformity with
GAAP and fairly present in all material respects our financial condition, results of operations and cash flows.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Interpublic Group of Companies, Inc.:
We were engaged to perform an integrated audit of The Interpublic Group of Companies, Inc.’s 2004 consolidated financial
statements and of its internal control over financial reporting as of December 31, 2004 in accordance with the standards of the Public
Company Accounting Oversight Board (United States). We have audited the Company’s 2004, 2003, and 2002 consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinion on the
consolidated financial statements, based on our audits of those consolidated financial statements, is presented below. However, as
explained more fully below, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion either
on management’s assessment or on the effectiveness of the Company’s internal control over financial reporting as of December 31,
2004.
Consolidated financial statements and financial statement schedule
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’
equity and of cash flows present fairly, in all material respects, the financial position of The Interpublic Group of Companies Inc. and
its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial
statements and financial statements schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements 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 provide a reasonable basis for our opinion.
As described in Note 2 to the consolidated financial statements, the Company restated its 2003 and 2002 consolidated financial
statements.
Internal control over financial reporting
Also, we were engaged to audit management’s assessment, included in Management’s Assessment on Internal Control Over Financial
Reporting appearing under Item 8, that the Company did not maintain effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or detected. Although management has not
completed its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004,
management has identified the following material weaknesses as of December 31, 2004:
1. The Company did not maintain an effective control environment. Specifically, controls were not designed and in place to ensure
compliance with the Company’s policies and procedures, including those
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contained in the Company’s Code of Conduct. Further, the Company did not maintain a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted in
the United States (GAAP) commensurate with the Company’s financial reporting requirements. The Company also failed to
implement processes to ensure periodic monitoring of its existing internal control activities over financial reporting by placing heavy
reliance on manual procedures without quality control review and other monitoring controls in place to adequately identify and assess
significant risks that may impact financial statements and related disclosures. This deficiency resulted in a control environment that
allowed instances of falsified books and records, violations of laws, regulations and the Company’s policies, misappropriation of
assets and improper customer charges and dealings with vendors resulting in the restatement and audit adjustments described below.
This deficiency has had a pervasive impact on the Company’s control environment and has contributed to the material weaknesses
described below.
2. The Company did not maintain effective controls over the accounting for purchase business combinations. Specifically, the
Company did not have controls designed and in place to ensure the completeness, accuracy and valuation of revenue and expenses of
acquired companies related to periods after the closing date of the transactions. In addition, the Company did not maintain effective
controls to ensure the completeness, accuracy and valuation of assets and liabilities recorded for compensatory earn-out and put
arrangements or derivatives embedded within acquisition transactions. This deficiency resulted in a restatement of 2004 (first three
interim periods) and 2003 interim consolidated financial statements, the 2003 and 2002 annual consolidated financial statements and
audit adjustments to the 2004 annual consolidated financial statements and certain interim periods, which primarily impacted revenue,
salaries and related expenses, office and general expenses, long lived assets and other charges, goodwill, accrued liabilities, deferred
compensation and employee benefits, other non-current liabilities and accumulated deficit.
3. The Company did not maintain effective controls over the accuracy and presentation and disclosure of recording of revenue.
Specifically, controls were not designed and in place to ensure that customer contracts were authorized, that customer contracts were
analyzed to select the appropriate method of revenue recognition, and billable job costs were compared to client cost estimates to
ensure that no amounts were owed to clients. In addition, controls were not designed and in place to ensure that revenue transactions
were analyzed for appropriate presentation and disclosure of billable client pass-through expenses or for recognition of revenue on a
gross or net basis. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted revenue, office and general expenses, accounts
receivable, net, expenditures billable to clients, accounts payable, accrued liabilities and accumulated deficit.
4. The Company did not maintain effective controls to ensure that certain financial statement transactions were appropriately initiated,
authorized, processed, documented and accurately recorded. This was primarily evident in the following specific areas:
i. client contracts, incentives and rebates;
ii. write-offs of aged accounts receivable, expenditures billable to clients and amounts billable to clients;
iii. fixed assets purchases, disposals, and leases;
iv. accounts payable and accrued liabilities;
v. payments made for employee compensation;
vi. cash and cash equivalents, wire transfers, and foreign currency transactions;
vii. arrangements with derivative instruments;
viii. intercompany transactions;
ix. purchase of equity of investments in unconsolidated entities; and
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x. purchase, disposal or write-off of intangible assets.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the
2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements
and certain interim periods, which impacted substantially all accounts in the consolidated financial statements.
5. The Company did not maintain effective controls over the complete and accurate recording of leases in accordance with GAAP.
Specifically, the Company did not completely evaluate and accurately account for leases with rent holidays, rent escalation clauses,
leasehold improvements or asset retirement obligations associated with real estate leases where leasehold improvements are made.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the
2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements
and certain interim periods, which primarily impacted office and general expenses, restructuring charges, land, buildings and
equipment, net, accounts payable, accrued liabilities, other non-current liabilities, and accumulated deficit.
6. The Company did not maintain effective controls over the accounting for income taxes in operations outside of the United
States to ensure amounts are accurately accounted for in accordance with GAAP. Specifically, the Company did not have controls
designed and in place to ensure that accounting personnel performed the following: recorded income tax provision between current
and deferred tax accounts in the balance sheet; reconciled prior years’ income tax returns to the appropriate period income tax
provision computations; timely identified income tax exposures and contingencies, including interest and penalties; and reconciled tax
accounts to tax filings. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted accrued liability, deferred income taxes, other
non-current liabilities and the provision for income taxes.
7. The Company did not maintain effective controls over reporting local income tax in the local statutory accounts or local income tax
returns in operations outside of the United States. Specifically, the Company did not have controls designed and in place to ensure that
accounting personnel adhere to policy and procedures regarding compliance with local laws and regulations, and reconcile its accounts
between GAAP and local income tax reporting. This resulted in the violation of local tax regulations and incomplete and inaccurate
recording of income taxes in the Company’s consolidated financial statements. This deficiency resulted in a restatement of 2004 (first
three interim periods) and 2003 interim consolidated financial statements, the 2003 and 2002 annual consolidated financial statements
and audit adjustments to the 2004 annual consolidated financial statements and certain interim periods, which impacted accrued
liabilities, deferred income taxes, other non-current liabilities and the provision for income taxes.
8. The Company did not maintain effective controls over the completeness and accuracy of local payroll and compensation related
expense and liabilities in certain operations outside of the United States. Specifically the Company did not have controls designed and
in place to identify instances where local reporting regulations and payroll tax withholding requirements were not met. A number of
compensation practices were identified which were either not supportable under local law or were not in accordance with the
Company’s policies and procedures. This resulted in improperly omitting, and in certain instances purposefully omitting, certain
liabilities in the consolidated financial statements. This deficiency resulted in a restatement of 2004 (first three interim periods) and
2003 interim consolidated financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to
the 2004 annual consolidated financial statements and certain interim periods, which impacted salaries and other related expense and
accrued liabilities.
9. The Company did not maintain effective control over the accuracy and completeness of the processing and monitoring of
intercompany transactions, including appropriate authorization for intercompany charges. Specifically, controls were not designed and
in place to ensure that intercompany balances were accurately
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classified and completely reported in the Company’s consolidated financial statements, and intercompany confirmations were
completed timely or accurately between the Company’s agencies to ensure proper elimination as part of the consolidation process.
This control deficiency resulted in immaterial adjustments to the consolidated financial statements.
10. The Company did not maintain effective controls over the reconciliation of certain financial statement accounts. Specifically,
controls were not designed and in place to ensure that the Company’s accounts were accurate and agreed to detailed support. This
deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements, the 2003
and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial statements and
certain interim periods, which impacted substantially all accounts in the Company’s consolidated financial statements.
11. The Company did not maintain effective controls over the monitoring of financial statement accounts to value and record them in a
timely, accurate and complete manner. Specifically, controls were not designed and in place to:
i. compare revenue recorded to amounts billed to clients;
ii. identify contracts with potential client rebates;
iii. analyze collectibility of aged accounts receivable or expenditures billable to clients;
iv. compare billable job costs to client cost estimates;
v. review fixed asset records for under utilized, missing or fully depreciated assets;
vi. ensure that the underlying records support liabilities related to employee compensation, including an inventory of foreign
employee pension plans, census data to calculate pension liabilities and changes made to benefit plans which impact the
Company’s compliance with certain employment and tax regulations;
vii. review intercompany balances for appropriate classification;
viii. review foreign currency translation adjustments;
ix. analyze accrued expenses and underlying equity of investments in unconsolidated entities;
x. test intangible assets for impairments; or
xi. review equity accounts for appropriate roll-forward.
This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated financial statements,
the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual consolidated financial
statements and certain interim periods, which impacted substantially all accounts in the Company’s consolidated financial statements.
12. The Company did not maintain effective controls over the period end financial reporting process. Specifically, controls were not
designed and in place to ensure that (i) journal entries, both recurring and non-recurring, were reviewed and approved, (ii) timely and
complete reviews of the financial statements were performed by personnel with knowledge sufficient to reach appropriate accounting
conclusions, and (iii) a reconciliation of its legal entity financial results to the financial results recorded in the consolidated financial
statements was performed. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim consolidated
financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004 annual
consolidated financial statements and certain interim periods, which impacted substantially all accounts in the Company’s
consolidated financial statements.
13. The Company did not maintain effective controls over the safeguarding of assets. Specifically, at certain of the Company’s
international locations, controls were not designed and in place to segregate responsibility and authority between initiating, processing
and recording of transactions which impacted many accounts in the Company’s consolidated financial statements. This deficiency
resulted in certain improper transactions being entered into and those transactions being recorded or not recorded in the
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Company’s financial statements. This deficiency resulted in a restatement of 2004 (first three interim periods) and 2003 interim
consolidated financial statements, the 2003 and 2002 annual consolidated financial statements and audit adjustments to the 2004
annual consolidated financial statements and certain interim periods, which impacted substantially all accounts in the Company’s
consolidated financial statements.
14. The Company did not maintain effective controls over independent service providers. Specifically, the Company was unable to
document, test, and evaluate controls at third party vendors to which the Company outsources its employee benefit enrollment process
and certain payroll processing services in North America. This control deficiency did not result in an adjustment to the consolidated
financial statements.
15. The Company did not maintain effective controls over access to the Company’s financial applications and data. Specifically,
controls were not designed and in place to ensure that access to certain financial applications and data at certain locations were
adequately restricted. In addition, the Company did not adequately monitor the access to financial applications and data. This control
deficiency has had a pervasive impact on the Company’s information technology control environment.
16. The Company did not maintain effective controls over spreadsheets used in the Company’s financial reporting process.
Specifically, controls were not designed and in place to ensure that access was restricted to appropriate personnel, and that
unauthorized modification of the data or formulas within spreadsheets was prevented. This control deficiency did not result in material
adjustments to the consolidated financial statements.
17. The Company did not maintain effective controls over the communication of policies and procedures. Specifically, controls were
not designed and in place to ensure corporate communications, including the Company’s code of conduct, were received by personnel
across the Company. This deficiency has had a pervasive impact on the Company’s control environment and has contributed to the
material weaknesses described above.
18. The Company did not maintain effective controls over monitoring the performance of proper application of the Company’s
internal controls over financial reporting and related policies and procedures. Specifically, controls were not designed and in place to
ensure that the Company identifies and remediates control deficiencies timely. This deficiency has had a pervasive impact on the
Company’s control environment and has contributed to the many material weaknesses described above.
Each of the above control deficiencies could result in a misstatement of account balances or disclosures, including the aforementioned
accounts identified in the material weaknesses above, that would result in a material misstatement to the annual or interim
consolidated financial statements that would not be prevented or detected.
The existence of one or more material weaknesses as of December 31, 2004 would preclude a conclusion that the Company’s internal
control over financial reporting was effective as of that date. These material weaknesses were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and our disclaimer of opinion
regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those
consolidated financial statements.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or
103
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Since the Company has not completed its assessment of the effectiveness of internal control over financial reporting as of
December 31, 2004, and we were unable to complete our procedures to satisfy ourselves as to the effectiveness of the Company’s
internal control over financial reporting, the scope of our work was not sufficient to enable us to express, and we do not express, an
opinion either on management’s assessment or on the effectiveness of the company’s internal control over financial reporting and to
identify all material weaknesses that might exist at December 31, 2004.
/s/ PricewaterhouseCoopers LLP
New York, New York
September 29, 2005
104
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Motorsports contract termination costs
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total expense and other income
Income (loss) from continuing operations before provision for
income taxes
Provision for income taxes
Income (loss) from continuing operations of consolidated
companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Loss from continuing operations
Dividends on preferred stock
Net loss from continuing operations
Income from discontinued operations (net of tax)
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
$
6,387.0
$
6,161.7
$
6,059.1
3,733.5
2,249.8
62.2
322.2
113.6
6,481.3
(94.3)
(172.0)
(9.8)
50.7
(63.4)
32.5
(10.7)
(172.7)
(267.0)
262.2
(529.2)
(21.5)
5.8
(544.9)
19.8
(564.7)
6.5
3,500.6
2,225.7
172.9
294.0
—
6,193.2
(31.5)
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
(372.8)
242.7
(615.5)
(27.0)
2.4
(640.1)
—
(640.1)
101.0
$
(558.2)
$
(539.1)
$
$
(1.36)
0.02
(1.34)
(1.36)
0.02
(1.34)
415.3
415.3
$
$
(1.66)
0.26
(1.40)
(1.66)
0.26
(1.40)
385.5
385.5
$
$
$
3,396.7
2,248.7
7.9
130.0
—
5,783.3
275.8
(158.7)
—
30.6
(40.3)
—
8.3
(160.1)
115.7
106.4
9.3
(30.0)
5.9
(14.8)
—
(14.8)
31.5
16.7
(0.04)
0.08
0.04
(0.04)
0.08
0.04
376.1
376.1
The accompanying notes are an integral part of these financial statements.
105
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions, Except Per Share Amounts)
December 31,
2004
2003
(Restated)
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowance of $136.1 in 2004 and $134.1 in 2003
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
ASSETS:
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net
Other assets
Total non-current assets
TOTAL ASSETS
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
LIABILITIES:
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, shares authorized: 20.0
shares issued and outstanding: 2004 — 7.5; 2003 — 7.5
Common stock, $0.10 par value, shares authorized: 800.0
shares issued: 2004 — 424.9; 2003 — 418.4
shares outstanding: 2004 — 424.7; 2003 — 418.2
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2004 — 0.2 shares; 2003 — 0.2 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
1,550.4
420.0
4,907.5
345.2
261.0
152.6
7,636.7
722.9
274.2
168.7
3,141.6
37.6
290.6
4,635.6
12,272.3
6,128.7
1,108.6
325.9
7,563.2
1,936.0
590.7
408.9
55.2
2,990.8
10,554.0
373.7
42.5
2,208.9
(578.2)
(248.6)
1,798.3
(14.0)
(66.0)
1,718.3
12,272.3
$
$
$
$
1,871.9
195.1
4,650.3
303.3
279.7
232.4
7,532.7
697.9
378.3
246.8
3,267.9
43.0
279.3
4,913.2
12,445.9
5,614.7
1,256.7
316.9
7,188.3
2,198.7
548.6
326.7
64.8
3,138.8
10,327.1
373.7
41.8
2,076.0
(39.8)
(259.1)
2,192.6
(11.3)
(62.5)
2,118.8
12,445.9
The accompanying notes are an integral part of these financial statements.
106
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations
Adjustments to reconcile net loss from continuing operations to cash provided by
operating activities:
Depreciation and amortization of fixed assets and intangible assets
Provision for Bad Debt
Amortization of restricted stock and other non-cash compensation
Amortization of bond discounts and deferred financing costs
Deferred income tax provision
Equity in loss of unconsolidated affiliates
Income applicable to minority interests
Restructuring charges — non-cash
Long-lived asset impairment and other charges
Investment impairments
Litigation charges
Loss on sale of Modem Media and TNS
Other
Change in assets and liabilities, net of acquisitions:
Accounts receivable
Expenditures billable to clients
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Other non-current assets and liabilities
Net cash provided by operating activities from continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING
OPERATIONS:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Proceeds from the sale of discontinued operations, net of cash sold
Net cash used in investing activities from continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS:
Increase (decrease) in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Proceeds from termination of interest rate swaps
Debt issuance costs and consent fees
Issuance of preferred stock, net of issuance costs
Treasury stock transactions
Issuance of common stock, net of issuance costs
Distributions to minority interests, net
Dividends from unconsolidated affiliates
Preferred stock dividends
Common stock dividends
Net cash provided by (used in) financing activities from continuing operations
Effect of exchange rates on cash and cash equivalents
Net cash (used in) provided by discontinued operations
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, net of $46.7 and $132.5 of refunds in 2004 and 2003,
respectively
$
$
$
2004
Years Ended December 31,
2003
(Restated)
(Amounts in millions)
2002
(Restated)
$
(544.9)
$
(640.1)
$
(14.8)
185.1
36.7
31.4
22.9
128.2
(5.8)
21.5
6.7
322.2
63.4
(12.5)
(0.8)
7.0
(73.4)
(34.6)
45.2
243.0
14.2
455.5
(175.4)
(194.0)
30.4
43.0
(34.3)
1,148.4
(1,372.7)
10.0
(544.6)
7.0
(843.0)
602.3
—
(8.0)
—
—
25.6
(23.6)
9.3
(19.8)
—
(250.2)
17.8
—
(321.5)
1,871.9
1,550.4
162.8
66.2
216.5
32.6
38.8
35.0
58.1
(2.4)
27.0
—
294.0
71.5
127.6
(43.6)
(3.1)
201.7
62.8
86.8
(141.3)
77.8
499.7
(224.6)
(159.6)
26.8
128.8
(65.8)
177.0
(339.1)
376.7
(79.8)
(214.4)
(745.6)
801.2
—
(27.0)
361.6
—
335.3
(26.4)
8.8
—
—
493.5
18.7
(13.4)
918.7
953.2
1,871.9
155.6
122.7
$
$
$
206.8
74.7
50.0
33.0
29.8
(5.9)
30.0
(4.9)
130.0
40.3
—
—
0.5
305.3
(62.3)
(46.4)
106.2
6.6
878.9
(276.8)
(171.4)
14.0
51.3
(115.4)
39.3
(21.9)
—
(480.9)
(186.1)
(175.4)
4.3
50.0
(1.3)
—
(7.9)
59.0
(32.7)
3.1
—
(145.6)
(432.6)
40.6
9.1
15.1
938.1
953.2
116.0
51.3
$
$
$
The accompanying notes are an integral part of these financial statements.
107
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Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Amounts in millions)
COMMON STOCK
Balance at beginning of year
Restricted stock, net of forfeitures and amortization
Employee stock purchases
Exercise of stock options, including tax benefit
Issuance of common stock, net of fees
Issuance of shares for acquisitions
Issuance of common stock-litigation settlement
Balance at end of year
PREFERRED STOCK
Balance at beginning of year
Issuance of preferred stock
Balance at end of year
ADDITIONAL PAID IN CAPITAL
As Previously Reported
Effect of restatement
Balance at beginning of year
Restricted stock, net of forfeitures and amortization
Employee stock purchases
Exercise of stock options, including tax benefit
Issuance of common stock, net of fees
Issuance of shares for acquisitions
Issuance of common stock-litigation settlement
Issuance of preferred stock
Preferred stock dividends
Other
Balance at end of year
RETAINED EARNINGS (ACCUMULATED DEFICIT)
As previously reported
Effect of restatement
Balance at beginning of year, as restated
Net income (loss) applicable to common stockholders
Dividends
Preferred stock dividends
Balance at end of year
Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
$
41.8
0.3
0.1
—
—
0.2
0.1
42.5
373.7
—
373.7
2,075.1
0.9
2,076.0
26.4
7.6
7.8
—
33.9
72.6
—
(19.8)
4.4
2,208.9
406.3
(446.1)
(39.8)
(558.2)
—
19.8
(578.2)
$
38.9
—
0.1
—
2.6
0.2
—
41.8
—
373.7
373.7
1,797.0
0.8
1,797.8
(3.9)
9.6
1.6
326.9
(45.6)
—
(12.1)
—
1.7
2,076.0
858.0
(358.7)
499.3
(539.1)
—
—
(39.8)
$
38.6
0.1
0.1
0.1
—
—
—
38.9
—
—
—
1,785.2
0.4
1,785.6
30.6
15.9
17.7
—
(53.7)
—
—
—
1.7
1,797.8
868.3
(275.9)
592.4
16.7
(109.8)
—
499.3
108
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS) — (Continued)
(Amounts in millions)
ACCUMULATED OTHER COMPREHENSIVE LOSS
As previously Reported
Effect of restatement
Balance at beginning of year
Adjustment for minimum pension liability (net of income tax
(expense)/benefit of ($5.4), ($0.6) and $22.3 in 2004, 2003 and 2002,
respectively)
Changes in market value of securities available-for-sale, net of tax
Foreign currency translation adjustment
Recognition of previously unrealized loss on securities available-for-sale,
net of tax
Net other comprehensive loss adjustments
Balance at end of year
TREASURY STOCK
Balance at beginning of year
Restricted stock, net of forfeitures and amortization
Exercise of stock options, including tax benefit
Issuance of shares for acquisitions
Balance at end of year
UNAMORTIZED DEFERRED COMPENSATION
As previously reported
Effect of Restatement
Balance at beginning of year
Restricted stock, net of forfeitures and amortization
Balance at end of year
TOTAL STOCKHOLDERS’ EQUITY
COMPREHENSIVE INCOME (LOSS)
Net income (loss) applicable to common stockholders
Preferred stock dividends
Net other comprehensive loss adjustments
Total comprehensive income (loss)
NUMBER OF COMMON SHARES
Balance at beginning of year
Restricted stock, net of forfeitures and amortization
Employee stock purchases
Exercise of stock options, including tax benefit
Issuance of common stock, net of fees
Issuance of shares for acquisitions
Issuance of common stock-litigation settlement
Balance at end of year
Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
(215.1)
(44.0)
(259.1)
(47.6)
3.4
51.5
3.2
10.5
(248.6)
(11.3)
—
—
(2.7)
(14.0)
(64.6)
2.1
(62.5)
(3.5)
(66.0)
1,718.3
(558.2)
19.8
10.5
(527.9)
418.4
2.7
0.7
0.5
—
1.8
0.8
424.9
$
$
$
(373.6)
(21.6)
(395.2)
4.0
10.1
122.0
—
136.1
(259.1)
(119.2)
—
—
107.9
(11.3)
(101.1)
2.1
(99.0)
36.5
(62.5)
2,118.8
(539.1)
—
136.1
(403.0)
389.3
—
0.9
—
25.8
2.4
—
418.4
$
$
$
(447.8)
12.9
(434.9)
(45.1)
(7.4)
92.2
—
39.7
(395.2)
(290.2)
(5.5)
48.3
128.2
(119.2)
(114.0)
2.1
(111.9)
12.9
(99.0)
1,722.6
16.7
—
39.7
56.4
385.8
1.1
0.9
1.5
—
—
—
389.3
$
$
$
The accompanying notes are an integral part of these financial statements.
109
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Millions, Except Per Share Data)
Note 1:
Summary of Significant Accounting Policies
Business Description
The Interpublic Group of Companies, Inc. and subsidiaries (the “Company”, “we”, “us” or “our”) is one of the world’s largest
advertising and marketing services companies, comprised of hundreds of communication agencies around the world that deliver
custom marketing solutions on behalf of our clients. Our agencies cover the spectrum of marketing disciplines and specialties, from
traditional services such as consumer advertising and direct marketing, to services such as experiential marketing and branded
entertainment. With offices in approximately 130 countries and approximately 43,700 employees, our agencies work with our clients
to create global and local marketing campaigns that cross borders and media. These marketing programs seek to build brands,
influence consumer behavior and sell products.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, most of which are wholly
owned. Investments in companies in which we exercise significant influence, but not control, are accounted for using the equity
method of accounting. Investments in companies in which we have less than a 20% ownership interest and do not exercise significant
influence are accounted for at cost. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to current year presentation.
During 2003, we completed the sale of NFO World Group Inc. (“NFO”). NFO is classified as discontinued operations and the
results of operations and cash flows of NFO have been removed from our results of continuing operations and cash flows for all
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent 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. Estimates are used when accounting for certain items such as revenue recognition, allowances for doubtful
accounts, depreciation and amortization, income taxes, restructuring reserves, valuation of tangible and intangible assets,
recoverability of goodwill, business combinations, contingencies and pension and postretirement benefit obligations.
Segments
We have three reportable segments, Integrated Agency Network (“IAN”), Constituent Management Group (“CMG”), and
Motorsports, in addition to the Corporate and Other category. The largest segment, IAN, is comprised of McCann WorldGroup
(“McCann”), The FCB Group (“FCB”), The Lowe Group (“Lowe”), Draft Worldwide (“Draft”) and the Stand-Alone Agencies. The
Stand-Alone Agencies include Campbell-Ewald, Deutsch Hill Holliday and The Martin Agency. The second segment, CMG, is
comprised of Weber Shandwick, Golin Harris, DeVries Public Relations, Jack Morton, FutureBrand and Octagon Worldwide
(“Octagon”). Our third reporting segment is comprised of the Motorsports operations (“Motorsports”), which we exited during 2004.
Revenue Recognition
Our primary sources of revenue are from the planning and execution of advertising programs in various media and the planning
and execution of other marketing and communications programs. The revenue for these services is recognized when all of the
following criteria are satisfied: (i) persuasive
110
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectibility is reasonably assured; and (iv) services
have been performed.
Depending on the terms of the client contract, fees for services performed can be recognized three ways: proportional
performance, straight-line or monthly basis or completed contract. Fees are generally recognized as earned based on the proportional
performance method of revenue recognition in situations where our fee is reconcilable to the actual hours incurred to service the client
as detailed in a contractual staffing plan or where the fee is earned on a per hour basis with the amount of revenue recognized in both
situations limited to the amount realizable per the terms of the client contract. We believe an input based measure (the “hour’) is
appropriate in situations where the client arrangement essentially functions as a time and out of pocket expense contract and the client
receives the benefit of the services provided throughout the contract term. Fees are recognized on a straight-line or monthly basis
when service is provided essentially on a pro rata basis and the terms of the contract support monthly basis accounting. Certain fees
(such as for major marketing events) are deferred until contract completion as the final act is so significant in relation to the service
transaction taken as a whole. Fees are also recognized on a completed contract basis when the terms of the contract do not otherwise
qualify for proportional performance, monthly basis recognition or the client agreement calls for the delivery of discrete projects.
Incremental direct costs incurred related to contracts where revenue is accounted for on a completed contract basis are expensed as
incurred. Commissions are generally earned on the date of the broadcast or publication.
Contractual arrangements with clients may also include performance incentive provisions designed to link a portion of the revenue
to our performance relative to both qualitative and quantitative goals. Performance incentives are recognized as revenue for
quantitative targets when the target has been achieved and for qualitative targets when confirmation of the incentive is received.
Therefore, depending on the respective client contract, revenue can contain various arrangements involving fees for services
performed, commissions, performance incentive provisions or a mixture of the three.
We receive credits, discounts, and other rebates from our vendors and media outlets for transactions entered into on behalf of our
clients, which are passed through to our clients in accordance with contractual provisions. If a pass-through is not required, then these
credits are a reduction of vendor cost, and are recorded as additions to revenue. In connection with the restatement, where it was
impractical to review client contracts, we have estimated our exposure using statistical methods. If our estimate is insufficient, we may
be required to recognize additional liabilities.
Substantially all of our revenue is recorded as the net amount of our gross billings less pass-through expenses charged to a client.
In most cases, the amount that is billed to clients significantly exceeds the amount of revenue that is earned and reflected in our
financial statements, because of various pass-through expenses such as production and media costs. In compliance with Emerging
Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, we assess whether the agency or
the third-party supplier is the primary obligor. We evaluate the terms of our client agreements as part of this assessment. In addition,
we give appropriate consideration to other key indicators such as latitude in establishing price, discretion in supplier selection and
credit risk to the vendor. Because we broadly operate as an advertising agency based on our primary lines of business and given the
industry practice to generally record revenue on a net versus gross basis, we believe that there must be strong evidence in place to
overcome the presumption of net revenue accounting. Accordingly, we generally record revenue net of pass-through charges as we
believe the key indicators of the business suggest we generally act as an agent on behalf of our clients in our primary lines of business.
In those businesses (primarily sales promotion, event, sports and entertainment marketing and corporate and brand identity services)
where the key indicators suggest we act as a principal, we record the gross amount billed to the client as revenue.
111
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
In accordance with EITF 01-14, Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses
Incurred, we record the reimbursements received for incidental expenses as revenue.
Costs of Services (Salaries and Related Expenses and Office and General Expenses)
Salaries and related expenses consist of payroll costs and related benefits associated with client service professional staff and
administrative staff, including severance associated with reductions in workforce and costs incurred for freelance contractors who are
utilized to support business development. Office and general expenses include costs directly attributable to client engagements. These
costs include out-of-pocket costs such as travel and subsistence for client service professional staff, production costs and other direct
costs that are rebilled to our clients. Office and general expenses also include expenses attributable to the support of client service
professional staff, depreciation and amortization costs, rent expense, bad debt expense relating to accounts receivable, professional
fees, the costs associated with the development of a shared services center and implementation costs associated with upgrading our
information technology infrastructure.
Cash Equivalents and Short-Term Marketable Securities
Cash equivalents are highly liquid investments, including certificates of deposit, government securities and time deposits with
original maturities of three months or less at the time of purchase and are stated at estimated fair value, which approximates cost. Cash
is maintained at high credit quality financial institutions.
We classify all of our marketable equity securities as available-for-sale. These securities are carried at fair value with the
corresponding unrealized gains and losses reported as a separate component of comprehensive loss. The cost of securities sold is
determined based upon the average cost of the securities sold.
Certain auction rate securities are classified as short-term marketable securities based upon our evaluation of the maturity dates
associated with the underlying bonds. Although these securities are issued and rated as long-term bonds, with maturities ranging from
20 to 30 years, they are priced and traded as short-term instruments because of the significant degree of market liquidity provided
through the interest rate resets.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is estimated based on the aging of accounts receivable, reviews of client credit reports,
industry trends and economic indicators, as well as analysis of recent payment history for specific customers. The estimate is based
largely on a formula-driven calculation but is supplemented with economic indicators and knowledge of potential write-offs of
specific client accounts.
Expenditures Billable to Clients
Expenditures billable to clients include costs incurred primarily in connection with providing advertising, marketing and corporate
communications services. These expenditures are invoiced to clients at various times over the course of the production process. Fees
and commissions for advertising services on production work are recorded as revenue when earned.
Investments
Investments are accounted for on the equity basis or cost basis, including investments to fund certain deferred compensation and
retirement obligations. We regularly review our cost and equity investments to
112
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of
each investment. In the event a decline in fair value of an investment occurs, we must determine if the decline in market value has
been other than temporary. We consider our investments strategic and long-term in nature, so we must determine if the fair value
decline is recoverable within a reasonable period. For investments accounted for using the cost or equity method of accounting, we
evaluate fair value based on specific information (valuation methodologies, estimates of appraisals, financial statements, etc.) in
addition to quoted market price, if applicable. Other factors indicative of an other than temporary decline include recurring operating
losses, credit defaults and subsequent rounds of financing with pricing that is below the cost basis of the investment. This list is not
all-inclusive; we consider all known quantitative and qualitative factors in determining if an other than temporary decline in value of
an investment has occurred. Our assessments of fair value represent our best estimates at the time of impairment review. See Note 9
for further information.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Buildings and equipment are 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, equipment and computer software
costs, from 10 to 45 years for buildings and the shorter of the life of the asset or the lease term for leasehold improvements. The total
depreciation expense for the years ended December 31, 2004, 2003 and 2002 was $178.3, $204.4 and $197.6, respectively. Land,
buildings and equipment are reviewed for impairment at least annually or whenever events or circumstances indicate their carrying
value may not be recoverable. If the total of the expected future undiscounted cash flows is less than the carrying value of the asset, a
loss is recognized for the difference between the imputed fair value and the carrying value of the asset. See Note 8 for a description of
impairment charges recognized.
Goodwill and Other Intangible Assets
We account for our business combinations using the purchase accounting method. The total costs of the acquisitions are allocated
to the underlying net assets, based on their respective estimated fair market values. Considering the characteristics of advertising,
specialized marketing and communication services companies, our acquisitions usually do not have significant amounts of tangible
and other intangible net assets. As a result, a substantial portion of the purchase price is allocated to goodwill. Determining the fair
market value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant
estimates, including but not limited to, future cash inflows and outflows, discount rates, asset lives, and market multiples.
We have three types of intangible assets: (1) goodwill; (2) other intangible assets with indefinite lives not subject to amortization;
and (3) other intangible assets with definite lives subject to amortization. We perform a review annually of all intangible assets as of
September 30th or whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable.
Events or circumstances that might require the need for more frequent tests include, but are not limited to, the loss of a number of
significant clients, the identification of other impaired assets within a reporting unit, negative financial performance, the disposition of
a significant portion of a reporting unit, or a significant adverse change in business climate or regulations.
We evaluate the recoverability of goodwill at a reporting unit level and test for impairment at least annually. Reporting units are
either the entities at the operating segment level or one level below the operating segment level. We identified 13 reporting units for
the 2004 impairment testing. All goodwill relates to, and is assigned directly to, specific reporting units.
113
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The first step of the impairment test is a comparison of the fair value of a reporting unit to its carrying value. Goodwill allocated to
a reporting unit whose fair value is equal to or greater than its carrying value is not impaired and no further testing is required. If the
fair value of a reporting unit’s goodwill is less than its carrying value, a second impairment step will be performed to determine if
impairment exists. The second step of the goodwill impairment test is a comparison of the implied fair value of a reporting unit’s
goodwill to its carrying value. Goodwill of a reporting unit is impaired when its carrying value exceeds its implied fair value. Impaired
goodwill is written down to its implied fair value with a charge to expense in the period the impairment is identified.
The fair value of a reporting unit is estimated using our projections of discounted future operating cash flows (without interest) of
the unit. Such projections require the use of significant estimates and assumptions as to matters such as future revenue growth, profit
margins, capital expenditures, assumed tax rates and discount rates. We believe that the estimates and assumptions made are
reasonable but are susceptible to change from period to period. Additionally, our strategic decisions or changes in market valuation
multiples could lead to further impairment charges. Actual results of operations, cash flows and other factors used in a discounted cash
flow valuation will likely differ from the estimates used and it is possible that differences and changes could be material.
Other intangible assets include customer lists, trade names and customer relationships. Intangible assets with indefinite lives not
subject to amortization are tested for impairment in the same manner as goodwill as described above. Intangible assets with definitive
lives subject to amortization are amortized on a straight-line basis with estimated useful lives generally ranging from 1 to 15 years and
are tested for impairment whenever events or circumstances indicate that a carrying amount of an asset may not be recoverable. If the
total of the expected future undiscounted cash flows is less than the carrying value of the asset, a loss is recognized for the difference
between fair value and the carrying value of the asset in the period the impairment is identified.
Foreign Currencies
The financial statements of our foreign operations, when the local currency is the functional currency, are translated into
US 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 loss.
Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in transaction gains or losses, which are reflected within other income
(expense) in the Consolidated Statements of Operations.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents, short-term
marketable securities, accounts receivable, expenditures billable to clients, interest rate instruments and foreign exchange contracts.
We invest our excess cash in investment-grade, short-term securities with financial institutions and limit 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. We perform ongoing credit evaluations of our clients and maintain an
allowance for doubtful accounts based upon the expected collectibility of all accounts receivable. We are exposed to credit loss in the
event of nonperformance by the counterparties of the interest rate swaps and foreign currency contracts. We limit our exposure to any
one financial institution and do not anticipate nonperformance by these counterparties.
114
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Table of Contents
Income Taxes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the 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.
We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a
portion of deferred tax assets will not be realized. See Note 10 for details of valuation allowances established.
Earnings (Loss) Per Share
In periods when we generate a loss, basic loss per share is computed by dividing the loss attributable to common shareholders by
the weighted-average number of common shares and contingently issuable shares outstanding for the period. In periods when we
generate income, basic Earnings Per Share (“EPS”) is calculated using the two-class method, pursuant to EITF 03-6, Participating
Securities and the Two — Class Method under SFAS Statement No. 128. The two-class method is required as our Convertible Senior
Notes and 3-Year Series A Mandatory Convertible Preferred Stock (“Preferred Stock”) qualify as participating securities, each having
the right to receive dividends or dividend equivalents should dividends be declared on common stock. Under this method, earnings for
the period (after deduction for contractual preferred stock dividends) are allocated on a pro-rata basis to the common shareholders and
to the holders of participating securities based on their right to receive dividends. The weighted-average number of shares outstanding
is increased to reflect the number of common shares into which the participating securities could convert.
Diluted earnings (loss) per share reflect the potential dilution that would occur if certain contingently issuable shares were issued
and if stock-based incentives and option plans (including stock options, awards to restricted stock and restricted stock units), the
convertible notes as described in Note 11 and the Preferred Stock as discussed in Note 12 were exercised or converted into common
stock. The potential issuance of common stock is assumed to occur at the beginning of the year (or at the time of issuance of the
dilution instrument, if later), and the incremental shares are included using the treasury stock or “if-converted” methods. The proceeds
utilized in applying the treasury stock method consist of: (1) the amount, if any, to be paid upon exercise; (2) the amount of
compensation cost attributed to future service not yet recognized; and (3) any tax benefits credited to paid-in-capital related to the
exercise. These proceeds are then assumed to be used by us to purchase common stock at the average market price during the period.
The incremental shares (difference between the shares assumed to be issued and the shares assumed to be purchased), to the extent
they would have been dilutive, are included in the denominator of the diluted EPS calculation.
Derivative Instruments and Hedging Activities
Derivative instruments, including those that are embedded in other contracts, are recorded at fair value in the balance sheet as
either an asset or a liability. Changes in the fair value of the derivatives are recorded each period in earnings unless specific hedge
accounting criteria are met. We do not enter into derivative financial instruments for speculative purposes and do not have a material
portfolio of derivative financial instruments. See Note 16 for a discussion of derivative instruments.
Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation,
we have accounted for our various stock-based compensation plans under the
115
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
intrinsic value recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for
Stock Issued to Employees.
Generally, the exercise price of stock options granted equals the market price of the underlying shares on the date of the grant and,
therefore, no compensation expense is recorded. The intrinsic value of restricted stock grants and certain other stock-based
compensation issued to employees and Board Members as of the date of grant is amortized to compensation expense over the vesting
period. Certain stock options and restricted stock units are subject to variable accounting. See information regarding recent accounting
standards below and Note 13 for further discussion of the stock-based compensation plans.
If compensation expense for our stock option plans and Employee Stock Purchase Plan (“ESPP”) had been determined based on
the fair value at the grant dates as defined by SFAS No. 123 and amended by SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure — An Amendment of FASB No. 123, our pro forma loss from continuing operations and
loss per share from continuing operations would have been as follows:
As reported, loss from continuing operations
Add:
Stock-based employee compensation expense included in loss from
continuing operations, net of tax
Less:
Total fair value of stock-based employee compensation expense, net
of tax
Pro forma loss from continuing operations
Loss per share from continuing operations
Basic loss per share
As reported
Pro forma
Diluted loss per share
As reported
Pro forma
For the Years Ended December 31,
2004
2003
(Restated)
$
(544.9)
$
(640.1)
2002
(Restated)
$
(14.8)
26.6
22.7
(55.4)
(573.7)
(1.36)
(1.38)
(1.36)
(1.38)
$
$
$
$
$
(57.4)
(674.8)
(1.66)
(1.75)
(1.66)
(1.75)
$
$
$
$
$
28.9
(65.4)
(51.3)
(0.04)
(0.14)
(0.04)
(0.14)
$
$
$
$
$
For purposes of this pro forma information, the weighted-average fair value of the 15% discount received by employees on the
date that stock was purchased under the ESPP was $2.03, $1.88 and $3.21 per share in 2004, 2003 and 2002, respectively, and is
included in the total fair value of stock-based employee compensation expense.
116
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The fair value of each option grant was 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
Weighted-average option grant price
Weighted-average fair value of options granted
Recent Accounting Standards
2004
6 years
4.0%
44.7%
0.0%
2003
6 years
3.3%
43.9%
0.0%
$
$
14.19
6.91
$
$
10.59
4.96
$
$
2002
6 years
4.7%
35.8%
1.6%
26.41
9.76
In May 2005, SFAS No. 154, Accounting Changes and Error Corrections, was issued, which replaces APB Opinion No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes,
SFAS No. 154 requires retrospective application of a voluntary change in accounting principle to prior period financial statements
presented on the new accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative
effect of the change. SFAS No. 154 also requires accounting for a change in method of depreciating or amortizing a long-lived
nonfinancial asset as a change in accounting estimate (prospectively) affected by a change in accounting principle. Further, the
Statement requires that corrections of errors in previously issued financial statements be termed a “restatement.” The new standard is
effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005. We do not expect the
adoption of SFAS No. 154 to have a material impact on our Consolidated Balance Sheet or Statement of Operations.
In March 2005, FASB Interpretation (“FIN”) No. 47, Accounting for Conditional Asset Retirement Obligations, was issued, an
interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations. FIN No. 47 clarifies the timing of liability recognition
for legal obligations associated with the retirement of a tangible long-lived asset when the timing and/or method of settlement are
conditional on a future event. The provisions of FIN No. 47 are effective no later than December 31, 2005. We do not expect the
adoption of FIN No. 47 to have a material impact on our Consolidated Balance Sheet or Statement of Operations.
In December 2004, SFAS No. 123R (revised 2004), Share-Based Payment, was issued, which replaces SFAS No. 123, Accounting
for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R
requires all share-based payments to employees, including grants of employee stock options and the shares issued under our employee
stock purchase plan, to be recognized in the financial statements based on their fair values, as of the beginning of the first fiscal year
that starts after June 15, 2005. We are required to adopt SFAS No. 123R effective January 1, 2006. The pro forma disclosures
previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition. In March 2005, Staff
Accounting Bulletin (“SAB”) No. 107, Share-Based Payment, was issued regarding the SEC’s interpretation of SFAS No. 123R and
the valuation of share-based payments for public companies. We are evaluating the requirements of SFAS No. 123R and
SAB No. 107. The adoption of SFAS No. 123R may have a material impact on our Consolidated Financial Statements. At adoption,
we plan to use the modified prospective method which requires expense recognition for all unvested and outstanding awards and any
awards granted thereafter.
In December 2004, SFAS Staff Position (“FSP”) No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004, was issued, which provides guidance under SFAS No. 109,
Accounting for Income Taxes, with respect to
117
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on
enterprises’ income tax expense and deferred tax liability. We have reviewed the provisions and, at this time, we have determined not
to repatriate undistributed earnings of our foreign subsidiaries to the U.S. under this provision. Accordingly, we will not adjust our tax
expense or deferred tax liability to reflect these provisions. However, we will continue to monitor our circumstances and if there is a
change which will make the use of this provision advantageous, we will be able to adopt it prior to December 31, 2005.
In December 2004, SFAS No. 153, Exchanges of Nonmonetary Assets, was issued, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions. SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be
recorded and measured at the fair value of the assets exchanged. APB Opinion No. 29 provided an exception to its basic measurement
principle (fair value) for exchanges of similar productive assets. Under APB Opinion No. 29, an exchange of a productive asset for a
similar productive asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception and
replaces it with exceptions for exchanges of nonmonetary assets that do not have reasonably determinable fair values or commercial
substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in reporting periods beginning after June 15, 2005.
We are required to adopt SFAS No. 153 effective July 1, 2005. We do not expect the adoption of SFAS No. 153 to have a material
impact on our Consolidated Balance Sheet or Statement of Operations.
In September 2004, the EITF reached a consensus on the guidance provided by EITF 04-8, The Effect of Contingently Convertible
Instruments on Diluted Earnings per Share. The guidance requires that contingently convertible instruments (including debt
securities) with a market price conversion trigger be included in diluted EPS computations, regardless of whether the market price
conversion trigger has been met. We implemented the requirements of EITF 04-8 for the quarter and fiscal year ended December 31,
2004. The adoption of EITF 04-8 requires that we include approximately 64.4 shares in our calculation of diluted EPS to reflect the
assumed conversion of our 4.50% Convertible Senior Notes in periods when dilutive. Pursuant to EITF 04-8, the impact of these
shares are included in the diluted EPS computations (if dilutive) regardless of whether the market price conversion trigger (or other
contingent feature) has been met.
In May 2004, FSP No. 106-2 was issued, which supersedes FSP No. 106-1 and provides guidance on accounting for the effects of
the Medicare prescription legislation provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
“Act”). We currently provide postretirement health care benefits to employees who were employed by us as of January 1, 1988 and
life insurance benefits to employees who were employed by us as of December 1, 1961. For these employees, the prescription drug
benefit provided would be considered to be actuarially equivalent to the benefit provided under the Act. FSP No. 106-1, Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, was issued in
January 2004 and permits a sponsor of a postretirement health care plan that provides a prescription drug benefit that is actuarially
equivalent to the benefit specified under Medicare, known as “Medicare (Part D)”, to make a one-time election to defer accounting for
the effects of the new legislation. The implementation of FSP No. 106-2 did not have a material impact on our Consolidated Balance
Sheet or Statement of Operations.
In April 2004, FSP No. 129-1, Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital
Structure, Relating to Contingently Convertible Securities was issued, which provides additional guidance on the disclosure
requirements of contingently convertible securities. FSP No. 129-1 requires expanded disclosures of the significant terms of the
conversion features of these securities to enable users of financial statements to understand the circumstances of the contingencies and
the potential impact of conversion. These additional disclosures are presented for our contingently convertible securities in Note 11.
118
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
In 2003, SFAS Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (“FIN No. 46”),
was issued along with certain revisions (“FIN No. 46R”), which addressed the consolidation by business enterprises of variable
interest entities (“VIEs”). We adopted the provisions of these interpretations effective December 31, 2003 and have consolidated
certain entities meeting the definition of VIEs. Inclusion of these entities, which were included effective January 1, 2004, did not have
a material impact on our Consolidated Balance Sheet or Statement of Operations. However, we have a 49% equity interest in a small
advertising agency in which we invested approximately $7.0 and advanced approximately $8.0 of loans. Based on the criteria set out
in FIN No. 46 and revised by FIN No. 46R, it was determined that the entity is a variable interest entity and further, since we are the
primary beneficiary, the entity should be consolidated. We have not consolidated this entity as we are unable to obtain the necessary
detailed financial information. We wrote off both the investment and the loans receivable from the entity in 2003 and have no further
financial commitments or risks associated with this investment. The annual revenues of the entity approximate $14.0 and we believe
that the entity is not material to our financial position.
The adoption of the following accounting pronouncements during 2004 did not have a material impact on our Consolidated
Balance Sheet or Statement of Operations: SFAS No. 132R (revised 2003), Employers’ Disclosures about Pensions and Other
Postretirement Benefits — An Amendment of FASB Statements No. 87, 88 and 106; and EITF 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.
Note 2: Restatement of Previously Issued Financial Statements
In connection with our work to comply with Section 404 of the Sarbanes-Oxley Act of 2002, we identified errors in our accounting
and previously reported financial results. In March 2005, we announced that we would delay filing our Annual Report on Form 10-K,
and began a comprehensive review of previously reported financial information. The scope of our review included the analysis of
accounting for acquisitions, revenue and leases, internal investigations into potential employee misconduct, as well as other
miscellaneous areas impacted by the identified material weaknesses. The review, conducted under the direction of our senior
management with the oversight of the Audit Committee of the Board of Directors, included our operating agencies and consisted of an
extensive examination of financial information and significant transactions.
Our procedures were substantially manual and involved hundreds of our employees and external consultants and took over six
months to complete. These procedures included examining the accounting for more than 400 acquisitions, leases at approximately 370
entities, approximately 10,000 account reconciliations and account analyses and over 300,000 intercompany transactions, as well as a
comprehensive review of over 20,000 client contracts with respect to timing of revenue recognition, vendor related discounts or
credits and income statement classification. In addition, we are in various stages of completing approximately 50 internal
investigations addressing employee misconduct predominantly outside the US. In order to complete this work, we have hired or
replaced hundreds of temporary and permanent accountants. Management believes the scope and process of its internal review of
previously reported financial information was sufficient to identify issues of a material nature that could affect our Consolidated
Financial Statements and all dates and periods presented herein have been restated to fairly present the results of our operations.
The errors in our previously reported financial information, and the failure to prevent them or detect them in our financial
reporting process, were largely attributable to weak internal controls, our decentralized operational structure, general lack of
compliance with our policies and procedures, numerous disparate operating information technology systems, inadequate oversight by
management at various levels within our organization, and an inadequate staff of competent accounting personnel with an appropriate
119
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
level of knowledge of GAAP. We concluded that our control environment has not progressed sufficiently to serve as an effective
foundation for all other components of internal control.
As a result of our review, we determined that a restatement of previously reported financial information was required. Our
previously reported financial information should no longer be relied upon. Accordingly, we have restated our previously reported
financial information for the years ended December 31, 2003 and 2002 and our previously reported unaudited financial statements for
the first, second and third quarters of 2004 and 2003 (the “restatement”). The restatement also affects periods prior to 2002, which is
reflected as an adjustment to opening retained earnings as of January 1, 2002. The restatement covers a number of separate matters,
each of which is described below.
The law firm of Dewey Ballantine LLP was retained to advise the Audit Committee of the Board of Directors regarding the
discharge of its obligations. The scope of the Dewey Ballantine work included oversight of the internal investigations into potential
employee misconduct being conducted by our internal audit group and the overall restatement process conducted by management.
Dewey Ballantine retained a forensic accounting firm to assist with its work involving the internal investigations and review of the
overall restatement process.
For the quarterly impact of the restatement issue and the restated financial results for the first, second and third quarters of 2004,
see Note 20, Results by Quarter.
The following tables summarize the impact of all of these adjustments on previously reported revenue; net income (loss) from
continuing operations and earnings per share; and assets, liabilities, and retained stockholders’ equity.
As previously reported
Revenue Recognition Related to Vendor Discounts or Credits
Revenue Recognition related to Customer Contracts
Revenue Presentation
Pre-Acquisition Earnings
Internal Investigations
Other Adjustments
Total Adjustments
As restated
120
Impact of Adjustments
on Revenue
2003
2002
$
$
5,863.4
(50.6)
(18.7)
355.6
—
(7.2)
19.2
298.3
6,161.7
$
$
5,737.5
(40.2)
(8.6)
358.5
(2.5)
(6.1)
20.5
321.6
6,059.1
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
For the Year Ended December 31, 2003
Net
Income
(Loss)
from
Continuing
Operations
For the Year Ended December 31, 2002
Basic
Earnings
(Loss) per
Share of
Common
Stock
Diluted
Earnings
(Loss) per
Share of
Common
Stock
Net
Income
(Loss)
Basic
Earnings
(Loss) per
Share of
Common
Stock
Diluted
Earnings
(Loss) per
Share of
Common
Stock
As previously reported
$ (552.9) $
(1.43)
$
(1.43)
$ 68.0 $
0.18
$
0.18
Revenue Recognition Related to Vendor
Discounts or Credits
Revenue Recognition Related to Customer
Contracts
Future Obligations Related to Prior
Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation Arrangements
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated
Weighted-average shares:
(45.4)
(0.12)
(0.12)
(32.9)
(0.09)
(15.8)
(0.04)
(0.04)
(4.5)
(0.01)
(24.2)
—
(18.6)
(8.8)
(2.5)
28.1
(87.2)
$ (640.1) $
(0.06)
—
(0.05)
(0.02)
(0.01)
0.07
(0.23)
(1.66)
385.5
$
(0.06)
—
(0.05)
(0.02)
(0.01)
0.07
(0.23)
(1.66)
385.5
(13.8)
(0.7)
(14.4)
(8.5)
(0.3)
(7.7)
(82.8)
$ (14.8) $
(0.04)
—
(0.04)
(0.02)
—
(0.02)
(0.22)
(0.04)
376.1
$
(0.09)
(0.01)
(0.04)
—
(0.04)
(0.02)
—
(0.02)
(0.22)
(0.04)
376.1
Impact of Adjustments on Consolidated
Balance Sheet Accounts
As of December 31, 2003
Total
Liabilities
Stockholders’
Equity
$
$
9,628.6
198.5
122.7
64.2
(2.6)
61.4
29.2
67.6
157.5
—
698.5
10,327.1
$
$
2,605.9
(162.2)
(89.1)
(66.5)
(36.0)
(52.3)
(26.4)
(28.7)
(25.9)
—
(487.1)
2,118.8
Total
Assets
12,234.5
36.3
33.6
(2.3)
(38.6)
9.1
2.8
38.9
131.6
—
211.4
12,445.9
As previously reported
Revenue Recognition Related to Vendor Discounts or Credits
Revenue Recognition Related to Customer Contracts
Future Obligations Related to Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment Impairment
Total Adjustments
As restated
$
$
121
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
As previously reported at December 31, 2001
Revenue Recognition Related to Vendor Discounts or Credits
Revenue Recognition Related to Customer Contracts
Future Obligations Related to Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment Impairment
Total Restatement Adjustments
As restated at January 1, 2002
Description of Restatement Adjustments:
Revenue Recognition
Revenue Recognition related to Vendor Discounts or Credits:
Impact of Adjustments
on Retained Earnings
868.3
(72.2)
(54.3)
(29.2)
(30.2)
(15.7)
(9.0)
(31.3)
(34.0)
(275.9)
592.4
$
$
We receive rebates, discounts, and other credits from our vendors and media outlets for the acquisitions of goods and services that
are entered into on behalf of our clients. The expenses include the purchase of various forms of media, including television, radio, and
print advertising space, or production costs, such as the creation of advertising campaigns, commercials, and print advertisements.
Revenues in the advertising and communicative services business are frequently recorded net of third party costs as the business is
primarily an agent for its clients. Since these costs are billed to clients, there are times when vendor discounts, credits, or price
differences can affect the net revenue recorded by the agency. These third party discounts, rebates, or price differences are frequently
referred to as credits.
Our contracts are typically “fixed fee arrangements” or “cost-based arrangements.” In “fixed fee arrangements,” the amount we
charge our clients is comprised of a fee for our services. The fee we earn, however, is not affected by the level of expenses incurred.
Therefore, any rebates or credits received in servicing these accounts do not create a liability to the client. In “cost-based
arrangements,” we earn a percentage commission or flat fee based on or incremental to the expenses incurred. In these cases, rebates
or credits received may accrue to the benefit of our clients and create a liability payable to the client. The implication and
interpretation of cost language included in our contracts can vary across international and domestic markets in which we operate and
can affect whether or not we have a liability to the client.
Without adequate contract review procedures the operating practice and the accounting in some of our agencies, predominantly
outside the United States, relied on local customs and practices. As a result, in some instances, our accounting for the vendor discount
was inconsistent with the underlying contractual requirements, which necessitated accounting adjustments. To correct for improperly
recorded revenue, we have established a liability to refund these credits, discounts and rebates to our customers in accordance with our
contractual obligations.
As part of the restatement, we have performed an extensive review of our client contracts and local law to determine the impact of
improperly recognizing these media and vendor credits as additional revenue instead of recognizing a liability to our clients. We have
determined our exposure to each type of these credits by agency, reviewed our legal obligations considering our client contracts and
local law, and
122
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
established a liability as necessary. Where it was impractical to review client contracts we have estimated our exposure. If facts
change, we may need to adjust our liability.
In order to remediate this issue, we are in the process of issuing a formal policy to require proper transparency in our contracts,
and proper handling and accounting for these types of vendor discounts or credits received in the normal course of business.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2002; we have recorded an adjustment of $72.2 to retained earnings at January 1, 2002 related
to vendor discounts or credits.
Revenue Recognition Related to Vendor Discounts or Credits
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Loss
Provision for Income Taxes
Loss from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Revenue Recognition related to Customer Contracts:
Impact of
Restatement
2003
2002
(40.2)
(41.4)
(8.5)
(32.9)
(50.6)
(53.3)
(7.9)
(45.4)
9.6
67.7
We recognize revenue when persuasive evidence of an arrangement exists, there is fixed and determinable pricing, and upon
completion of the earnings process in accordance with the terms of the arrangement with our clients, which is generally as services are
performed and/or when the media placements appear.
For project based arrangements, revenue is recognized based upon the agreement that we have in place with our customers. Our
fees are generally recognized as earned, based on the proportional performance method of revenue recognition in situations where our
fee is reconcilable to the actual hours incurred to service the client, as detailed in a contractual staffing plan, or where the fee is earned
on a per hour basis, with the amount of revenue recognized in both situations limited to the amount realizable per the terms of the
client contract. Where it is determined that the contractual staffing plan is incomplete or there is no staffing plan, we defer the
recognition of revenue until the period in which all work is completed. For retainer-based arrangements, fees are recognized on a
straight line or monthly basis when service is provided, essentially on a pro rata basis, and the terms of the contract support that
accounting. We require explicit language in the contract evidencing that our obligation to the client for services rendered is satisfied
on a monthly basis. We evaluate the termination provisions of the contract for a determination of amounts realizable at an interim
date. Where it is determined that the terms of the contract do not clearly support monthly recognition of revenue, we defer the
recognition of revenue until the period in which all work is completed.
In certain transactions with our customers the persuasive evidence of the customer arrangement was not always adequate to
support revenue recognition, or the timing of revenue recognition did not appropriately follow the specific contract terms. As part of
our review, we reviewed significant client contracts to ensure that revenue was recognized in accordance with the terms of the contract
and with our policies as outlined above.
123
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
We have established the following terms as the specific criteria to be followed consistently across our global operating divisions.
For adequate persuasive evidence of arrangements, we required signed contractual agreements or in lieu of a signed contract, other
evidence or documentation from our customers was required in the period in which revenue was recognized. This evidence was
required to define our compensation, to give a clear indication of how revenue was to be earned, and describe how our obligation to
the client was to be satisfied. In the absence of persuasive evidence of an arrangement or detailed invoices indicating the level of
services performed were not available, we deferred the recognition of revenue for the entire contract, until we could assure that all
internal work was completed and cash was received. Where it was determined that persuasive evidence was lacking or insufficient, we
deferred the recognition of revenue until that period in which persuasive evidence was obtained, cash was received accompanied by a
detailed customer invoice, or all work was completed.
In connection with the restatement, we have established a formal policy with specific guidelines and tools as to how revenue
should be recorded under the following bases: proportional performance, monthly, completed contract, or in accordance with other
quantitative or qualitative goals as specified by the contract. We also plan to create a central tracking system that will detail all
arrangements with clients which will assist in ensuring that all criteria for proper revenue recognition are met and properly classified.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2002; we have recorded an adjustment of $54.3 to retained earnings at January 1, 2002 related
to customer contracts.
Revenue Recognition Related to Customer Contracts
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Impact of
Restatement
2003
2002
(8.6)
(6.7)
(2.1)
(4.5)
(18.7)
(17.2)
(1.4)
(15.8)
(3.9)
21.6
Accounting for Reimbursement of Out-of-Pocket Expenses:
We incur incidental out-of-pocket expenses in the course of providing services to our clients, for which we are reimbursed by our
clients. These relate to travel, meals, and other incidental expenses. Under EITF 01-14, Income Statement Characterization of
Reimbursements Received for “Out-of-Pocket” Expenses Incurred, the reimbursements should be recorded as revenue and operating
expenses in the Consolidated Statement of Operations.
Prior to 2004, we incorrectly recorded some of these reimbursements of out-of-pocket expenses as a reduction of operating
expenses. The effect was to report both revenue and expense net of these out-of-pocket expenses and reimbursements. In 2004, we
established a formal policy detailing the proper classification of these expense reimbursements.
We reviewed significant activity for all financial periods prior to 2004 to identify instances in which this error was made. In the
restatement, we have reported client reimbursements of out-of-pocket expenses as revenue in all periods. Compared to our previously
published Consolidated Financial Statements, the
124
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
effect of the restatement is to increase revenue and expense amounts, with no effect on operating income, and to reduce operating
margin in percentage terms.
Gross versus Net Revenue Presentation:
We incur and pay certain expenses on behalf of our clients typically relating to the cost of media purchases or production work.
We invoice our clients for these expenses in addition to our fees for services provided. EITF 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, sets forth criteria for the judgment whether revenue should be recognized based on the gross amount
billed to the customer or net of amounts paid to suppliers. Because we are broadly considered an advertising agency based on our
primary lines of business and only in certain situations would we record revenue other than on a net basis. Accordingly, we generally
record revenue net of pass-through charges as we believe the relative strength of the key indicators, taken as a whole, suggest we
generally act as an agent on behalf of our clients in our primary lines of business.
We reviewed our lines of business and evaluated our status as a principal or agent, and we reviewed significant transactions to
ensure the proper accounting for revenue. We assessed whether the agency or the third-party supplier is the primary obligor for
services provided to the client. We evaluated the terms of our client agreements as part of this assessment. In addition we gave
appropriate consideration to other key indicators, such as latitude in establishing price and discretion in supplier selection, and less
consideration to others, such as credit risk.
We determined that for certain of our businesses, primarily sales promotion, event, sports and entertainment marketing and
corporate and brand identity services, the relative strength of the indicators suggests we act as a principal. Accordingly, under
EITF 99-19, we accounted for revenue on a net basis in error. In the restatement, for those businesses we have recorded the gross
amount billed to the client as revenue consistently on a historical basis. Compared to our previously published Consolidated Financial
Statements, the effect of the restatement is to increase revenue and expense by equal amounts, with no effect on operating income or
balance sheet accounts, and to reduce operating margin in percentage terms.
We have defined specific criteria which our personnel can use to evaluate whether we are acting as a principal or an agent in their
arrangements with clients.
The impact on our Consolidated Financial Statements for the Accounting for Out-of-Pocket Expenses and Gross versus Net
Revenue Presentation is presented in the following table:
Revenue Presentation
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Accounting for Acquisitions
Future Obligations related to Prior Acquisitions:
Impact of
Restatement
2003
2002
355.6
358.5
The terms of our acquisitions generally provide for initial payment on the date of sale and contingent amounts over succeeding
years, calculated based on the growth and financial performance of the business or the retention of key personnel. As a result, we
maintain contingent obligations related to acquisitions made in prior years, such as deferred payments and put options. Deferred
payments, or “earn-outs,” generally tie the aggregate price ultimately paid for an acquisition to the business’ performance and are
included in the terms of the original purchase to minimize our risk associated with potential future negative changes in the
performance of the acquired entity during the post-acquisition transition period.
125
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Earn-outs are typically contingent upon the achievement of projected operating performance targets, as specified in the purchase
contract. For those acquisitions where we purchase partial ownership interest in a business, there are often matching put and call
options issued. These put and call options are not fixed, rather they are based on a formula that approximates fair value. Put options
require us to purchase additional equity interests in the future. Put option amounts to be paid are typically accounted for when the put
option is exercised, except in instances where put option payments are specifically contingent upon the future employment of key
personnel, in which case compensation expense is accrued prior to when the related put option is exercised. Call options entitle us to
acquire additional equity interests in the future. Call option amounts to be paid are contingent upon our decision to exercise our
option. Therefore, purchases of additional interests related to call options are accounted for when the related call option is exercised.
In accounting for acquisitions, we recognize deferred payments and purchases of additional interests after the effective date of
purchase, as an increase to goodwill and other intangibles, or as compensation expense, depending on the terms of the purchase
contract. EITF 95-8, Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination, provides criteria for this determination. In some instances, earn-out or put option payments were not properly
accounted for as compensation expense. The effect of this error was to understate compensation expense and, in most instances, to
overstate goodwill.
We reviewed our acquisitions through 2004, including all contingent future obligations as of December 31, 2004, and we have
recorded adjustments to compensation expense and goodwill in periods where contingent acquisition obligations were recorded
inappropriately.
We will require that future acquisition-related transactions be approved by our operating management as well as members of our
Controllers, Corporate Development and Tax groups prior to execution of the related agreement. Our central repository of related
information has been reviewed for completeness and accuracy and updated to ensure that it contains critical files and data. We plan to
update our policies concerning the proper accounting for future obligations related to our acquisitions. The restatement also affects
periods prior to 2002; we have recorded an adjustment of $29.2 to retained earnings at January 1, 2002.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table:
Future Obligations Related to Prior Acquisitions
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Loss
Provision for Income Taxes
Loss from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Pre-Acquisition Earnings:
Impact of
Restatement
2003
2002
—
(13.8)
—
(13.8)
—
(23.6)
—
(24.2)
2.8
27.0
It was not uncommon during the period 1996 through 2002 for us to account for the revenues and expenses of certain entities
acquired from a point in time that was earlier than the date of closing. In those
126
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
cases we incorrectly recorded the acquired business’ revenues and expenses in our Consolidated Financial Statements for that year as
of January 1, although the acquisition closed subsequent to that date, typically in the latter half of the year. This incorrect recognition
of revenue and expenses prior to the closing date was recorded either as an adjustment in the month of purchase, or by adjusting prior
months’ accounting results. As a result of these misstatements of revenues and expenses, we recorded additional goodwill on our
balance sheet to offset the increase to income. In doing so, we recorded amortization expense on an inflated goodwill balance until the
adoption of SFAS No. 142, Goodwill and Other Intangible Assets, at January 1, 2002, when we ceased amortizing goodwill.
As part of the restatement, we reviewed financial books and records associated with the accounting at the time of acquisition and
utilized quantitative analytics to understand revenue and expenses recorded related to the acquisition. As a result of our review we
identified 142 acquisitions where we had inappropriately recognized earnings prior to our effective legal ownership of the acquired
entities.
We have calculated the impact of this incorrect practice through the review of purchase contracts for the substantial majority of
acquisitions made since 1996. For those entities identified as having recorded pre-acquisition earnings, we identified the actual closing
date of each acquisition and used this as the cutoff date to determine the amount of pre-acquisition earnings improperly recorded. For
those entities identified with pre-acquisition earnings recognition, we also adjusted the goodwill balance for the error. Since the
goodwill balance was misstated we also recalculated the appropriate amortization of goodwill from the date of acquisition.
We have also created a central repository for acquisition data. Accounting for all future acquisitions will be reviewed and
evaluated with the appropriate management oversight prior to the acquisition being finalized and must include members of our
Controllers, Treasury, Corporate Development and Tax groups to prevent this type of inappropriate accounting in future periods.
We have recorded adjustments as part of the restatement to reduce our consolidated revenues, expenses and goodwill balances in
the years where pre-acquisition earnings were recorded inappropriately. We have also made adjustments to amortization expense that
was recorded on our misstated goodwill balance.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2002; we have recorded an adjustment of $30.2 to retained earnings at January 1, 2002 related
to pre-acquisition earnings recognition.
Pre-Acquisition Earnings
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Internal Investigations
Impact of
Restatement
2003
2002
(2.5)
(1.2)
(0.1)
(0.7)
—
—
—
—
(0.4)
(0.0)
Instances of possible employee misconduct have come to our attention through our anti-fraud program, internal and external audit
work, and the expanded scope of our work on the restatement. Our
127
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
corporate risk management group investigates these matters, frequently with the assistance of outside forensic accountants and legal
counsel. It prepares a written report documenting the investigation, its findings, and recommended actions. The report is then
presented to corporate management and the Audit Committee of the Board of Directors for review. If we conclude that there has been
misconduct, we take appropriate personnel action, which may include termination, and if recommended by counsel, we notify the
appropriate governmental and regulatory authorities of violations of law, and take legal action if appropriate to recover our losses.
The restatement includes the correction of certain unintentional errors in our accounting that were discovered as a result of these
investigations and primarily relate to agencies outside the United States. However, certain of these investigations revealed instances of
deliberate falsification of accounting records, evasion of taxes in jurisdictions outside the United States, inappropriate charges to
clients, diversion of corporate assets, non-compliance with local laws and regulations, and other improprieties. These errors were not
prevented or detected earlier because of material weaknesses in our control environment and decentralized operating structure. In a
number of these cases, the activities appear to have had the purpose of improving the reported financial performance of the operating
unit involved. In a number of cases, we believe the purpose included reducing the personal tax burdens of the individuals involved.
In an effort to improve our internal control over financial reporting relating to employee misconduct, we have developed an
extensive remediation plan. This plan includes specific responses to the findings of each of the internal investigations referred to
below, as well as an enhanced, Company-wide compliance program. The remediation plan has been developed by management in
consultation with outside advisors and has been approved by the Audit Committee.
The table below sets forth the impact of this element of the restatement on our Consolidated Financial Statements. The restatement
also reflects periods prior to 2002; we have recorded an adjustment of $15.7 in our retained earnings at January 1, 2002.
Internal Investigations
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Loss
Provision for Income Taxes
Loss from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Impact of
Restatement
2003
2002
(6.1)
(12.7)
1.9
(14.4)
(7.2)
(17.3)
1.2
(18.6)
12.6
30.3
We believe that the liabilities we have recognized relating to the investigations are our best estimate of our ultimate liability based
on the facts and documents reviewed to date. While the vast majority of the investigations have yielded adjustments to our prior period
financial statements reflected in the restatement, several of them are still continuing, and others may arise in the future. Management
has recorded its best estimate of probable exposure based on the facts that it had at the time. We cannot predict what any ongoing
investigation may uncover and what, if any, remedial actions may have to be taken. It is possible that we will be required to pay
material fines, penalties, interest or other amounts associated with these investigations.
128
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Below is a summary of the cases that we have investigated that have resulted in a restatement of our prior period financial results
greater than $5.0. These instances represent approximately 80% of the aggregate cumulative adjustments recorded as a result of our
internal investigations.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of $31.8 including
taxes, penalties and interest of $10.0 relating to errors we identified at our McCann agency in Turkey. These errors are
attributable primarily to the retention of vendor discounts that should have been remitted to clients, the improper valuation of a
previously acquired business and over-billing clients for payments to vendors. Our information to date indicates that these
activities involved misconduct by local senior management. When the investigation is concluded, we will determine the
appropriate personnel actions, which could include terminations of local senior management.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of $14.5 relating to
errors identified at our FCB agency in Turkey. These errors were attributable primarily to inappropriate charges to customers and
evasion of local taxes. Our information to date indicates that these activities involved misconduct by local senior management.
When the investigation is concluded, we will determine the appropriate personnel actions, which could include terminations of
local senior management.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of $10.8 relating to
errors we identified at Media First in New York City. These errors are attributable primarily to inadequate recordkeeping but
also included payment of certain employee salaries through accounts payable and without appropriate tax withholdings. The
errors resulted in increased earn-out payments. Some management personnel at the agency involved in this activity have been
terminated.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 to 2004 of $10.5 relating to errors we
identified at our FCB agency in Spain. These errors are attributable to the use of companies that were formed to account for the
production and media volume discounts received from production suppliers on a separate set of books and records. As a result,
discounts and rebates to which clients may have been entitled under local law were concealed to prevent detection in the event of
a client audit. In addition compensation was paid to an agency executive’s personal service company out of these companies
without proper withholding for income taxes. At the same location, we have also recorded adjustments with a cumulative impact
of $4.2. These errors are attributable to the inappropriate recognition of certain discounts and benefits that should have been
remitted to clients. We plan to divest our interest in FCB Spain and sign an affiliation agreement with the management there with
an appropriate control structure to assure future business is properly conducted.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of $12.7 relating to
errors we identified at our McCann agency in Greece. These errors are attributable primarily to retention of vendor discounts in
excess of the level permitted under Greek law and the purchase of prepaid media on a speculative basis without the appropriate
client commitment. In addition, we identified inappropriate related-party transactions and evidence of improper gifts. The senior
officer and other management personnel at the agency have been terminated and parts of the agency’s business have been
divested.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of approximately $7.2
relating to errors we identified at our McCann agency in the Netherlands. These errors are attributable to the recognition as
revenue of certain discounts and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
benefits that should have been returned to clients or vendors. We have terminated and/or replaced financial and operating
management.
• We have recorded adjustments with a cumulative impact on net income for the years 2002 through 2004 of $8.6 relating to errors
identified at five McCann agencies in Azerbaijan, Ukraine, Uzbekistan, Bulgaria and Kazakhstan. These errors were attributable
to failure to record and pay compensation-related taxes, value added taxes and corporate income taxes, and to inadequate record
keeping. Management in these jurisdictions paid certain employees as contractors, often in cash, without accounting for the
payments. In three of these countries, income and expenses were recorded by a service company located outside those
jurisdictions to avoid corporate tax or value added tax. We have sold or are in the process of selling all of these entities. In the
case of the Ukraine, we plan on signing an affiliation agreement with the management there with appropriate controls in place to
assure our business is properly conducted.
In addition, the other investigations that had an impact of less than $5.0 each have resulted in adjustments with a cumulative
impact on net income for the years 2004 through 2002 of $11.9. The errors were similar in nature to those described above. We have
terminated, or are in the process of terminating, the employees involved in these occurrences.
Review of International Compensation Arrangements
Over the past 18 months, we have undertaken an extensive review of employment compensation practices across our organization.
While most practices were found to be acceptable, we have identified some practices in certain jurisdictions that required additional
review. The key areas are as follows:
Personal Service Companies. The advertising industry and many other service industries frequently make use of freelancers, who
are typically treated as independent contractors and not subjected to the regulations that apply to an employee-employer relationship.
In certain instances, particularly in Europe and Latin America, it is common for individuals to establish a personal service company
(“PSC”), in which case the hiring company will normally contract directly with the PSC for the services of the individual. In every
jurisdiction that was reviewed, PSC arrangements are legal and often customary and socially acceptable. However, in certain
circumstances, if the individual does not meet the established criteria, the PSC structure is not a permissible vehicle and could result in
an avoidance of personal income tax and social tax by the individual and, in the case of the company, an avoidance of social tax. We
reviewed every situation where one of our agencies had contracted with a PSC and determined that in a number of instances, the use
of a PSC was not supportable.
Payment of Personal Expenses Outside the Normal Payroll Mechanism. We have also identified in certain countries, including
some in which such a practice was customary and socially acceptable, instances where expenses that can be considered personal in
nature were reimbursed to an individual employee outside the payroll mechanism. The practice resulted in the payment not being
reported through the normal payroll system and no appropriate tax withholdings being made. We have identified those instances
where we believe such practice should have been reported through the payroll system.
Split Salary Payments. We identified certain instances where an individual employee received compensation from a jurisdiction
outside the jurisdiction in which he was primarily employed (home country). In such instances, the paying company normally would
not report or withhold local income tax on such salary payments, relying on the employee to report and remit the appropriate taxes to
the country of employment. We have identified those instances where either the paying entity or the local employing entity had an
affirmative obligation to report and withhold personal income and social taxes.
Equity Grants and Retirement Payments. In a number of instances we identified stock option and restricted stock or retirement
annuities granted to employees outside the US and upon exercise or vesting,
130
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
neither the US company nor the local company reported the compensation arising therefrom or withheld applicable local tax. Instead
the agency notified each employee of the employee’s obligation to report and withhold in the respective local country of residence or
employment. We have identified certain jurisdictions where we or the local employing agency should have withheld on or reported the
compensation to the local authorities.
Independent Contractor/ Employees. A common issue in our industry is the retention of services by individuals in the capacity of
an independent contractor instead of as an employee. There are specific criteria in every jurisdiction in which we do business which
establish whether an individual is to be characterized as an employee or as an independent contractor. In a number of instances we
have identified individuals who were classified as independent contractors but should have been considered employees.
As it relates to the five issues, Personal Service Companies, payment of personal expenses outside the normal payroll mechanism,
split salary payments, equity grants and retirement payments, and independent contractors/employees, we have recorded adjustments
with a cumulative impact on net income for the years 2002 through 2003 of $16.6, of which $6.7 is related to PSCs.
The table below sets forth the impact of this element of the restatement on our Consolidated Financial Statements for the years
2002 through 2004. The restatement also reflects periods prior to 2002; we have recorded an adjustment of $9.0 in our retained
earnings at January 1, 2002.
International Compensation Arrangements
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Loss
Provision for Income Taxes
Loss from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Accounting for Lease Related Expenses
Impact of
Restatement
2003
2002
—
(9.4)
(0.9)
(8.5)
—
(9.6)
(0.7)
(8.8)
0.7
9.6
Substantially all of our office space is leased from third parties. Certain of our lease contracts contain rent holidays, various
escalation clauses, or landlord/tenant incentives. While it is our policy to record leases properly, in some instances we did not account
for these lease provisions in accordance with GAAP, specifically, SFAS No. 13, Accounting for Leases, FTB 85-3, Accounting for
Operating Leases with Scheduled Rent Increases, FTB 88-1, Issues Related to Accounting for Leases, and SFAS No. 143, Accounting
for Asset Retirement Obligations. In particular: we recorded rent expense for operating leases on a cash basis, without consideration
for rent holidays; we did not appropriately record or amortize landlord/tenant incentives, and in some cases, netted reimbursements
with leasehold improvement assets; we did not properly record or amortize leasehold improvements over the appropriate periods, and
in some cases, inappropriately amortized leasehold improvement over terms that included assumptions of lease renewals; we did not
completely or accurately record asset retirement obligations related to leasehold improvement assets; and for lease properties that were
part of either our 2001 or 2003 restructuring programs, these errors also impacted amounts previously recorded for restructuring.
We have reviewed our significant lease arrangements in place as of December 31, 2004. We reviewed rental costs, including costs
related to fixed rent escalation clauses and rent holidays, and correctly
131
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
recorded them on a straight-line basis over the lease term. We ensured that landlord/tenant incentives are recorded as leasehold
improvement assets and amortized over the shorter of the economic useful life or the lease term. We ensured that funds received are
recorded as deferred rent and amortized as reductions to rent expense over the lease term. For leasehold improvements, we recorded
adjustments to amortize the related assets over the shorter of the economic useful life or the lease term, and ensured that the lease
renewal is “reasonably assured” as that term is contemplated by SFAS No. 13 when the amortization period includes a renewal period.
We ensured that asset retirement obligations are recorded completely and accurately in the period in which they are incurred and a
reasonable estimate of fair value can be made, and that the amortization of the asset and accretion of the discounted liability is
recognized ratably over the useful life of the leasehold improvement asset. For leased properties that were part of either our 2001 or
2003 restructuring programs, we ensured that prior period rent costs have been recorded on a straight-line basis prior to time of
restructuring and that deferred rent credit balances have been appropriately taken into consideration in the calculation of the related
restructuring reserve at time of restructuring.
We have established specific guidelines to assist personnel in analyzing and recording lease related expenses in the Consolidated
Statement of Operation.
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2002; we have recorded an adjustment of $31.3 to retained earnings at January 1, 2002 related
to lease expenses.
Accounting for Leases
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
Other Adjustments
Impact of
Restated
2003
2002
—
(0.6)
1.6
(2.5)
0.5
5.9
—
0.2
0.2
(0.3)
(7.8)
(5.9)
We have identified other adjustments to our Consolidated Financial Statements which do not conform to GAAP. We had
previously not performed account reconciliations timely. As a result of the restatement we reconciled significant balance sheet and
income statement accounts and determined that some accounts required adjustment. In our examination of accounts, we have
identified a number of matters that require correction, the most significant of which are discussed below.
Tax Provision: We reviewed a global licensing structure in the Octagon Group that it had inherited in an acquisition of a group of
foreign entities in 1998, and determined that we had incorrectly reported income for statutory and income tax purposes for all years
since acquisition. Based on established transfer pricing principles, we have determined that a portion of that income reported partially
within the UK and the US, was subject to higher tax rates. We have disclosed this error to the respective tax authorities in the US and
UK. The corrected amount of tax of the years 1998 through 2003 including tax and penalties has been accrued and is shown in
Provision for Taxes.
Deconsolidation of Entities: We noted several instances where an entity was fully consolidated in error. In these cases, the entity
was erroneously consolidated in financial results for certain years for which
132
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
we did not have effective control of the entity, and accordingly in the restatement, we recorded an adjustment to deconsolidate these
entities for those years.
Pension Expense associated with Foreign Plans: Adjustments were recorded to properly state the pension expense associated with
foreign plans for all years presented. Such adjustments resulted in increased pension expense for previously unidentified plans.
Goodwill and Investment Impairments: Adjustments were necessary to reclass goodwill and investment impairments in the
appropriate periods where the triggering event was identified to have occurred. Certain impairments had been recorded in subsequent
periods and were accounted for in the appropriate periods.
Foreign Currency Translation Adjustments: Adjustments were made to properly state the foreign currency translation adjustment
and the foreign currency gains or losses accounts for all periods. Certain adjustments that had been recorded in wrong periods have
now been accounted for in the appropriate periods.
Classification Revisions: Adjustments were made to reclassify certain balance sheet, income and expense account balances for
consistent application of GAAP and our policies and procedures. Such reclassification adjustments included the presentation of bank
overdrafts as a liability rather than a credit balance in an asset account, intercompany accounts that had been incorrectly recorded as
accounts receivable, accounts payable or other non-intercompany accounts, reclassifications of long-term and short-term assets and
liabilities and other miscellaneous income and expense account reclassifications. Certain adjustments had been recorded in subsequent
periods and were accounted for in the appropriate periods.
Auction rate securities have been reclassified from cash equivalents to short-term marketable securities for each of the periods
presented in the accompanying Consolidated Balance Sheet based upon our evaluation of the maturity dates associated with the
underlying bonds. Auction rate securities are variable rate bonds tied to short-term interest rates with maturities on the face of the
securities in excess of 90 days. Auction rate securities have interest rate resets, at predetermined short-term intervals, usually between
7 and 35 days. They trade at par and are callable at par on any interest payment date at the option of the issuer. Interest paid during a
given period is based upon the interest rate determined during the prior auction. Although these securities are issued and rated as
long-term bonds, they are priced and traded as short-term instruments because of the significant degree of market liquidity provided
through the interest rate resets. We had previously classified these instruments as cash equivalents if the period between interest rate
resets was 90 days or less.
Other Adjustments: We also have corrected certain known errors that were previously not recorded because in each such case we
believed at the time that the amount of any such error was not material to our consolidated financial statements. Principally, these
types of adjustments consist of numerous minor items. We wrote off unsubstantiated balances related to unbillable third party charges,
the reversal of over accrued job costs, and fixed asset write-offs for items that should not have been capitalized, could not be
accounted for or were not in use.
As part of our remediation of our material control weaknesses, we are in the process of hiring additional personnel with knowledge
of GAAP to assist in timely reconciliations of our accounts, to ensure substantiation of amounts recorded, recognition of appropriate
cut-off, and management oversight of key accounts.
133
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The impact on our Consolidated Financial Statements of this element of the restatement is presented in the following table. The
restatement also affects periods prior to 2002; we have recorded an adjustment of $34.0 to retained earnings at January 1, 2002 related
to these miscellaneous other adjustments.
Other Adjustments
Increase (Decrease) for the Years Ended and as of December 31,
Consolidated Statement of Operations:
Revenue
Operating Income (Loss)
Provision for Income Taxes
Income (Loss) from Continuing Operations
Consolidated Balance Sheet:
Total Assets
Total Liabilities
134
Impact of
Restatement
2003
2002
20.5
1.8
(2.1)
(7.7)
19.2
38.2
(3.9)
28.1
74.8
43.6
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The following tables summarize the impact of the restatement on previously reported financial information.
CONSOLIDATED STATEMENT OF OPERATIONS
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income
Total expense and other income
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Loss from continuing operations
Income from discontinued operations (net of tax)
LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
Year Ended December 31, 2003
As Previously
Reported
$
5,863.4
Effect of
Restatement
298.3
$
As
Restated
$
6,161.7
3,451.8
1,896.9
175.6
286.9
5,811.2
52.2
(172.8)
(24.8)
38.9
(84.9)
(127.6)
50.0
(321.2)
(269.0)
254.0
(523.0)
(30.9)
1.0
(552.9)
101.2
(451.7)
(1.43)
0.26
(1.17)
(1.43)
0.26
(1.17)
385.5
385.5
48.8
328.8
(2.7)
7.1
382.0
(83.7)
(34.2)
—
0.4
13.4
—
0.3
(20.1)
(103.8)
(11.3)
(92.5)
3.9
1.4
(87.2)
(0.2)
(87.4)
(0.23)
—
(0.23)
(0.23)
—
(0.23)
—
—
$
$
$
$
$
3,500.6
2,225.7
172.9
294.0
6,193.2
(31.5)
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(341.3)
(372.8)
242.7
(615.5)
(27.0)
2.4
(640.1)
101.0
(539.1)
(1.66)
0.26
(1.40)
(1.66)
0.26
(1.40)
385.5
385.5
$
$
$
$
$
$
$
$
$
$
135
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
CONSOLIDATED STATEMENT OF OPERATIONS
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income
Total expense and other income
Income from continuing operations before provision for income taxes
Provision for income taxes
Income from continuing operations of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Net income (loss) from continuing operations
Income from discontinued operations (net of tax)
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
Year Ended December 31, 2002
As Previously
Reported
$
5,737.5
Effect of
Restatement
321.6
$
As
Restated
$
6,059.1
3,350.0
1,889.3
12.1
127.1
5,378.5
359.0
(145.6)
29.8
(39.7)
7.9
(147.6)
211.4
117.9
93.5
(30.5)
5.0
68.0
31.5
99.5
0.18
0.08
0.26
0.18
0.08
0.26
376.1
381.3
46.7
359.4
(4.2)
2.9
404.8
(83.2)
(13.1)
0.8
(0.6)
0.4
(12.5)
(95.7)
(11.5)
(84.2)
0.5
0.9
(82.8)
—
(82.8)
(0.22)
—
(0.22)
(0.22)
—
(0.22)
—
(5.2)
$
$
$
$
$
3,396.7
2,248.7
7.9
130.0
5,783.3
275.8
(158.7)
30.6
(40.3)
8.3
(160.1)
115.7
106.4
9.3
(30.0)
5.9
(14.8)
31.5
16.7
(0.04)
0.08
0.04
(0.04)
0.08
0.04
376.1
376.1
$
$
$
$
$
$
$
$
$
$
136
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2003
As Previously
Reported
Effect of
Restatement
As
Restated
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $134.1
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
$
$
$
2,005.7
—
4,632.4
242.1
201.7
267.8
7,349.7
657.1
344.5
248.6
3,310.6
42.0
282.0
4,884.8
12,234.5
5,299.2
1,042.7
282.6
6,624.5
2,191.7
539.8
202.6
70.0
3,004.1
9,628.6
2,605.9
12,234.5
137
$
$
$
$
(133.8)
195.1
17.9
61.2
78.0
(35.4)
183.0
40.8
33.8
(1.8)
(42.7)
1.0
(2.7)
28.4
211.4
315.5
214.0
34.3
563.8
7.0
8.8
124.1
(5.2)
134.7
698.5
(487.1)
211.4
$
$
$
$
1,871.9
195.1
4,650.3
303.3
279.7
232.4
7,532.7
697.9
378.3
246.8
3,267.9
43.0
279.3
4,913.2
12,445.9
5,614.7
1,256.7
316.9
7,188.3
2,198.7
548.6
326.7
64.8
3,138.8
10,327.1
2,118.8
12,445.9
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Note 3: Earnings (Loss) Per Share
The following sets forth the computation of basic and diluted earnings (loss) per share for income available to common
stockholders:
For the Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
Basic
Loss from continuing operations
Less: preferred stock dividends
Net loss from continuing operations
Income from discontinued operations, net of taxes of $—, $8.5, and
$22.4, respectively
Net income (loss) applicable to common stockholders
Weighted-average number of common shares outstanding — basic
Loss per share from continuing operations
Earnings per share from discontinued operations
Earnings (loss) per share — basic
Diluted(a)
Loss from continuing operations
Less: preferred stock dividends
Net loss from continuing operations
Income from discontinued operations, net of taxes of $—, $8.5, and
$22.4, respectively
Net income (loss) applicable to common stockholders
Weighted-average number of common shares outstanding — basic
Dilutive effect of convertible securities
Weighted-average number of common shares outstanding — diluted
Loss per share from continuing operations
Earnings per share from discontinued operations
Earnings (loss) per share — diluted
$
$
$
$
$
$
$
$
(544.9)
19.8
(564.7)
6.5
(558.2)
415.3
(1.36)
0.02
(1.34)
(544.9)
19.8
(564.7)
6.5
(558.2)
415.3
—
415.3
(1.36)
0.02
(1.34)
$
$
$
$
$
$
$
$
(640.1)
—
(640.1)
101.0
(539.1)
385.5
(1.66)
0.26
(1.40)
(640.1)
—
(640.1)
101.0
(539.1)
385.5
—
385.5
(1.66)
0.26
(1.40)
$
$
$
$
$
$
$
$
(14.8)
—
(14.8)
31.5
16.7
376.1
(0.04)
0.08
0.04
(14.8)
—
(14.8)
31.5
16.7
376.1
—
376.1
(0.04)
0.08
0.04
(a) The weighted-average number of incremental shares for each of the following have been excluded from the computations of
diluted earnings (loss) per share as they were anti-dilutive:
In 2004 and 2003:
• exercise of employee stock options and conversion of non-vested restricted stock awards;
• conversion of the 4.50%, 1.87%, and 1.80% Convertible Notes;
• conversion of the Series A Mandatory Convertible Preferred Stock;
138
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
In 2004 only:
• conversion of restricted stock units;
• contingently issuable shares outstanding issued in settlement of the Federal Securities Class Actions as discussed in Note 19;
In 2002 only:
• exercise of employee stock options and the conversion of non-vested restricted stock awards; and
• conversion of the 1.87% and 1.80% Convertible Notes.
The following table presents the weighted-average number of incremental anti-dilutive shares excluded from the computations of
diluted earnings (loss) per share for the years ended December 31, 2004, 2003, and 2002:
Contingently issuable shares
Stock options, restricted stock and restricted stock units
Convertible Notes
Series A Mandatory Convertible Preferred Stock
Total
For the Years Ended December 31,
2004
1.2
4.0
70.9
26.3
102.4
2003
(Restated)
2002
(Restated)
—
4.1
64.6
0.8
69.5
—
5.1
13.1
—
18.2
We adopted EITF 03-6, Participating Securities and the Two — Class Method Under FASB Statement No. 128, during the quarter
ended June 30, 2004. The adoption of this pronouncement had no impact on the calculation of earnings per share for any period
presented, as the holders of the relevant securities do not participate in our net loss.
Note 4: Acquisitions and Dispositions
Acquisitions
The majority of our acquisitions include an initial payment at the time of closing and provide for additional contingent purchase
price payments over a specified time. The initial purchase price of an acquisition is allocated to identifiable assets acquired and
liabilities assumed based on estimated fair values with any excess being recorded as goodwill. These contingent payments
(“earn-outs”) are calculated based on estimates of the future financial performance of the acquired entity, the timing of the exercise of
these rights, changes in foreign currency exchange rates and other factors. Earn-out payments are either recorded as an increase to
goodwill and other intangibles or expensed as compensation based on the acquisition agreement and the terms of employment for the
former owners of the acquired businesses. Earn-out payments are recorded within the financial statements once the contingent
acquisition obligations have been met and the consideration is distributable.
Cash paid and stock issued for prior acquisitions are comprised of: (i) contingent payments as described above; (ii) further
investments in companies in which we already have an ownership interest; and (iii) other payments related to loan notes and
guaranteed deferred payments that had been previously recognized on the balance sheet.
We completed two acquisitions during 2004, two during 2003, and nine during 2002, none of which were significant on an
individual basis. The results of operations of these acquired companies were included in our consolidated results from the date of close
of the transaction. We made stock payments
139
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
related to current acquisitions of $1.1 in 2002. We also made stock payments related to acquisitions initiated in prior years of $23.8,
$56.2 and $83.2 during 2004, 2003 and 2002, respectively. Details of cash paid for new and prior acquisitions are as follows:
Cash paid for current acquisitions
Cash paid for prior acquisitions
Less: cash acquired
Net cash paid for acquisitions
For the Years Ended December 31,
2004
$
$
14.6
161.7
(0.9)
175.4
2003
(Restated)
$
$
4.0
221.2
(0.6)
224.6
2002
(Restated)
$
$
48.2
240.0
(11.4)
276.8
The following table includes the cash paid and stock issued for prior acquisition that were primarily recorded as an increase to
goodwill and other intangibles in 2004 relating to companies acquired during prior periods:
Year of Original Acquisition
1998 and
Prior
1999
2000
2001
2002
2003
(Restated)
Total Paid
During
2004
Cash payments for prior acquisitions
Stock issued for prior acquisitions
Total consideration
$
$
28.3
4.7
33.0
$ 20.7
5.3
$ 26.0
$ 58.1
13.6
$ 71.7
$ 11.9
—
$ 11.9
$ 42.1
0.2
$ 42.3
$ 0.6
—
$ 0.6
$
$
161.7
23.8
185.5
Dispositions
Motorsports — On January 12, 2004, we completed the sale of a business comprising the four motorsports circuits, including
Brands Hatch, Oulton Park, Cadwell Park and Snetterton (the “four owned circuits”), owned by our Brands Hatch subsidiaries, to
MotorSport Vision Limited. The consideration for the sale was approximately $26.0. An additional contingent amount of
approximately $4.0 may be paid to us depending upon the future financial results of the operations sold. We recognized a fixed asset
impairment loss related to the four owned circuits of $38.0 in the fourth quarter of 2003. Additionally, we recognized a fixed asset
impairment of $9.6 related to the other Motorsports entities and a capital expenditure impairment of $16.2 for outlays that Motorsports
was contractually required to spend to upgrade and maintain certain remaining racing facilities.
On April 19, 2004, we reached an agreement with the Formula One Administration Limited (“FOA”) to terminate and release our
respective guarantee and promoter obligations relating to the British Grand Prix held at the Silverstone racetrack in the United
Kingdom (“UK”). Under this agreement, we were released from our obligations following the British Grand Prix in July 2004. In
exchange for the early termination of the obligations and liabilities, we paid a total of $93.0 to the FOA in two installments of $46.5
each on April 19, 2004 and May 24, 2004. A pre-tax charge of $80.0 was recorded in Motorsports contract termination costs related to
this transaction during the second quarter of 2004, net of approximately $13.0 in existing reserves related to the termination of this
agreement.
On July 1, 2004, the British Racing Drivers Club (“BRDC”) agreed to vary the terms of the lease agreement relating to the
Silverstone race track and we entered into a series of agreements regarding the potential termination of our remaining Motorsports
obligations in the UK. These agreements gave us the right to terminate our lease obligations at the Silverstone race track and related
agreements, which we
140
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
exercised on November 1, 2004. In connection with these agreements, we paid the BRDC approximately $49.0 in three installments.
The first installment of approximately $24.5 was paid on July 1, 2004, the second installment of approximately $16.0 was paid on
September 30, 2004, and the third installment of approximately $8.5 was paid on October 7, 2004. As a result of these agreements, we
recorded a pre-tax charge in the third quarter of 2004 of $33.6 in Motorsports contract termination costs. This charge is net of existing
reserves of $9.9. The payments also include $5.5 in office and general expenses reflecting the amount of lease expense associated with
our continued use of the leased property through the third and fourth quarters of 2004. We have exited this business and do not
anticipate any additional material charges. The table below summarizes the significant Motorsports charges recorded for the years
ended 2004, 2003 and 2002:
For the Years Ended December 31,
Long-lived asset impairment and other charges
Motorsports contract termination costs
Total
2004
$
$
3.0
113.6
116.6
2003
(Restated)
$
63.8
—
63.8
$
2002
(Restated)
$
$
127.1
—
127.1
NFO — On July 10, 2003, we completed the sale of NFO, our research unit, to Taylor Nelson Sofres plc (“TNS”) for $415.6 in
cash ($376.7 net of cash sold and expenses) and approximately 11.7 shares of TNS stock that were sold in December 2003 for net
proceeds of approximately $42.0. As a result of this sale, we recognized a pre-tax gain of $99.1 ($89.1, net of tax) in the third quarter
of 2003 after certain post closing adjustments. The TNS shares sold resulted in a pre-tax gain of $13.3 recorded in Other income
(expense) in the Consolidated Statement of Operations. In July 2004, we received $10.0 from TNS as a final payment with respect to
the sale of NFO, which resulted in a $6.5 gain, net of tax. The results of NFO are classified as a discontinued operation in accordance
with SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, and, accordingly, the results of operations and
cash flows have been removed from our results of continuing operations and cash flows for prior periods.
Income from discontinued operations consist of the following:
Revenue
Pre-tax income from discontinued operations
Tax expense
Net income
Gain on sale, net of taxes
Income from discontinued operations
Note 5: Restructuring Charges
2004
$ —
$ —
—
—
6.5
$ 6.5
For the Years Ended December 31,
2003
(Restated)
2002
(Restated)
$
$
$
250.1
20.4
(8.5)
11.9
89.1
101.0
$
$
$
466.1
53.9
(22.4)
31.5
—
31.5
During 2004, 2003 and 2002, we recorded net expense related to lease termination and other exit costs and severance and
termination costs for the 2003 and 2001 restructuring programs of $62.2, $172.9 and $7.9, respectively, which included the impact of
adjustments resulting from changes in management’s estimates as described below. The 2003 program was initiated in response to
softness in demand for advertising and marketing services. The 2001 program was initiated following the acquisition of True North
Communications Inc. and was designed to integrate the acquisition and improve productivity. Total
141
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
inception to date net expense for the 2001 and 2003 programs were $641.5 and $231.0, respectively. The 2003 and 2001 restructuring
programs focused on decreasing our overall cost structure mainly through total reductions in head count of approximately 10,300
employees and through downsizing or closing approximately 280 non-strategic or excessive office locations. As of December 31,
2004, substantially all activities under the 2003 and 2001 programs were completed. A summary of the net (income) and expense by
segment is as follows:
2004 Net (Income) Expense
IAN
CMG
Corporate
Total
2003 Net (Income) Expense
(Restated)
IAN
CMG
Motorsports
Corporate
Total
Lease Termination and
Other Exit Costs
2001
2003
Program
Program
Total
$ 40.3
8.1
3.7
$ 52.1
$
$
(7.3) $ 33.0
12.1
4.0
(1.0)
2.7
(4.3) $ 47.8
$ 23.1
12.7
—
$
8.8
6.1
—
$ 31.9
18.8
—
$
$
$
(2.2)
(1.3)
(3.5)
$ 33.6
$ 13.6
$ 47.2
$
2002 Net Expense (Restated)
IAN
CMG
Corporate
Total
$ —
—
—
$ —
$
$
Lease termination and other exit costs
2003 Program
$
$
5.2
5.7
(4.3)
6.6
5.2
5.7
(4.3)
6.6
$
$
Severance and Termination Costs
2001
Program
2003
Program
Total
Total
14.1
5.1
0.3
19.5
106.6
15.7
0.4
3.1
125.8
—
—
—
—
$
$
$
$
$
$
(4.3)
(0.7)
(0.1)
(5.1)
$
$
9.8
4.4
0.2
14.4
$
$
42.8
16.5
2.9
62.2
(0.1)
—
—
—
(0.1)
7.9
(1.2)
(5.4)
1.3
$ 106.5
15.7
0.4
3.1
$ 125.7
$ 138.4
34.5
0.4
(0.4)
$ 172.9
$
$
7.9
(1.2)
(5.4)
1.3
$
$
13.1
4.5
(9.7)
7.9
Net expense related to lease termination and other exit costs of $52.1 recorded for 2004 was comprised of charges of $67.8,
partially offset by adjustments to management estimates of $15.7. For 2003, net expense was $33.6, comprised of charges of $41.6
offset by similar adjustments of $8.0. These charges related to vacating 43 and 55 offices in 2004 and 2003, respectively, located
primarily in the US and Europe. Charges were recorded at net present value and were net of estimated sublease rental income. The
discount related to lease terminations is being amortized over the expected remaining term of the related lease. Given the remaining
life of the vacated leased properties, cash payments are expected to be made through 2015.
In addition to amounts recorded as restructuring charges, we recorded charges of $11.1 and $16.5 during 2004 and 2003,
respectively, related to the accelerated amortization of leasehold improvements on properties included in the 2003 program. These
charges were included in office and general expenses on the Consolidated Statements of Operations.
142
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
2001 Program
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Net (income) and expense related to lease termination and other exit costs of ($4.3), $13.6 and $6.6, recorded for 2004, 2003 and
2002, respectively, resulted exclusively from the impact of adjustments to management estimates. The 2001 program resulted in
approximately 180 offices being vacated worldwide. Given the remaining life of the vacated properties, cash payments are expected to
be made through 2024.
Adjustments to Estimates
Lease termination and other exit costs for the 2003 and 2001 restructuring programs included the net impact of adjustments for
changes in management estimates to decrease the restructuring reserves by $20.0 in 2004 and increase the reserve by $5.6 and $6.6 in
2003 and 2002, respectively. Adjustments to management estimates of net lease obligations included both increases and decreases to
the restructuring reserve balance as a result of several factors. The significant factors were our negotiation of terms upon the exit of
leased properties, changes in sublease rental income and utilization of previously vacated properties by certain of our agencies due to
improved economic conditions in certain markets, all of which occurred during the period recorded.
Severance and termination costs
2003 Program
Net expense related to severance and termination costs of $19.5 recorded for 2004 was comprised of charges of $26.4, partially
offset by adjustments to management estimates of $6.9. For 2003, net expense of $125.8 was comprised of charges of $133.7 offset by
adjustments of $7.9. These charges related to a worldwide workforce reduction of approximately 400 employees in 2004 and 2,900 in
2003. The restructuring program affected employee groups across all levels and functions, including executive, regional and account
management and administrative, creative and media production personnel. The majority of the severance charges related to the US and
Europe, with the remainder in Asia and Latin America.
2001 Program
Net (income) and expense related to severance and termination costs of ($5.1), ($0.1) and $1.3 recorded for 2004, 2003 and 2002,
respectively, resulted exclusively from the impact of adjustments to management estimates. The 2001 program related to a worldwide
reduction of approximately 7,000 employees.
Adjustments to Estimates
Severance and termination costs associated with the 2003 and 2001 restructuring programs included the net impact of adjustments
for changes in management estimates to decrease the restructuring reserves by $12.0 and $8.0 in 2004 and 2003, respectively, and
increase the reserve by $1.3 in 2002. Adjustments to management estimates of severance and termination obligations included both
increases and decreases to the restructuring reserve balance as a result of several factors. The significant factors were the decrease in
the number of terminated employees, change in amounts paid to terminated employees and change in estimates of taxes and restricted
stock payments related to terminated employees, all of which occurred during the period recorded.
143
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
A summary of the remaining liability for the 2003 and 2001 restructuring programs is as follows:
Liability at
12/31/2003
(Restated)
2003 Program
Lease termination and other exit
costs
Severance and termination costs
Total
2001 Program
Lease termination and other exit
costs
Severance and termination costs
Total
$
$
$
$
37.7
39.0
76.7
65.6
10.2
75.8
Charges
Payments
Adjustments(1)
Other(2)
$ 67.8
26.4
$ 94.2
$ (32.6)
(52.4)
$ (85.0)
$ —
—
$ —
$ (28.0)
(3.1)
$ (31.1)
$
$
$
$
(15.7)
(6.9)
(22.6)
(4.3)
(5.1)
(9.4)
$ (6.2)
1.1
$ (5.1)
$
$
3.9
(0.4)
3.5
Liability at
12/31/2002
(Restated)
Charges
Payments
Adjustments(1)
Other(2)
2003 Program
Lease termination and other exit
costs
Severance and termination costs
Total
2001 Program
Lease termination and other exit
costs
Severance and termination costs
Total
$
$
$
$
—
—
—
$
41.6
133.7
$ 175.3
$
(8.5)
(88.3)
$ (96.8)
92.5
15.9
108.4
$
$
—
—
—
$ (33.1)
(10.9)
$ (44.0)
$
$
$
$
(8.0)
(7.9)
(15.9)
13.6
(0.1)
13.5
$ 12.6
1.5
$ 14.1
$
$
(7.4)
5.3
(2.1)
Liability at
12/31/04
$
$
$
$
51.0
7.2
58.2
37.2
1.6
38.8
Liability at
12/31/2003
(Restated)
$
$
$
$
37.7
39.0
76.7
65.6
10.2
75.8
(1) Amounts represent adjustments to management estimates, as discussed above.
(2) Amounts represent adjustments to the liability for changes in foreign currency exchange rates as well as liabilities that were
previously maintained on the Consolidated Balance Sheet in other balance sheet accounts.
Severance amounts incurred outside the parameters of our restructuring programs are recorded in the financial statements when
they become both probable and estimable. With the exception of medical and dental benefits paid to employees who are on long-term
disability, we do not establish liabilities associated with severance until reasonably estimable and probable. We have recorded a
liability of $6.1 and $5.5 as of December 31, 2004 and 2003, respectively, related to medical and dental benefits for employees who
are on long-term disability.
144
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Note 6: Land, Buildings and Equipment
The following table provides a summary of the components of land, buildings and equipment:
Land and buildings
Furniture and equipment
Leasehold improvements
Less: accumulated depreciation
Land, buildings and equipment, net
Note 7: Goodwill and Other Intangible Assets
Goodwill
December 31,
2004
2003
(Restated)
$
$
111.1
1,038.6
571.3
1,721.0
(998.1)
722.9
$
$
105.2
1,035.1
563.9
1,704.2
(1,006.3)
697.9
Goodwill is the excess purchase price remaining from an acquisition after an allocation of purchase price has been made to
identifiable assets acquired and liabilities assumed based on estimated fair values. In order to determine the fair value of net assets for
new agency acquisitions, valuations are performed based on several factors, including the type of service offered, competitive market
position, brand reputation and geographic coverage. Considering the characteristics of advertising, specialized marketing and
communication services companies, our acquisitions usually do not have significant amounts of tangible and other intangible net
assets. As a result, a substantial portion of the purchase price is allocated to goodwill. Changes to goodwill include both current year
and deferred payments related to acquisitions. We perform an annual impairment review of goodwill as of September 30th or
whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. See Note 1 for fair
value determination and impairment testing methodologies. For more discussion on impairment charges, refer to Note 8.
The changes in the carrying value of goodwill by segment for the years ended December 31, 2004 and 2003 are as follows:
Balance as of December 31, 2002 (Restated)
Goodwill from dispositions
Goodwill from current acquisitions
Goodwill from prior acquisitions
Impairment charges
Other (primarily currency translation)
Balance as of December 31, 2003 (Restated)
Goodwill from current acquisitions
Goodwill from prior acquisitions
Impairment charges
Other (primarily currency translation)
Balance as of December 31, 2004
IAN
2,733.7
(140.1)
3.4
213.8
(0.4)
34.9
2,845.3
10.1
93.8
(220.2)
24.5
2,753.5
$
$
$
CMG
587.2
—
—
48.7
(218.0)
4.7
422.6
—
56.6
(91.7)
0.6
388.1
$
$
$
Total
3,320.9
(140.1)
3.4
262.5
(218.4)
39.6
3,267.9
10.1
150.4
(311.9)
25.1
3,141.6
$
$
$
145
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Other Intangible Assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
As of December 31, 2004 and 2003, the net carrying value of other intangible assets was $37.6 and $43.0, respectively. Included
in other intangible assets are assets with indefinite lives not subject to amortization and assets with definite lives subject to
amortization. Other intangible assets include non-compete agreements, license costs, trade names and customer lists. The total
amortization expense for the twelve months ended December 31, 2004, 2003 and 2002 was $6.8, $12.1 and $9.2, respectively. These
assets are reviewed annually for impairment or whenever events or significant changes in circumstances indicate that the carrying
value may not be recoverable. See Note 1 for fair value determination and impairment testing methodologies. For more discussion on
impairment charges, refer to Note 8. The following table provides a summary of other intangible assets:
Other intangible assets
Less: accumulated amortization
Other intangible assets, net
December 31,
2004
$
$
63.4
(25.8)
37.6
2003
(Restated)
$
$
72.8
(29.8)
43.0
Note 8: Long-Lived Asset Impairment and Other Charges
Long-lived assets include land, buildings, equipment, goodwill and other intangible assets. Buildings, equipment and other
intangible assets with finite lives are depreciated or amortized on a straight-line basis over their respective estimated useful lives. At
least annually, we review all long-lived assets for impairment. When necessary, we record an impairment charge for the amount that
the carrying value exceeds the fair value. See Note 1 to the Consolidated Financial Statements for fair value determination and
impairment testing methodologies.
The following table summarizes the long-lived asset impairment and other charges:
For the Years Ended December 31,
2004
IAN
CMG Motorsports
Total
IAN
2003
(Restated)
CMG Motorsports
$ 220.2 $ 91.7 $ —
3.0
—
$ 227.1 $ 92.1 $ 3.0
0.4
—
2.0
4.9
Goodwill impairment
Fixed asset impairment
Other
Total
2004 Impairments
$ 311.9 $ 0.4 $ 218.0 $ —
63.8
—
$ 322.2 $ 11.8 $ 218.4 $ 63.8
—
0.4
2.3
9.1
5.4
4.9
2002
(Restated)
Total
$ 218.4 $ 2.9 $
IAN Motorsports
82.1
33.0
—
12.0
—
$ 294.0 $ 2.9 $ 127.1
66.1
9.5
Total
$ 85.0
33.0
12.0
$ 130.0
IAN — During the third quarter of 2004, we recorded goodwill impairment charges of approximately $220.2 at The Partnership
reporting unit, which was comprised of, Lowe Worldwide, Draft Worldwide, Mullen, Dailey & Associates and Berenter Greenhouse
Webst and $91.7 at our CMG reporting unit, which is comprised of Weber Shandwick, Golin Harris, DeVries Public Relations, and
Octagon Worldwide FutureBrand. Our long-term projections showed previously unanticipated declines in discounted future operating
cash flows due to recent client losses, reduced client spending and declining industry valuation metrics. These discounted future
operating cash flow projections caused the estimated fair values of The Partnership to be less than their book values. The Partnership
was subsequently disbanded in the fourth quarter of 2004 and the remaining goodwill was allocated based on the relative fair value of
the agencies at the time of disbandment. We considered the possibility of impairment at Lowe and Draft, the two largest
146
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
agencies previously within The Partnership. However, at this point we have determined that there is no discernible trigger event for an
additional impairment. We will continue to monitor the results and, should operating performance worsen, particularly at Lowe we
may conclude that a trigger event has occurred and impairment may then be required.
CMG — As a result of the annual impairment review, a goodwill impairment charge of $91.7 was recorded at the CMG reporting
unit. At our CMG reporting unit, which is comprised of Weber Shandwick, Golin Harris, DeVries Public Relations, and Octagon
Worldwide FutureBrand, the fair value of CMG was adversely affected by declining industry market valuation metrics, specifically, a
decrease in the EBITDA multiples used in the underlying valuation calculations. The impact of the lower EBITDA multiples caused
the calculated fair value of CMG goodwill to be less than the related book value.
2003 Impairments
CMG — We recorded an impairment charge of $218.0 to reduce the carrying value of goodwill at Octagon. The Octagon
impairment charge reflects the reduction of the unit’s fair value due principally to poor financial performance in 2003 and lower than
expected future financial performance. Specifically, there was significant pricing pressure in both overseas and domestic TV rights
distribution, declining fees from athlete representation, and lower than anticipated proceeds from committed future events, including
ticket revenue and sponsorship.
Motorsports — We recorded fixed asset impairment charges of $63.8, consisting of $38.0 in connection with the sale of a business
comprised of the four owned auto racing circuits $9.6 related to the sale of other Motorsports entities and fixed asset impairment of
$16.2 for outlays that Motorsports was contractually required to spend to improve the racing facilities.
2002 Impairments
Motorsports — Beginning in the second quarter of 2002 and continuing in subsequent quarters, certain Motorsports businesses
experienced significant operational difficulties. Some of the impairment indicators included significantly lower than anticipated
attendance at the marquee British Grand Prix race in July 2002 and a change in management at Motorsports in the third quarter of
2002. We performed an impairment test and concluded that certain asset groupings of Motorsports had a book value that exceeded
their fair market value. As a result, we recognized an impairment loss of $127.1, which was composed of $82.1 of goodwill
impairment, $33.0 of fixed asset impairment and $12.0 of other impairment.
Note 9: Expense and Other Income
Investment Impairment
We monitor our investments to determine whether a significant event or changes in circumstances has occurred that may have an
adverse effect on the fair value of each investment. When an other than temporary decline in value is deemed to have occurred, an
impairment charge is recorded to adjust the carrying value of the investment to the estimated fair value. See Note 1 for further
discussion of fair value determination and impairment testing methodologies.
During 2004, we recorded investment impairment charges of $63.4. The principal component of the charges was $50.9 related to
the impairment of an unconsolidated investment in a German advertising agency, Springer & Jacoby, as a result of a decrease in
projected operating results. Additionally, we recorded impairment charges of $4.7 related to unconsolidated affiliates primarily in
Israel, Brazil, Japan and India, and $7.8 related to several other available-for-sale investments.
147
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
During 2003, we recorded $71.5 of investment impairment charges related to 20 investments. The charge related principally to
investments in Fortune Promo 7 of $9.5 in the Middle East, Koch Tavares of $7.7 in Latin America, Daiko of $10.0 in Japan, Roche
Macaulay Partners of $7.9 in Canada, Springer & Jacoby of $6.5 in Germany and Global Hue of $6.9 in the US. The majority of the
impairment charges resulted from deteriorating economic conditions in the countries in which the agencies operate, due to the loss of
one or several key clients.
During 2002, we recorded $40.3 of investment impairments primarily related to Octagon investments. The largest component of
the write-off was a $28.4 impairment charge related to an investment in a German soccer club based on current and projected
operating results.
Other Income (Expense)
The following table sets forth the components of other income (expense):
(Losses) gains on sales of businesses
Gain on sale of Modem Media shares
Gain on sale of TNS shares
Gains on sales of other available-for-sale securities and miscellaneous
investment income
Total
For the Years Ended December 31,
2004
$
$
(18.2)
0.8
—
6.7
(10.7)
2003
(Restated)
$
0.3
30.3
13.3
6.4
50.3
$
2002
(Restated)
$
(0.2)
—
—
8.5
8.3
$
In 2004, we recorded $18.2 of net losses on the sale of 19 agencies. The losses related primarily to the sale of Transworld
Marketing, a US-based advertising agency, which resulted in a loss of $8.6, and a $6.2 loss for the final liquidation of the Motorsports
investment. See Note 4 for further discussion of the Motorsports disposition.
In December 2003, we sold approximately 11.0 shares of Modem Media for net proceeds of approximately $57.0, resulting in a
pre-tax gain of $30.3. Also in December 2003, we sold all of the approximately 11.7 shares of TNS we had acquired through the sale
of NFO for approximately $42.0 of net proceeds. A pre-tax gain of $13.3 was recorded.
Note 10:
Provision for Income Taxes
The components of income (loss) from continuing operations before provision for (benefit of) income taxes, equity earnings, and
minority interest expense are as follows:
Domestic
Foreign
Total
For the Years Ended December 31,
Continuing Operations
2004
(72.4)
(194.6)
(267.0)
$
2003
(Restated)
(8.8)
(364.0)
(372.8)
$
2002
(Restated)
335.3
(219.6)
115.7
$
148
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The provision for (benefit of) income taxes on continuing operations consists of:
Federal income taxes (including foreign withholding taxes):
Current
Deferred
State and local income taxes:
Current
Deferred
Foreign income taxes:
Current
Deferred
Total
The components of deferred tax assets consist of the following items:
Postretirement/postemployment benefits
Deferred compensation
Pension costs
Basis differences in fixed assets
Rent
Interest
Accruals and reserves
Allowance for doubtful accounts
Basis differences in intangible assets
Investments in equity securities
Tax loss/tax credit carry forwards
Restructuring and other merger-related costs
Other
Total deferred tax assets, net
Valuation allowance
Net deferred tax assets
For the Years Ended December 31,
Continuing Operations
2004
2003
(Restated)
2002
(Restated)
$
$
$
$
$
$
$
37.2
18.2
55.4
12.8
(22.6)
(9.8)
84.0
132.6
216.6
262.2
$
$
$
$
$
$
$
16.2
39.6
55.8
27.0
(9.0)
18.0
141.4
27.5
168.9
242.7
$
$
$
$
$
$
$
3.6
116.3
119.9
26.1
2.5
28.6
46.9
(89.0)
(42.1)
106.4
December 31,
2004
2003
(Restated)
$
$
18.6
234.1
50.1
14.8
8.8
(4.5)
130.5
33.3
(5.3)
16.2
411.6
45.2
70.4
1,023.8
(488.6)
535.2
$
$
20.9
180.9
59.0
21.9
0.8
(8.5)
142.5
26.9
18.9
19.0
296.9
51.4
80.0
910.6
(252.6)
658.0
The valuation allowance of $488.6 and $252.6 at December 31, 2004 and 2003, respectively, applies to certain deferred tax assets,
including US tax credits, capital loss carryforwards and net operating loss carryforwards in certain jurisdictions that, in our opinion,
are more likely than not, not to be utilized. The
149
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
change during 2004 in the deferred tax valuation allowance primarily relates to uncertainties regarding the utilization of capital loss
and net operating loss carryforwards. At December 31, 2004, there are $58.9 of tax credit carryforwards with expiration periods
beginning in 2009 and ending in 2013. There are also $334.5 of loss carryforwards, of which $103.7 are US capital and net operating
loss carryforwards that expire in the years 2006 through 2024. The remaining $230.8 are non-US net operating loss carryforwards of
$219.7 with unlimited carryforward periods and $11.1 with expiration periods from 2010 through 2020. We have concluded that it is
more likely than not that the net deferred tax asset balance will be realized.
Effective Tax Rate Reconciliation on Continuing Operations
A reconciliation of the effective income tax rate on continuing operations before equity earnings and minority interest expense as
reflected in the Consolidated Statements of Income to the US Federal statutory income tax rate is as follows:
US Federal statutory income tax rate
Federal income tax provision (benefit) at statutory rate
State and local income taxes, net of federal income tax benefit
Impact of foreign operations, including withholding taxes
Change in valuation allowance
Goodwill and other long-lived asset impairment charges
Restructuring and other merger-related costs
Liquidation of Motorsports
Other
Provision (benefit) for income taxes
Effective tax rate on operations
For the Years Ended December 31,
Continuing Operations
2004
2003
2002
$
$
35.0%
(93.5)
13.7
77.6
236.0
26.3
(1.2)
(19.7)
23.0
262.2
98.2%
$
$
35.0%
(130.5)
11.1
114.8
111.4
103.6
15.2
—
17.1
242.7
65.1%
$
$
35.0%
40.5
18.4
20.3
27.5
7.2
(0.1)
—
(7.4)
106.4
92.0%
Our effective tax rate was negatively impacted by the establishment of valuation allowances, as described below, restructuring
charges, and non-deductible long-lived asset impairment charges. Our effective tax rate was also impacted by pretax charges and
related tax benefits resulting from the Motorsports contract termination costs. The difference between the effective tax rate and the
statutory federal rate of 35% is also due to state and local taxes and the effect of non-US operations.
As required by SFAS No. 109, we are required to evaluate on a quarterly basis the realizability of our deferred tax assets.
SFAS No. 109, Accounting for Income Tax, requires a valuation allowance to be established when it is more likely than not that all or
a portion of deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence, establishment of a
valuation allowance must be considered. We believe that cumulative losses in the most recent three-year period represent sufficient
negative evidence under the provisions of SFAS No. 109, Accounting for Income Tax, and, as a result, we determined that certain of
our deferred tax assets required the establishment of a valuation allowance. The deferred tax assets for which an allowance was
established relate primarily to foreign net operating and US capital loss carryforwards. During 2004, a valuation allowance of $236.0
was established in continuing operations on existing deferred tax assets and current year losses with no tax benefits. The total
valuation allowance as of December 31, 2004 was $488.6.
150
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The total amount of undistributed earnings of foreign subsidiaries for income tax purposes was $672.3 and $697.9 at December 31,
2004 and 2003, respectively. It is our intention to reinvest undistributed earnings of our foreign subsidiaries indefinitely. After the
completion of our evaluation, we have determined that we will not take advantage of the provisions of the Jobs Act which grants a
temporary incentive to repatriate foreign earnings. However, we will continue to monitor our circumstances and if there is a change
which makes the use of this provision advantageous, we will be able to adopt it prior to December 31, 2005.
On April 21, 2003 the Internal Revenue Service (“IRS”) proposed additions to our taxable income for the taxable years 1994
through 1996 that would result in additional income taxes, including conforming state and local tax adjustments, of $41.5 (plus
interest). We filed a Protest with the IRS Appeals Office on July 21, 2003, contesting the most significant adjustments proposed by the
IRS and claiming a refund in respect of certain business expenses for which we had failed to claim deductions. We have settled one of
the protested issues in an amount that does not exceed previously established reserves and therefore will not have a material effect on
our financial position and the results of operations. Although the resolution of the remaining issues will likely require us to pay
additional taxes, we expect that any such payments also will not have a material effect on our financial position and the results of
operations.
The IRS currently has our taxable years 1997-2002 under examination. In addition, we have various tax years under examination
by tax authorities in various countries, such as the United Kingdom, and states, such as New York, in which we have significant
business operations. It is not yet known whether these examinations will in the aggregate result in us paying additional taxes. We have
established tax reserves that we believe to be adequate in relation to the potential for additional assessments in each of the jurisdictions
in which it is subject to taxation. We regularly assess the likelihood of additional tax assessments in those jurisdictions and adjust our
reserves as additional information or events require.
Although the ultimate resolution of these remaining matters will likely require us to pay additional taxes, we anticipate any such
payments will not have a material effect on our financial position and results of operations.
151
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Note 11: Debt
Long-Term Debt
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
A summary of the carrying amounts and fair values of our long-term debt is as follows:
1.80% Convertible Subordinated Notes due 2004 (less
unamortized discount of $5.9)
$
—
$
—
$
244.1
$
244.5
2004
2003
December 31,
Book Value
Fair Value
Book Value
Fair Value
1.87% Convertible Subordinated Notes due 2006 (less
unamortized discount of $23.5)
7.875% Senior Unsecured Notes due 2005
7.25% Senior Unsecured Notes due 2011
5.40% Senior Unsecured Notes due 2009 (less
unamortized discount of $0.3)
6.25% Senior Unsecured Notes due 2014 (less
unamortized discount of $1.0)
4.50% Convertible Senior Notes due 2023
Other notes payable and capitalized leases — at interest
rates from 4.5% to 22.23%
Total long-term debt
Less: current portion
Long-term debt, excluding current portion
—
255.0
500.0
249.7
347.3
800.0
42.1
2,194.1
258.1
1,936.0
$
—
257.5
537.3
252.9
354.3
1,045.0
337.5
522.1
500.0
—
—
800.0
42.1
2,445.8
247.1
2,198.7
$
336.6
535.0
542.5
—
—
1,224.0
Exposure to interest rate movements is reduced by interest rate swap agreements. As a result of these agreements, the effective
interest rate for the 6.25% Senior Unsecured Notes differs from its stated rate.
Annual repayments of long-term debt as of December 31, 2004 are scheduled as follows:
2005
2006
2007
2008
2009
Thereafter
Total long-term debt
$
$
258.1
3.9
2.1
1.6
250.5
1,677.9
2,194.1
Redemption and Repurchase of Long-Term Debt
In January 2004, we redeemed the 1.80% Convertible Subordinated Notes with an aggregate principal amount of $250.0 at
maturity at an aggregate price of approximately $246.0, which included the principal amount of the Notes plus original issue discount
and accrued interest to the redemption date. To redeem these Convertible Subordinated Notes, we used approximately $246.0 of the
net proceeds from the 2003 Common and Mandatory Convertible Preferred Stock offerings as discussed in Note 12.
In November 2004, we tendered for $250.0 of the $500.0 outstanding face value 7.875% Senior Unsecured Notes at an aggregate
price of approximately $263.1, which included the principal amount of
152
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
the Notes plus accrued interest to the tender date. A prepayment premium of $9.8 was recorded on the early retirement of $250.0 of
these Notes. In December 2004, we redeemed our outstanding 1.87% Convertible Subordinated Notes with an aggregate principal
amount of approximately $361.0 at maturity at an aggregate price of approximately $346.8, which included the principal amount of
the Notes plus accrued interest to the redemption date. To tender for the 7.875% Senior Unsecured Notes and redeem the
1.87% Convertible Subordinated Notes, we used approximately $250.0 and $350.0, respectively, of the net proceeds from the sale and
issuance in November 2004 of the 5.40% Senior Unsecured Notes due November 2009 and 6.25% Senior Unsecured Notes due
November 2014.
In August 2005, we redeemed the remainder of the outstanding 7.875% Senior Unsecured Notes with an aggregate principal
amount of approximately $250.0 at maturity at an aggregate price of approximately $258.6, which included the principal amount of
the Notes plus accrued interest to the redemption date. To redeem these Notes we used the proceeds from the sale and issuance in July
2005 of $250.0 Floating Rate Notes due in July 2008.
Consent Solicitation
In March 2005, we completed a consent solicitation to amend the indentures governing five series of our outstanding public debt
to provide, among other things, that our failure to file with the trustee our SEC reports, including our 2004 Annual Report on
Form 10-K and Quarterly Reports for the first and second quarter of 2005 on Form 10-Q, would not constitute a default under the
indentures until September 30, 2005.
The indenture governing our 4.50% Convertible Senior Notes was also amended to provide for: (1) an extension from March 15,
2005 to September 15, 2009 of the date on or after which we may redeem the 4.50% Notes and (2) an additional “make-whole”
adjustment to the conversion rate in the event of a change of control meeting specified conditions.
Convertible Senior Notes
The 4.50% Convertible Senior Notes (“4.50% Notes”) are convertible to common stock at a conversion price of $12.42 per share,
subject to adjustment in specified circumstances. They are convertible at any time if the average price of our common stock for 20
trading days immediately preceding the conversion date is greater than or equal to a specified percentage, beginning at 120% in 2003
and declining 0.5% each year until it reaches 110% at maturity, of the conversion price. They are also convertible, regardless of the
price of our common stock, if: (i) we call the 4.50% Notes for redemption; (ii) we make specified distributions to shareholders;
(iii) we become 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) or (iv) the credit ratings assigned to the 4.50% Notes by any two of Moody’s Investors
Service, Standard & Poor’s and Fitch Ratings are lower than Ba2, BB and BB, respectively, or the 4.50% Notes are no longer rated by
at least two of these ratings services. Because of our current credit ratings, the 4.50% Notes are currently convertible into
approximately 64.4 shares of our common stock.
We, at the investors’ option, may be required to redeem the 4.50% Notes for cash on March 15, 2008 and may also be required to
redeem the 4.50% Notes at the investors’ option on March 15, 2013 and March 15, 2018, for cash or common stock or a combination
of both, at our election. Additionally, investors may require us to redeem the 4.50% Notes in the event of certain change of control
events that occur prior to March 15, 2008, for cash or common stock or a combination of both, at our election. If at any time on or
after March 13, 2003 we pay cash dividends on our common stock, we will pay contingent interest in an amount equal to 100% of the
per share cash dividend paid on the common stock multiplied by the number of shares of common stock issuable upon conversion of
the 4.50% Notes. At our option, we may redeem the 4.50% Notes on or after September 15, 2009 for cash. The redemption price in
each of
153
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
these instances is 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any. The
4.50% Notes also provide for an additional “make-whole” adjustment to the conversion rate in the event of a change of control
meeting specified conditions.
See Note 17 for a discussion of fair market value of our long-term debt.
Credit Arrangements
We have committed and uncommitted lines of credit with various banks that permit borrowings at variable interest rates. At
December 31, 2004 and 2003, there were no borrowings under our committed facilities, however, there were borrowings under the
uncommitted facilities made by several of our international subsidiaries totaling $67.8 and $69.8, respectively. We have guaranteed
the repayment of some of these borrowings by our subsidiaries. The weighted-average interest rate on outstanding balances under the
uncommitted short-term facilities at December 31, 2004 and 2003 was approximately 5% in each year. A summary of our credit
facilities is as follows:
Total
Facility
2004
Amount
Outstanding
Total
Available
Total
Facility
2003
Amount
Outstanding
December 31,
Committed
364-Day Revolving Credit Facility
Three-Year Revolving Credit Facility
Five-Year Revolving Credit Facility
Other Facilities
Uncommitted
International
$ 250.0
450.0
—
0.8
$ 700.8
$ 738.1
$
$
$
—
—
—
—
—
$ 250.0
284.6*
—
0.8
$ 535.4
$ 500.0
—
375.0
0.8
$ 875.8
67.8
$ 670.3
$ 744.8
$
$
$
—
—
—
—
—
69.8
$ 675.0
Total
Available
$ 339.9**
—
375.0
0.8
$ 715.7
*
Amount available is reduced by $165.4 of letters of credit issued under the Three-Year Revolving Credit Facility at
December 31, 2004.
** Amount available is reduced by $160.1 of letters of credit issued under the 364-Day Revolving Credit Facility at December 31,
2003.
Our primary bank credit agreements are two credit facilities, a 364-day revolving credit facility (“364-Day Revolving Credit
Facility”) and a three-year revolving credit facility (“Three-Year Revolving Credit Facility” and, together with the 364-Day Revolving
Credit Facility, the “Revolving Credit Facilities”). These facilities have been modified three times through waivers and amendments
executed as of September 29, 2004, March 31, 2005 and June 22, 2005, and the Three-Year Revolving Credit Facility was amended as
of September 27, 2005. The amendment executed on September 29, 2004 only modified the definition of EBITDA. The March 31,
June 22, and September 27, 2005 waivers and amendments are discussed in more detail below. We have been in compliance with all
covenants under our Revolving Credit Facilities, as amended or waived from time to time.
Upon the expiration of our existing 364-Day Revolving Credit Facility on May 10, 2004, we entered into a new 364-Day
Revolving Credit Facility with a syndicate of banks which expired on May 9, 2005, and provided for borrowings of up to $250.0. The
May 9, 2005 expiration date was extended to July 11, 2005 and then to September 30, 2005, as a result of the March 31, 2005 and
June 22, 2005 waivers and amendments to the 364-Day Revolving Credit Facility, respectively. We will allow the 364-Day Revolving
Credit Facility to lapse on September 30, 2005. On May 10, 2004, we replaced our five-year revolving credit facility with the new
Three-Year Revolving Credit Facility. The Three-Year Revolving Credit
154
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Facility expires on May 9, 2007 and provides for borrowings of up to $450.0, of which $200.0 is available for the issuance of letters of
credit. We reduced the aggregate commitment levels by $175.0 in the Revolving Credit Facilities as compared to the previous
revolving credit facilities due to the availability of other sources of liquidity and cash on hand.
Borrowings under the Revolving Credit Facilities are unsecured. Outstanding balances bear interest at variable rates based on
either LIBOR or a bank’s base rate, at our option. The interest rates on LIBOR loans and base rate loans under the Revolving Credit
Facilities are affected by the facilities’ utilization levels and our credit ratings.
The terms of the Revolving Credit Facilities restrict our ability to declare or pay dividends, repurchase shares of common stock,
make cash acquisitions or investments and make capital expenditures, as well as the ability of our domestic subsidiaries to incur
additional unsecured debt in the ordinary course of business in excess of $25.0. The original terms of the Revolving Credit Facilities
limit annual cash consideration paid for acquisitions to $100.0 in the aggregate for any calendar year, provided that amounts unused in
any year may be rolled over to the following years, but may not exceed $250.0 in any calendar year. Annual common stock buybacks
and dividend payments on our capital stock are limited to $95.0 in the aggregate for any calendar year, of which $45.0 may be used
for dividend payments on our convertible preferred stock and $50.0 may be used for dividend payments on our capital stock
(including common stock) and for common stock buybacks. Any unused portion of the permitted amount of $50.0 may be rolled over
into successive years; provided that the payments in any calendar year may not exceed $125.0 in the aggregate. Our permitted level of
annual capital expenditures is limited to $225.0, provided that amounts unused in any year up to $50.0 may be rolled over to the next
year. These terms were subsequently modified with three amendments made to the Revolving Credit Facilities on March 31, June 22
and September 27, 2005.
The March 31, 2005 waiver and amendment to the Revolving Credit Facilities, among other things, (i) required us to maintain an
ending balance of $225.0 of cash in domestic accounts with our lenders for the seven days preceding a borrowing, (ii) restricted cash
consideration paid for acquisitions to less than $5.0 for the period between March 31, 2005 and July 11, 2005, and (iii) restricted our
ability to make certain restricted payments such as dividends until July 11, 2005 to paying dividends on our preferred stock and
repurchasing capital stock in connection with employees’ exercise of options.
The June 22, 2005 waiver and amendment to the Revolving Credit Facilities, among other things, (i) required us to maintain a
daily ending balance of $225.0 of cash and securities in domestic accounts with our lenders, (ii) restricted our ability to make cash
acquisitions in excess of $7.5 in the aggregate until September 30, 2005, and (iii) restricted our ability to make certain restricted
payments such as dividends until September 30, 2005 to paying dividends on our preferred stock and repurchasing capital stock in
connection with employees’ exercise of options.
The terms of the September 27, 2005 amendment to the Three-Year Revolving Credit Facility do not permit us: (i) to make cash
acquisitions in excess of $50.0 until October 2006, or thereafter in excess of $50.0 until expiration of the agreement in May 2007,
subject to increases equal to the net cash proceeds received during the applicable period from any disposition of assets; (ii) to make
capital expenditures in excess of $210.0 annually; (iii) to repurchase or to declare or pay dividends on our capital stock (except for any
convertible preferred stock, convertible trust preferred instrument or similar security, which includes our outstanding 5.40% Series A
Mandatory Convertible Preferred), except that we may repurchase our capital stock in connection with the exercise of options by our
employees or with proceeds contemporaneously received from an issue of new shares of our capital stock; and (iv) to incur new debt
at our subsidiaries, other than unsecured debt incurred in the ordinary course of business, which may not exceed $10.0 in the aggregate
with respect to our US subsidiaries.
155
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The original terms of the Revolving Credit Facilities also included certain financial covenants that set:
(i) debt to EBITDA ratio of not greater than 3.25 to 1;
(ii) minimum levels of EBITDA of not less than $750.0; and
(iii) interest coverage ratio of not less than 3.75 to 1 for the period of four fiscal quarters then ended.
The March 31, 2005 amendment modified the financial covenants to the Revolving Credit Facilities and set:
(i) debt to EBITDA ratio of not greater than 4.25 to 1;
(ii) minimum levels of EBITDA of not less than $550.0; and
(iii) interest coverage ratio of not less than 3.0 to 1 for the four fiscal quarters ended December 31, 2004.
The June 22, 2005 amendment modified the financial covenants to the Revolving Credit Facilities and set:
(i) debt to EBITDA ratios as of the end of the fiscal quarter ended December 31, 2004, at a ratio of not greater than 4.25 to 1,
as of the end of the fiscal quarter ended March 31, 2005, at a ratio of not greater than 4.8 to 1, as of the end of the fiscal quarter
ended June 30, 2005, at a ratio of not greater than 5.65 to 1, and as of the end of each fiscal quarter thereafter, at a ratio of not
greater than 3.25 to 1;
(ii) minimum levels of EBITDA for the period of four fiscal quarters ended December 31, 2004 of not less than $550.0, for the
period of four fiscal quarters ended March 31, 2005, of not less than $470.0, for the period of four fiscal quarters ended June 30,
2005, of not less than $400.0 and thereafter for each period of four fiscal quarters then ended of not less than $750.0; and
(iii) interest coverage ratios as of the end of the fiscal quarter ended December 31, 2004, at a ratio of not less than 3.0 to 1, as
of the end of the fiscal quarter ended March 31, 2005, at a ratio of not less than 2.4 to 1, as of the end of the fiscal quarter ended
June 30, 2005, at a ratio of not less than 2.0 to 1 and as of the end of each fiscal quarter thereafter, at a ratio of not less than 3.75 to
1.
Our Three-Year Revolving Credit Facility was amended and restated as of September 27, 2005. The effectiveness of the amended
Three-Year Revolving Credit Facility is subject to certain conditions as described below. The September 27, 2005 amendment to the
Three-Year Revolving Credit Facility also sets forth revised financial covenants. These require that, as of the fiscal quarter ended
September 30, 2005 and each fiscal quarter thereafter, we maintain:
(i) an interest coverage ratio of not less than that set forth opposite the corresponding quarter in the table below:
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
156
Ratio
2.15 to 1
1.75 to 1
1.85 to 1
1.45 to 1
1.75 to 1
2.15 to 1
2.50 to 1
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
(ii) a debt to EBITDA ratio of not greater than that set forth opposite the corresponding quarter in the table below:
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Ratio
5.20 to 1
6.30 to 1
5.65 to 1
6.65 to 1
5.15 to 1
4.15 to 1
3.90 to 1
(iii) minimum levels of EBITDA for the four fiscal quarters ended of not less than that set forth opposite the corresponding
quarter in the table below:
Four Fiscal Quarters Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Amount
435.0
360.0
400.0
340.0
440.0
545.0
585.0
$
$
$
$
$
$
$
The terms used in these ratios, including EBITDA, interest coverage and debt, are subject to specific definitions set forth in the
agreement. Under the definition set forth in the amended Three-Year Revolving Credit Facility, EBITDA is determined by adding to
net income or loss the following items: interest expense, income tax expense, depreciation expense, amortization expense, and certain
specified cash payments and non-cash charges subject to limitations on time and amount set forth in the agreement. Based on our
forcast, we expect to be in compliance with all covenants under our Three-Year Revolving Credit Facility, as amended and restated for
the next twelve months.
Before agreeing to the amendments, the lenders reviewed preliminary drafts of the Consolidated Financial Statements included in
this Annual Report and in our quarterly reports on Form 10-Q for the first two quarters of 2005. One condition to effectiveness of the
amendments is that we have not received, on or before October 4, 2005, notice from the lenders that have a majority in amount of the
revolving credit commitments, that the Consolidated Financial Statements in this Annual Report and our quarterly reports, and the
financial data contained in the notes thereto, are not substantially similar to the preliminary consolidated financial statements we
provided to them. If we receive such a notice, the amended agreement will not become effective. In that event, we will continue to be
subject to the financial covenants that were previously applicable under the Three-Year Revolving Credit Facility, as amended in June
2005 with respect to periods through the second quarter of 2005. We were in compliance with those covenants through June 30, 2005,
but there can be no assurance that we will be in compliance when we report financial information the third quarter of 2005.
Note 12: Convertible Preferred Stock
On December 16, 2003, we sold 25.8 shares of common stock and issued 7.5 shares of Preferred Stock. The total net proceeds
received from the concurrent offerings were approximately $693.0. The Preferred Stock carries a dividend yield of 5.375%. On the
automatic conversion date in December, 2006,
157
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
each share of the Preferred Stock will convert, subject to adjustment, to between 3.0358 and 3.7037 shares of common stock,
depending on the then-current market price of our common stock, representing a conversion premium of approximately 22% over the
stock offering price of $13.50 per share. Under certain circumstances, the Preferred Stock may be converted prior to maturity at our
option or at the option of the holders. The common and preferred stock were issued under our existing shelf registration statement.
We are required to pay annual dividends on each share of the Series A Mandatory Convertible Preferred Stock in the amount of
$2.6875 in quarterly installments on March 15th, June 15th, September 15th and December 15th. Dividends are cumulative from the
date of issuance and are payable on each payment date to the extent that dividends are not restricted under our credit facilities and
assets are legally available to pay dividends.
In addition to the stated annual dividend, if at any time on or before December 2006, we pay a cash dividend on our common
stock, the holders of Preferred Stock participate in such distributions via adjustments to the conversion ratio, thereby increasing the
number of common shares into which the Preferred Stock will ultimately convert.
Note 13:
Incentive Plans
We issue stock and cash based incentive awards to our employees under a plan established by the Compensation Committee of the
Board of Directors and approved by our shareholders. Common stock may be granted under the current plan, up to a maximum
4.5 shares for stock options and 14.0 shares for awards other than stock options, however there are limits as to the number of shares
available for certain awards and to any one participant. At December 31, 2004, there were 2.9 shares for stock options and 9.1 shares
for awards other than stock options that were available under the plan. During the year ended December 31, 2004, the expiration of
unexercised options and forfeitures of shares for awards other than stock options previously granted under old plans resulted in an
additional 2.8 shares available to be issued under the new plan.
Stock Options
Stock options are granted at the fair market value of our common stock on the date of grant and are generally exercisable between
two and five years after the date of grant and expire ten years from the grant date.
Following is a summary of stock option transactions during the three-year period ended December 31:
Stock options, beginning of year
Options granted
Options exercised
Options cancelled, forfeited and
expired
Stock options, end of year
Options exercisable at year-end
2004
Weighted-
Average
Exercise
Price
Options
41.9
2.2
(0.7)
(3.9)
39.5
21.1
$
$
$
$
$
$
26.60
14.14
10.64
25.40
26.36
28.94
2003
Weighted-
Average
Exercise
Price
Options
42.3
6.4
(0.1)
(6.7)
41.9
20.8
$
$
$
$
$
$
29.35
10.60
10.49
29.23
26.60
27.49
2002
Weighted-
Average
Exercise
Price
Options
38.3
7.8
(2.8)
(1.0)
42.3
19.8
$
$
$
$
$
$
28.82
26.43
14.24
28.78
29.35
25.16
158
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The following table summarizes information about stock options outstanding and exercisable at December 31, 2004:
Options Outstanding
Options Exercisable
Number of
Options
Outstanding
at
12/31/04
8.9
6.8
13.3
10.5
39.5
Weighted-
Average
Remaining
Contractual
Life
7.71
3.12
5.43
5.55
Weighted-
Average
Exercise
Price
$
$
$
$
11.57
17.85
30.33
39.44
Number
of
Options
Exercisable
at
12/31/04
Weighted-
Average
Exercise Price
1.1
5.9
7.1
7.0
21.1
0.8
3.0
1.5
6.3
2.9
3.4
2.7
0.4
0.1
21.1
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12.15
17.84
31.03
38.94
11.94
15.93
18.93
30.82
34.61
38.49
33.35
15.92
9.64
28.94
Range of Exercise Prices
$ 9.64 to $14.99
$15.00 to $24.99
$25.00 to $34.99
$35.00 to $56.28
Exercisable at December 31,
2004 through:
December 31, 2005
December 31, 2006
December 31, 2007
December 31, 2008
December 31, 2009
December 31, 2010
December 31, 2011
December 31, 2012
December 31, 2013
Total
Restricted Stock
Restricted stock is granted to certain key employees and is subject to certain restrictions and vesting requirements as determined
by the Compensation Committee. The vesting period is generally two to five years. No monetary consideration is paid by a recipient
for a restricted stock award and the fair value of the shares on the grant date is amortized over the vesting period. At December 31,
2004 and 2003, there were 7.5 and 5.5 shares of restricted stock outstanding, respectively. During 2004, 2003 and 2002, we awarded
4.1 shares, 0.5 shares and 1.5 shares of restricted stock with a weighted-average grant date fair value of $13.72, $11.51 and $29.11,
respectively. The expense recorded for restricted stock awards in 2004, 2003 and 2002 was $37.6, $38.8 and $50.0, respectively.
Restricted Stock Units
Restricted stock units are granted to employees and generally vest in three years. The grantee is entitled to receive a payment in
cash or in shares of common stock based on the fair market value of the corresponding number of shares of common stock upon
completion of the vesting period. The holder of restricted stock units has no ownership interest in the underlying shares of common
stock until the restricted stock units vest and the shares of common stock are issued. During 2004, we awarded 1.0 shares of restricted
stock units with a weighted-average grant date fair value of $13.41. Restricted stock units were first issued in 2004.
159
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Performance Units
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Before December 2003, performance units had been awarded to certain key employees. The payout for these performance units
was contingent upon the annual growth in profits (as defined) over the performance periods. The awards are generally paid in cash.
The projected value of these units is accrued and charged to expense over the performance period. We expensed approximately $12.1,
$19.7 and $15.0 in 2004, 2003 and 2002, respectively. In December 2003, the Compensation Committee terminated the existing
Performance Units Plan. Final payments under this plan totaling approximately $29.4 are expected to be made over 2005 and 2006.
Note 14: Employee Benefits
Pension Plans
Through March 31, 1998, we had a defined benefit plan (“Domestic Plan”) which covered substantially all regular domestic
employees. In 1992, the Domestic Plan was amended to offer new plan participants a cash balance benefit as opposed to a career pay
benefit which was the previous plan formula prior to the amendment. Under this arrangement, participants were credited with an
annual allocation of their compensation, ranging from 1.5% to 5.0%, based on the participant’s age and years of service. For pre-1992
participants, the benefit is the greater of the cash balance account or the career pay formula benefit. Under the career pay formula,
annual accruals were earned based on 1.0% of compensation up to $15,000 plus 1.3% of compensation above $15,000. Participants
are eligible to receive their benefit in the form of a lump sum payment or as an annuity. Effective April 1, 1998, plan participation and
benefit accruals for this Domestic Plan were frozen and participants with five or less years of service became fully vested. As of
December 31, 2004, there were approximately 5,000 participants in the Domestic Plan.
Participants with five or more years of participation in the Domestic Plan as of March 31, 1998 retained their vested balances in
the Domestic Plan and also became eligible for payments under a new compensation arrangement (see the Supplemental
Compensation Plan described below).
One of our agencies has an additional domestic plan covering approximately 200 employees. This plan is frozen to new
participants.
We also have numerous foreign pension plans in which benefits are based primarily on years of service and employee
compensation. It is our policy to fund these plans in accordance with local laws and income tax regulations.
The primary investment goal for our plan assets is to maximize total asset returns while ensuring the plans’ assets are available to
fund the plans’ liabilities as they become due. The plans’ assets in aggregate and at the individual portfolio level are invested so that
total portfolio risk exposure and risk-adjusted returns best meet this objective.
For the Domestic Plan, we develop the long-term rate of return assumptions which we use to model and determine overall asset
allocations. Our outside advisors make recommendations regarding asset class allocations and assumptions, which are then subject to
review, modification and approval by the Treasurer and Finance Committee. Expected return on plan assets is based on a combination
of historical returns, current market conditions and capital market forecasts. Factors included in the analysis of returns include
historical trends of asset class index returns over various market cycles and economic conditions.
Most of the foreign plan assets are part of the UK Pension Plan. The UK Pension Plan’s statement of investment principles
specifies benchmark allocations by asset category for each investment manager employed, with specified ranges around the central
benchmark allocation. The remainder of the foreign assets is invested predominantly in equity securities based on local managements’
assessment of market conditions. The expected rate of return on foreign plan assets was determined, based on actuarial advice,
160
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
by a process that takes the current long-term rates of return available on government bonds and applies to these rates suitable risk
premiums that take account of available historical market returns and current market expectations.
Postretirement Benefit Plans
Some of our subsidiaries provide postretirement health and life insurance benefits to eligible employees who were hired as of a
certain date. For domestic employees to be eligible for postretirement health benefits, an employee had to be hired prior to January 1,
1988. To be eligible for life insurance, an employee had to be hired prior to December 1, 1961. Additionally, certain domestic
employees of the former True North Communications companies acquired in June 2001 are eligible for postretirement health and life
insurance benefits.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted. The
Act established a prescription drug benefit under Medicare, known as “Medicare Part D,” and a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. We believe that benefits
provided to certain participants will be at least actuarially equivalent to Medicare Part D, and, accordingly, we will be entitled to a
subsidy. As described in Note 1, we adopted FSP 106-2 prospectively from July 1, 2004. The expected subsidy reduced the
accumulated postretirement benefit obligation (“APBO”) by $5.0, and the net periodic cost by $0.3, as compared with the amount
calculated without considering the effects of the subsidy.
Pension and Postretirement Net Periodic Cost
We use a measurement date of December 31 for all material plans. The following table identifies the components of net periodic
cost for the Domestic Plan, for the principal foreign pension plans, and for the post retirement plans.
For the Years Ended
December 31,
Service cost for benefits
earned
Interest accrued on benefit
obligation
Expected return on plan
assets
Amortization of:
Transition obligation
Prior service cost
Unrecognized actuarial
losses (gains)
Net periodic cost
Domestic Pension Plans
Foreign Pension Plans
Postretirement Benefits
2004
2003
(Restated)
2002
(Restated)
2004
2003
(Restated)
2002
(Restated)
2004
2003
(Restated)
2002
(Restated)
$ 0.7
$
0.7
$
0.7
$ 17.1
$
15.6
$
11.1
$ 0.4
$
0.6
$
0.7
8.7
9.7
10.1
18.1
14.7
11.7
3.9
3.1
3.5
(9.9)
(7.3)
—
(0.1)
—
(0.2)
4.1
$ 3.5
$
6.1
9.0
$
(9.6)
—
(0.3)
3.3
4.2
(11.6)
(9.0)
(9.8)
—
—
—
—
—
1.4
0.1
0.5
0.5
0.2
—
0.2
—
4.9
$ 28.5
3.5
26.3
$
0.3
14.3
$
0.4
$ 4.9
(0.1)
3.8
$
0.1
—
—
4.3
$
161
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The weighted-average assumptions used to determine the net periodic cost are as follows:
For the Years Ended December 31,
Discount rate
Rate of compensation increase
Expected return on plan assets
Domestic Pension Plans
2003
6.60%
N/A
8.65%
2004
6.15%
N/A
8.65%
2002
7.10%
N/A
8.90%
Foreign Pension Plans
2003
5.40%
3.10%
6.50%
2004
5.20%
3.50%
6.35%
2002
5.70%
3.20%
6.90%
Postretirement Benefits
2003
6.75%
N/A
N/A
2004
6.25%
N/A
N/A
2002
7.25%
N/A
N/A
Pension and Postretirement Benefit Obligation
We use a measurement date of December 31 for all material plans. The change in the benefit obligation, the change in plan assets,
the funded status and amounts recognized for the Domestic Plan, principal foreign pension plans, and postretirement plans are as
follows:
For the Years Ended December 31,
2004
2003
(Restated)
Domestic Pension
Plans
Foreign Pension Plans
2003
2004
(Restated)
Postretirement
Benefits
2004
2003
(Restated)
Change in projected benefit obligation
Projected benefit obligation at January 1
Service cost
Interest cost
Benefits paid
Plan participant contributions
Plan amendments
Actuarial losses
Foreign currency effect
Discontinued operations — NFO
Other
Projected benefit obligation at
December 31
Change in fair value of plan assets
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participant contributions
Benefits paid
Foreign currency effect
Discontinued operations — NFO
Other
Fair value of plan assets at December 31
$
$
$ 154.8
0.7
8.7
(14.2)
—
—
17.6
—
—
—
164.5
0.7
9.7
(14.8)
—
0.4
7.8
—
(13.5)
—
$ 356.6
17.1
18.1
(16.3)
2.7
—
38.8
28.8
—
1.7
276.3
15.6
14.7
(17.4)
2.4
—
21.2
40.7
—
3.1
$
$ 62.1
0.4
3.9
(7.0)
1.3
—
11.5
—
—
—
52.0
0.6
3.1
(6.1)
1.1
—
15.0
—
(3.6)
—
$ 167.6
$
154.8
$ 447.5
$
356.6
$ 72.2
$
62.1
$
$ 93.6
7.7
32.1
—
(14.2)
—
—
—
$ 119.2
$
97.9
15.3
1.8
—
(14.8)
—
(6.6)
—
93.6
162
$ 179.0
20.7
15.1
2.7
(16.3)
13.1
—
(0.7)
$ 213.6
$
$
136.4
23.8
18.5
2.4
(17.4)
15.1
—
0.2
179.0
$
$ —
—
5.7
1.3
(7.0)
—
—
—
$ —
$
—
—
5.0
1.1
(6.1)
—
—
—
—
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
For the Years Ended December 31,
2004
2003
(Restated)
Domestic Pension
Plans
Foreign Pension Plans
2003
2004
(Restated)
Postretirement
Benefits
2004
2003
(Restated)
Reconciliation of funded status to total
amount recognized
Funded status of the plans
Unrecognized net actuarial losses
Unrecognized prior service cost
Unrecognized transition cost
Net asset (liability) recognized
Amounts recognized in consolidated
balance sheet
$ (48.4) $
78.4
0.3
—
$ 30.3
$
(61.2)
62.8
0.2
—
1.8
$ (233.9)
112.4
0.4
3.2
$ (117.9)
Accrued benefit liability
Intangible asset
Currency translation adjustment
Accumulated other comprehensive income
Net asset (liability) recognized
Accumulated benefit obligation
$ (43.9) $
0.3
—
73.9
$ 30.3
$ 163.1
$
$
(57.6)
0.4
—
59.0
1.8
151.3
$ (201.1)
2.9
0.7
79.6
$ (117.9)
411.2
$
$
$
$
$
$
(177.6)
77.3
0.4
3.3
(96.6)
$ (72.2) $
21.0
—
1.2
$ (50.0) $
(150.4)
3.0
5.1
45.7
(96.6)
319.9
$ (50.0) $
—
—
—
$ (50.0) $
(62.1)
10.1
—
1.4
(50.6)
(50.6)
—
—
—
(50.6)
Differences between the aggregate balance sheet amounts listed above and the totals reported in our Consolidated Balance Sheet
and our Consolidated Statement of Stockholders’ Equity and Comprehensive Income relate to the non-material foreign plans.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for domestic pension plans with
accumulated benefit obligations in excess of plan assets were $167.6, $163.1 and 119.2, respectively, at December 31, 2004 and
$154.8, $151.3 and $93.6, respectively, at December 31, 2003.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for foreign pension plans with
accumulated benefit obligations in excess of plan assets were $445.3, $409.0 and $211.3, respectively, at December 31, 2004 and
$354.8, $318.1 and $177.2, respectively, at December 31, 2003. The countries where such plans reside in include the United
Kingdom, Germany and Japan.
The weighted-average assumptions used in determining the actuarial present value of our benefit obligations are as follows:
At December 31,
Discount rate
Rate of compensation increase
Healthcare cost trend rate assumed for next year
Initial rate (weighted-average)
Year ultimate rate is reached
Ultimate rate
Domestic Pension
Plans
Foreign Pension
Plans
2004
5.45%
N/A
2003
6.15%
N/A
2004
5.00%
3.55%
2003
5.35%
3.50%
Postretirement
Benefits
2004
5.50%
N/A
9.00%
2012
5.50%
2003
6.25%
N/A
9.50%
2012
5.50%
163
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Asset Allocation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
As of December 31, 2004, our domestic and foreign (primarily the UK) pension plan target asset allocations for 2005, as well as
the actual asset allocations at December 31, 2004 and 2003, are as follows:
Asset category
Equity securities
Fixed income
Real estate
Other
Total
2005 Target
Allocation
Domestic
Foreign
50%
25%
10%
15%
100%
73%
21%
4%
2%
100%
Plan Assets at December 31,
Domestic
Foreign
2004
54%
21%
6%
19%
100%
2003
61%
14%
10%
15%
100%
2004
73%
18%
4%
5%
100%
2003
73%
18%
4%
5%
100%
The aggregate amount of our own stock shares held as investment for our pension funds would be considered negligible relative to
the total fund assets.
Healthcare Cost Trend
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement health and life
insurance plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
Effect of a one percentage point change in assumed healthcare cost trend
-on total service and interest cost components
-on postretirement benefit obligation
1% Increase
1% Decrease
$
$
0.2
3.3
$
$
(0.2)
(3.2)
Cash Flows
Contributions
For 2005, we do not expect to make any contributions to fund our postretirement benefits plan or our Domestic Pension Plans, but
do expect to contribute $24.3 to our foreign plans. We made contributions of $30.0 to fund our principal domestic retirement plan in
2004.
Estimated Future Payments
The following estimated future payments, which reflect future service, as appropriate, are expected to be paid in the years
indicated:
Years
2005
2006
2007
2008
2009
2010-2014
Domestic
Pension
Plans
$
$
$
$
$
$
15.3
11.1
10.9
10.8
10.5
53.3
Foreign
Pension
Plans
$
$
$
$
$
$
14.2
14.2
16.4
14.9
22.5
92.5
Postretirement
Benefits
$
$
$
$
$
$
6.2
6.2
6.3
6.3
6.4
31.1
164
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The expected benefit payments for our postretirement benefit plans are before any estimated federal subsidies expected to be
received under the Act. Federal subsidies are estimated to range from $0 in 2005, to $0.7 in 2009 and are estimated to be $3.2 for the
period 2010-2014. For the Domestic Pension Plans, the cash outflow for 2005 assumes that all previously terminated vested
employees eligible for a payment elect the lump sum payment option.
Supplemental Compensation Plan
As discussed above, participants with five or more years of participation in the Domestic Plan as of March 31, 1998 became
eligible for payments under the Supplemental Compensation Plan. Under the Supplemental Compensation Plan, each participant is
eligible for an annual allocation, which approximates the projected discontinued pension benefit accrual (formerly made under the
cash balance formula in the Domestic Plan) plus interest, while they continue to work for us. Participants in active service are eligible
to receive up to ten years of allocations coinciding with the number of years of plan participation in the Domestic Plans as of
March 31, 1998. After five years of plan participation, a participant starts to receive an annual cash payment equal to 50% of the
accumulated plan balance. Participants must be employed with us as of the scheduled payment date to receive a payment. However, a
participant is entitled to 100% of the accumulated plan balance at termination of employment if certain age and service requirements
are met. Payments began in 2003 and are scheduled to end in 2008. As of December 31, 2004 and 2003, the Supplemental
Compensation Plan liability recorded on our Consolidated Balance Sheet was approximately $9.7 and $8.8, respectively. Amounts
expensed for the Supplemental Compensation Plan in 2004, 2003, and 2002 were $5.4, $3.4 and $3.4, respectively.
Savings Plan
We sponsor a defined contribution plan (“Savings Plan”) that covers substantially all domestic employees. The Savings Plan
permits participants to make contributions on a pre-tax and/or after-tax basis. The Savings Plan allows participants to choose among
various investment alternatives. We match a portion of participant contributions based upon their years of service. We contributed
$28.0, $26.9 and $27.1 to the Savings Plan in 2004, 2003 and 2002, respectively.
Deferred Compensation and Benefit Arrangements
We have deferred compensation arrangements which (i) permit certain of our key officers and employees to defer a portion of their
salary or incentive compensation, or (ii) result in us contributing an amount to the participant’s account. The arrangements typically
provide that the participant will receive the amounts deferred plus interest upon attaining certain conditions, such as completing a
certain number of years of service or upon retirement or termination. As of December 31, 2004 and 2003, the deferred compensation
liability balance recorded on our Consolidated Balance Sheet was approximately $159.8 and $152.3, respectively. Amounts expensed
for deferred compensation arrangements in 2004, 2003, and 2002 were $6.3, $5.0 and $7.5, respectively.
Additionally, we have deferred benefit arrangements with certain key officers and employees which provide participants with an
annual payment, payable when the participant attains a certain age and after the participant’s employment has terminated. The
deferred benefit arrangement liability recorded on our Consolidated Balance Sheet at December 31, 2004 and 2003 was approximately
$128.3 and $116.6, respectively. Amounts expensed for deferred benefit arrangements in 2004, 2003, and 2002 were $17.1, $12.7 and
$23.0, respectively.
We have purchased life insurance policies on participants’ lives to assist in the funding of the related deferred benefit liability. As
of December 31, 2004 and 2003, the cash surrender value of these policies was approximately $141.4 and $137.0, respectively. In
addition to the life insurance policies, certain
165
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
investments are held for the purpose of paying the deferred compensation liability. These investments, along with the life insurance
policies, are held in a separate trust and are restricted for the purpose of paying the deferred compensation liability. As of
December 31, 2004 and 2003, the value of such restricted assets was approximately $80.4 and $87.9, respectively. The cash surrender
value of the policies and the investments in the trust are included in Other Assets on our Consolidated Balance Sheet.
Employee Stock Purchase Plan
Under the ESPP, employees may purchase our common stock through payroll deductions not exceeding 10% of their
compensation. The price an employee pays for a share of stock under the ESPP is 85% of the average market price on the last business
day of each month. In 2004, 2003 and 2002, we issued 0.7 shares, 0.9 shares and 0.9 shares, respectively, purchased by employees
under the ESPP. An additional 11.7 shares were reserved for issuance under the ESPP at December 31, 2004. Shares issued to
employees under the ESPP have no impact on the Consolidated Statement of Operations. See Note 1 for further discussion of
SFAS No. 123R.
Note 15: Accumulated Other Comprehensive Loss
Comprehensive income (loss) is included on the Consolidated Statement of Stockholders’ Equity and Comprehensive Income
(loss). Accumulated other comprehensive loss, net of tax, is reflected in the Consolidated Balance Sheet as follows:
Foreign currency translation adjustment
Adjustment for minimum pension liability
Unrealized holding gain (loss) on securities
Accumulated other comprehensive loss, net of tax
Note 16: Derivative and Hedging Instruments
2004
$
$
(145.8)
(112.8)
10.0
(248.6)
December 31,
2003
(Restated)
$
$
(197.3)
(65.2)
3.4
(259.1)
2002
(Restated)
$
$
(319.3)
(69.2)
(6.7)
(395.2)
We periodically enter into interest rate swap agreements and forward contracts to manage exposure to interest rate fluctuations and
to mitigate foreign exchange volatility.
Interest Rate Swaps
During the fourth quarter of 2004, we executed three interest rate swaps which synthetically converted $350.0 of fixed rate debt to
floating rates, to hedge a portion of our floating rate exposure on our cash investments. The interest rate swaps effectively converted
the $350.0, 6.25% Senior Unsecured Notes due November 2014 to floating rate debt and mature on the same day the debt is due. As of
December 31, 2004, the floating rate was approximately 4.2%. Under the terms of the interest rate swap agreement we pay a floating
interest rate, based on one-month LIBOR plus an average spread of 176.6 basis points, and receive the fixed interest rate of the
underlying bond being hedged. Fair value adjustments decreased the carrying amount of our debt outstanding at December 31, 2004
by approximately $1.7.
In January 2005, we executed an interest rate swap which synthetically converted an additional $150.0 of fixed rate debt to
floating rates. The interest rate swap effectively converted $150.0 of the $500.0, 7.25% Senior Unsecured Notes due August 2011 to
floating rate debt and matures on the same day the debt is due. Under the terms of the interest rate swap agreement we pay a floating
interest rate, based on
166
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
one-month LIBOR plus a spread of 297.0 basis points, and receive the fixed interest rate of the underlying bond being hedged.
We account for interest rate swaps related to our existing long-term debt as fair value hedges. As a result, the incremental interest
payments or receipts from the swaps will be recorded as adjustments to interest expense in the Consolidated Statement of Operations.
The interest rate swaps settle on the underlying bond interest payment dates until maturity. There is no assumed hedge ineffectiveness
as the interest rate swap terms match the terms of the hedged bond.
On May 25, 2005, we terminated all of our long-term interest rate swap agreements covering the $350.0, 6.25% Notes due
November 2014 and $150.0 of the $500.0, 7.25% Notes due August 2011. In connection with the interest rate swap termination, our
net cash receipts were approximately $1.1, which will be recorded as an offset to interest expense over the remaining life of the related
debt.
As of December 31, 2003, we had no outstanding interest rate swap agreements.
Forward Contracts
We have entered into foreign currency transactions in which various foreign currencies are bought or sold forward. These
contracts were entered into to meet currency requirements arising from specific transactions. The changes in value of these forward
contracts were reflected in our Consolidated Statement of Operations. As of December 31, 2004 and 2003, we had contracts covering
approximately $1.8 and $2.4, respectively, of notional amount of currency and the fair value of the forward contracts was negligible.
Other
The terms of the 4.50% Convertible Senior Notes include two embedded derivative instruments. The fair value of the two
derivatives on December 31, 2004 was negligible.
As discussed in Note 4, we have entered into various put and call options related to acquisitions. The exercise price of such options
is generally based upon the achievement of projected operating performance targets and approximates fair value.
Note 17:
Financial Instruments
The following table presents the carrying amounts and fair values of our financial instruments at December 31, 2004 and 2003.
The carrying amounts reflected in our Consolidated Balance Sheet for cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and short-term borrowings approximated their respective fair values at December 31, 2004 and 2003.
Investment securities:
— Marketable securities
— Cost investments
— Other investments
Long-term debt
Financial commitments:
— Other forward contracts
— Put option obligations
2004
2003
Book Value
Fair Value
Book Value
Fair Value
December 31,
(Restated)
$
420.0
121.6
47.1
(2,152.0)
(4.0)
(10.1)
$
420.0
121.6
47.1
(2,447.0)
(4.0)
(10.1)
$
195.1
126.7
120.1
(2,403.7)
(3.1)
(9.3)
$
195.1
126.7
120.1
(2,882.6)
(3.1)
(9.3)
167
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Investment Securities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Marketable securities consisted primarily of available-for-sale equity securities that are publicly traded and have been reported at
fair value with net unrealized gains and losses reported as a component of other comprehensive income. Cost investments consisted
primarily of non-public available-for-sale equity securities accounted for under the cost method. Other investments consisted primarily
of investments in unconsolidated affiliated companies accounted for under the equity method and have been carried at cost, which
approximates fair value. The estimated fair values of financial assets have been determined using available market information and
appropriate valuation methodologies. Judgment is required in interpreting market information to develop the estimated fair value
amounts, and accordingly, changes in assumptions and valuation methodologies may affect these amounts. Net unrealized holding
gains (losses) of our investments were $10.0, $3.4 and $(6.7) at December 31, 2004, 2003 and 2002, respectively.
Long-Term Debt
Long-term debt included variable and fixed rate debt as discussed in Note 11. The fair value of our long-term debt instruments was
based on market prices for debt instruments with similar terms and maturities. During 2004, we executed three interest rate swaps to
hedge a portion of our floating rate debt exposure. The fair value of the interest rate swap agreements was estimated based on quotes
from the financial institutions of these instruments and represents the estimated amounts that we would expect to receive or pay to
terminate the agreements at the reporting date. Fair value adjustments decreased the carrying value of our debt outstanding at
December 31, 2004 by approximately $1.7 as discussed in Note 16.
Financial Commitments
Financial commitments included other forward contracts and put option obligations. Other forward contracts related primarily to
an obligation to repurchase 49% of the minority-owned equity shares of a consolidated subsidiary, valued pursuant to SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristic of Both Liabilities and Equity. Fair value measurement of the
obligation was based upon the amount payable as if the forward contract was settled at December 31, 2004 and 2003. Changes in the
fair value of the obligation have been recorded as interest expense or income in the Consolidated Statement of Operations. Put option
obligations consisted of a written put option representing an obligation to repurchase 40% of the minority-owned equity shares of a
consolidated subsidiary, valued pursuant to SFAS No. 150. The put option obligation has been marked-to-market by assessing the fair
value of the 40% interest as compared to the amount payable if the put option was exercised at December 31, 2004 and 2003. Changes
in the fair value of the put option obligation have been recorded as long-lived asset impairment and other charges in the Consolidated
Statement of Operations.
Note 18:
Segment Information
As of December 31, 2004, we are organized into five global operating divisions and a group of leading stand-alone agencies. In
accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, our operating divisions are
grouped into three reportable segments. The IAN reportable segment is comprised of McCann, FCB, Lowe, Draft and our stand-alone
agencies. CMG comprises our second reportable segment. Our third reportable segment is comprised of our Motorsports operations,
which was sold during 2004.
Prior to the fourth quarter of 2004, Lowe and Draft were included in a single global operating division called The Partnership.
During the fourth quarter of 2004, The Partnership was dissolved; Lowe and Draft became separate global operating divisions and the
remaining agencies previously included in the Partnership became stand-alone agencies.
168
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
As of December 31, 2003, we had an additional global operating division, The Sports & Entertainment Group (“SEG”). SEG
included Octagon, Jack Morton and certain other businesses. During the second quarter of 2004, SEG was disbanded and its
component parts were either reallocated to one of the then four global operating divisions or became a stand-alone agency. During the
fourth quarter of 2004, we re-organized our CMG segment to include Octagon and Jack Morton. Prior year information has been
restated to reflect the current year segment structure. Future changes to our organizational structure may result in changes to the
reportable segment disclosure.
Within the IAN segment, McCann, FCB, Lowe, Draft and our stand-alone agencies provide a comprehensive array of global
communications and marketing services, each offering a distinctive range of solutions for our clients. Our leading stand-alone
agencies, including Deutsch, Campbell-Ewald, Hill Holliday, and The Martin Agency, provide a full range of advertising, marketing
communications services and/or marketing services and partner with our global operating divisions as needed. Each of IAN’s
operating divisions share economic characteristics, specifically related to the nature of their respective services, the manner in which
the services are provided and the similarity of their respective customers. The annual margins of each of the operating divisions may
vary due to global economic conditions, client spending and specific circumstances such as our restructuring activities. However,
based on the respective future prospects of the operating divisions, we believe that the long-term average gross margin of each of these
divisions will converge over time and, given the similarity of their operations, they have been aggregated into a single reportable
segment. IAN also includes our media agencies, Initiative Media and MAGNA Global which are part of our leading stand-alone
agencies, and Universal McCann which is part of McCann. Our media offering creates integrated communications solutions, with
services that cover the full spectrum of communication needs, including channel strategy, planning and buying, consulting,
production, and post-campaign analysis.
CMG, which includes Weber Shandwick, FutureBrand, DeVries, Golin Harris, Jack Morton, and Octagon Worldwide
(“Octagon”), provides clients with diversified services, including public relations, meeting and event production, sports and
entertainment marketing, corporate and brand identity and strategic marketing consulting. CMG shares some similarities to other
service lines offered by IAN, however, on a stand-alone basis, its economic characteristics and expected margin performance are
sufficiently different to support CMG as a separate reportable segment. Specifically, CMG’s businesses, on an aggregate basis, have a
higher proportion of arrangements for which it acts as principal, have a greater proportion of non-global clients and have slightly
lower margins.
During 2004, we exited our Motorsports business, which owned and operated venue-based motorsports businesses. Motorsports
had its own management structure and reported to senior management on the basis of this structure. Motorsports derived revenue from
ticket sales and rentals of its various owned and leased tracks. Generally the cost structure of Motorsports was based on direct
operating costs, as opposed to pass through costs that characterize the rest of the businesses. Accordingly, Motorsports had different
economic characteristics and was reflected as its own reportable segment. Other than the recording of long-lived asset impairment and
contract termination costs, the operating results of Motorsports during 2004 were not material, and therefore not discussed in detail.
The profitability measure employed by our chief operating decision makers for allocating resources to operating divisions and
assessing operating division performance is operating profit. For this purpose, amounts reported as segment operating profit exclude
the impact of restructuring and impairment charges, as we do not consider these charges when assessing operating division
performance or when allocating resources. The impact of restructuring and impairment charges to each reporting segment are reported
separately in Notes 5 and 8, respectively. Segment profit excludes interest income and expense, debt repayment penalties, investment
impairments, litigation charges and other non-operating income. With the
169
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
exception of excluding certain amounts for reportable segment operating profit, all segments follow the same accounting policies as
those described in Note 1.
Certain corporate and other charges are reported as a separate line within total segment operating income and include corporate
office expenses and shared service center expenses, as well as certain other centrally managed expenses which are not allocated to
operating divisions, as shown in the table below. Salaries and related expenses include salaries, pension, bonus and insurance
expenses, including medical and dental, for corporate office employees. Professional fees include costs related to preparation for
compliance with the Sarbanes-Oxley Act, cost of restatement efforts financial statement audits, legal, information technology and
other consulting fees, which are engaged and managed through the corporate office. Rent and depreciation includes rental expense and
depreciation of leasehold improvements for properties occupied by corporate office employees. Bank fees relates to debt and credit
facilities managed by the corporate office. The amounts allocated to operating divisions are calculated monthly based on a formula
that uses the weighted average net revenues of the operating unit. The majority of the Corporate cost including most of the costs
associated to internal control remediation and compliance are not allocated back to operating segments. The following expenses are
included in Corporate and Other:
Salaries, benefits and related expenses
Professional fees
Rent and depreciation
Corporate insurance
Bank fees
Other
Expenses allocated to operating divisions
Total corporate and other
For the Years Ended December 31,
2004
151.2
143.4
38.0
29.7
2.8
11.4
(133.3)
243.2
$
$
2003
(Restated)
2002
(Restated)
$
$
129.0
49.8
30.5
26.5
1.6
9.4
(118.1)
128.6
$
$
131.1
28.5
26.5
12.5
3.7
17.7
(117.7)
102.3
170
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Summarized financial information concerning our reportable segments is shown in the following table:
Revenue:(1)
IAN
CMG
Motorsports
Consolidated revenue
Segment operating income:
IAN
CMG
Motorsports
Corporate and other
Total segment operating income
Reconciliation to income (loss) before taxes:
Restructuring charges
Long-lived asset impairment and other charges
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Income (loss) before income taxes
Total assets:
IAN
CMG
Motorsports
Corporate and other
Total assets
Depreciation and amortization:
IAN
CMG
Motorsports
Corporate and other
Total depreciation and amortization
Capital expenditures:
IAN
CMG
Motorsports
Corporate and other
Total capital expenditures
2004
For the Years Ended December 31,
2003
(Restated)
2002
(Restated)
$
$
$
$
$
$
$
$
$
$
$
5,399.2
935.8
52.0
6,387.0
577.2
83.7
(14.0)
(243.2)
403.7
(62.2)
(435.8)
(172.0)
(9.8)
50.7
(63.4)
32.5
(10.7)
(267.0)
9,901.0
928.6
—
1,442.7
12,272.3
146.5
22.1
—
16.5
185.1
133.7
27.1
—
33.2
194.0
$
$
$
$
$
$
$
$
$
$
$
5,140.5
942.4
78.8
6,161.7
551.9
55.7
(43.6)
(128.6)
435.4
(172.9)
(294.0)
(207.0)
(24.8)
39.3
(71.5)
(127.6)
50.3
(372.8)
9,876.6
998.0
61.1
1,510.2
12,445.9
171.2
28.5
3.7
13.1
216.5
104.0
12.3
25.7
17.6
159.6
$
$
$
$
$
$
$
$
$
$
$
4,994.7
970.8
93.6
6,059.1
550.7
47.5
(82.2)
(102.3)
413.7
(7.9)
(130.0)
(158.7)
—
30.6
(40.3)
—
8.3
115.7
9,137.5
1,193.8
176.0
1,397.7
11,905.0
159.2
25.7
8.8
13.1
206.8
114.7
12.1
36.4
8.2
171.4
(1) Amounts disclosed as revenue from unaffiliated customers include immaterial amounts of intersegment revenues.
171
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Long-lived assets and revenue are presented below by major geographic area:
Long-Lived Assets:
US
International:
UK
All Other Europe
Asia Pacific
Latin America
Other
Total international
Total consolidated
Revenue:
US
International:
UK
All Other Europe
Asia Pacific
Latin America
Other
Total international
Total consolidated
For the Years Ended December 31,
2004
2003
(Restated)
2002
(Restated)
$
2,721.7
$
2,436.2
$
2,495.0
296.9
852.5
127.7
139.4
223.2
1,639.7
4,361.4
3,509.2
654.1
1,219.3
474.7
240.8
288.9
2,877.8
6,387.0
$
$
$
410.8
1,084.7
184.4
146.0
272.8
2,098.7
4,534.9
3,459.3
662.6
1,130.5
429.4
233.3
246.6
2,702.4
6,161.7
$
$
$
589.1
1,227.0
189.6
192.8
202.9
2,401.4
4,896.4
3,478.1
666.5
1,034.0
397.5
266.1
216.9
2,581.0
6,059.1
$
$
$
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.
Our largest client contributed approximately 7% in 2004, 8% in 2003 and 8% in 2002 to revenue. Our second largest client
contributed approximately 3% in 2004, 3% in 2003 and 3% in 2002 to revenue. The IAN segment reported the majority of the revenue
for both clients in all periods.
Note 19: Commitments and Contingencies
Restatement Related Matters
As a result of the restatement review (discussed more fully in Note 2, the Company has recorded additional liabilities with regard
to Vendor Discounts or Credits, Internal Investigations and International Compensation Agreements which amount to $242.3, $114.8
(including $37.5 of additional vendor discounts or credits) and $40.3, respectively, as of December 31, 2004. The Company believes
that these amounts represent our best estimates of our ultimate liabilities in each of these cases based on facts and documents reviewed
and are sufficient to cover any obligations that we may have to our clients, vendors, and various governmental organizations in the
jurisdictions involved. The Company estimates it will pay approximately $250.0 related to these liabilities over the next 24 months.
172
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Leases
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
We lease certain facilities and equipment. Where leases contain escalation clauses or concessions, such as rent holidays and
landlord/tenant incentives or allowances, the impact of such adjustments is recognized on a straight-line basis over the minimum lease
period. Certain leases provide for renewal options and require the payment of real estate taxes or other occupancy costs, which are
also subject to escalation clauses. Rent expense was as follows:
Gross rent expense
Third-party sublease rental income
Net rent expense
For the Years Ended December 31,
2004
$
$
433.0
(24.6)
408.4
2003
(Restated)
$
$
440.2
(31.6)
408.6
2002
(Restated)
$
$
432.0
(24.7)
407.3
Future minimum lease commitments for office premises and equipment under non-cancelable leases, along with minimum
sublease rental income to be received under non-cancelable subleases, are as follows:
Period
2005
2006
2007
2008
2009
2010 and thereafter
Total
Gross Rent
Expense
$
$
319.1
289.1
252.7
220.1
185.9
924.1
2,191.0
Sublease
Rental
Income
$
$
(49.2)
(45.6)
(39.8)
(33.6)
(30.4)
(95.7)
(294.3)
Net Rent
Expense
269.9
243.5
212.9
186.5
155.5
828.4
1,896.7
$
$
Contingent Acquisition Obligations
We have structured certain acquisitions with additional contingent purchase price obligations in order to reduce the potential risk
associated with negative future performance of the acquired entity. In addition, we have entered into agreements that may require us to
purchase additional equity interests in certain consolidated and unconsolidated subsidiaries. The amounts relating to these transactions
are based on estimates of the future financial performance of the acquired entity, the timing of the exercise of these rights, changes in
foreign currency exchange rates and other factors. In accordance with GAAP, we have not recorded a liability for these items on the
balance sheet since the definitive amounts payable are not determinable or distributable. When the contingent acquisition obligations
have been met and consideration is distributable, we will record the fair value of this consideration as an additional cost of the
acquired entity. The following table details the estimated liability and the estimated amount that would be paid under such options, in
the event of exercise at the earliest exercise date. All payments are contingent upon achieving projected operating performance targets
and satisfying other conditions specified in the related agreements and are subject to revisions as the earn-out periods progress.
173
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The following contingent acquisition obligations are net of compensation expense, except as noted below, as defined by the terms
and conditions of the respective acquisition agreements and employment terms of the former owners of the acquired businesses. This
future expense will not be allocated to the assets and liabilities acquired. As of December 31, 2004, our estimated contingent
acquisition obligations are as follows:
Deferred Acquisition Payments
Cash
Stock
Put Options with Consolidated Affiliates*
Cash
Stock
Put Options with Unconsolidated Affiliates*
Cash
Stock
Call Options with Consolidated Affiliates*
Cash
Stock
Subtotal — Cash
Subtotal — Stock
Total Contingent Acquisition Payments
2005
2006
2007
2008
2009
Thereafter
Total
$
48.0
12.4
30.2
0.1
5.4
0.8
$
5.7
5.4
$
2.1
—
$ 0.9
—
$ 4.3
—
$
1.8
0.1
9.5
—
3.4
—
3.0
—
3.4
0.9
3.9
—
3.0
0.9
2.2
—
4.2
—
87.8
$
$
13.3
$ 101.1
1.1
0.5
$ 12.0
$
6.9
$ 18.9
—
—
$ 15.5
$ —
$ 15.5
—
—
$ 7.3
$ 0.9
$ 8.2
—
—
$ 9.5
$ —
$ 9.5
$
$
$
—
—
7.3
—
1.4
0.3
4.8
—
13.5
0.3
13.8
$
61.0
17.8
55.2
0.2
19.3
2.9
10.1
0.5
$ 145.6
$
21.4
$ 167.0
In accounting for acquisitions, we recognize deferred payments and purchases of additional interests after the effective date of
purchase that are contingent upon the future employment of owners as compensation expense in our Consolidated Statement of
Operations. As of December 31, 2004, our estimated contingent acquisition payments with associated compensation expense impacts
are as follows:
Compensation Expense-Related Payments
Cash
Stock
Subtotal
Total Payments
34.1
$
1.8
$
35.9
$
$ 137.0
4.9
$
0.2
$
5.1
$
$ 24.0
$
2.1
$ —
2.1
$
$ 17.6
$ 1.4
$ —
$ 1.4
$ 9.6
$ —
$ —
$ —
$ 9.5
$
$
$
$
1.3
—
1.3
15.1
43.8
$
2.0
$
45.8
$
$ 212.8
* We have entered into certain acquisitions that contain both put and call options with similar terms and conditions. In such instances,
we have included the related estimated contingent acquisition obligations with Put Options.
The 2005 obligations relate primarily to acquisitions that were completed prior to December 31, 2001.
174
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Legal Matters
Federal Securities Class Actions
During the fourth quarter of 2004, the settlement of thirteen class actions under the federal securities laws became final. The class
actions were filed against the Company and certain of our present and former directors and officers on behalf of a purported class of
purchasers of our stock shortly after our August 13, 2002 announcement regarding the restatement of our previously reported earnings
for the periods January 1, 1997 through March 31, 2002. These actions, which were all filed in the United States District Court for the
Southern District of New York, were consolidated by the court and lead counsel was appointed for all plaintiffs on November 15,
2002. On December 2, 2003, we reached an agreement in principle to settle the consolidated class action shareholder suits in federal
district court in New York. Under the terms of the settlement, we agreed to pay $115.0, comprised of $20.0 in cash and $95.0 in shares
of our common stock at a value of $14.50 per share. On November 4, 2004, the court entered an order granting final approval of the
settlement. The term of appeal for the settlement expired on December 6, 2004. During the fourth quarter of 2004, the $20.0 cash
portion of the settlement was paid into escrow and 0.8 of the settlement shares were issued to the plaintiffs’ counsel as payment of
their fee.
In 2003, we recorded litigation charges of $115.0 related to the settlement of the shareholder suits discussed above. During the
fourth quarter of 2004, the settlement was approved and the litigation charges were reduced by $20.0 due to insurance proceeds
received as reimbursement for the cash component of the settlement from our Directors and Officers insurance policies (which a
receivable has not previously been accounted for) and by $12.5 relating to a decrease in the share price between the tentative
settlement date and the final settlement date as the share settlement amount was fixed.
Derivative Actions
In the fourth quarter of 2004, the settlement of a shareholder derivative suit became final. The suit was filed in New York Supreme
Court, New York County, by a single shareholder acting on behalf of Interpublic against the Board of Directors and against our
auditors. This suit alleged a breach of fiduciary duties to our shareholders. On November 26, 2002, another shareholder derivative suit,
alleging the same breaches of fiduciary duties, was filed in New York Supreme Court, New York County. On January 26, 2004, we
reached an agreement in principle to settle these derivative actions, agreeing to institute certain corporate governance procedures
prescribed by the court. On June 11, 2004, the court entered an order granting preliminary approval to the proposed settlement. These
governance procedures have been adopted as part of our Corporate Governance Guidelines (which can be found on our website). The
court held a final approval and fairness hearing on October 22, 2004, and on November 4, 2004, the court entered an order granting
final approval of the settlement.
SEC Investigation
In January 2003, the SEC issued a formal order of investigation related to our restatements of earnings for periods dating back to
1997. On April 20, 2005, we received a subpoena from the SEC under authority of the order of investigation requiring production of
additional documents relating to the potential restatement we announced in March 2005. The SEC is investigating the restatement
detailed in Note 2 to the Consolidated Financial Statements. We are cooperating fully with the investigation.
Other Legal Matters
We are involved in other legal and administrative proceedings of various types. While any litigation contains an element of
uncertainty, we have no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on our
financial condition.
175
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Note 20: Results by Quarter (Unaudited)
The first set of tables below presents unaudited quarterly financial information for 2004 and 2003. The amounts presented have
been restated from those previously reported on Form 10-Q for the applicable periods and in our 2003 annual report on Form 10-K.
The second set of tables below sets forth, for each of the quarters and for each of the interim balance sheet dates presented, the
amounts of the restatement adjustments and a reconciliation from previously reported amounts to restated amounts.
The restatement adjustments are attributable to the same matters that are discussed in depth in Note 2, Restatement of Previously
Issued Financial Statements, and we refer you to that discussion. The third set of tables below summarizes, for each of the quarters
and for each of the interim balance sheet dates presented, the impact of each category of adjustment on previously reported revenue;
net income (loss) from continuing operations and earnings per share; and assets, liabilities and stockholders’ equity.
176
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Results by Quarter
(Unaudited)
Three Months Ended
March 31,
Three Months Ended
June 30,
Three Months Ended
September 30,
Three Months Ended
December 31,
2004(1)
(Restated)
$ 1,389.4
2003(1)
(Restated)
$ 1,310.0
2004(1)
(Restated)
$ 1,512.8
2003(1)
(Restated)
$ 1,542.8
2004(1)
(Restated)
$ 1,519.1
2003(1)
(Restated)
$ 1,452.2
2004
$ 1,965.7
2003(1)
(Restated)
$ 1,856.7
886.7
510.7
61.6
5.7
868.4
507.4
0.4
11.1
898.5
552.8
3.9
3.1
890.7
563.0
94.5
11.0
—
1,464.7
(75.3)
—
1,387.3
(77.3)
80.0
1,538.3
(25.5)
—
1,559.2
(16.4)
(43.9)
—
9.8
(3.2)
—
1.3
(36.0)
(49.6)
—
8.1
(2.7)
—
(0.2)
(44.4)
(42.0)
—
10.4
—
—
2.2
(29.4)
(111.3)
(29.0)
(121.7)
(30.5)
(54.9)
30.6
(82.3)
(2.6)
1.1
(83.8)
4.8
(91.2)
1.5
(3.2)
(92.9)
—
(85.5)
(4.2)
1.3
(88.4)
5.0
(55.4)
—
10.2
(9.8)
—
0.6
(54.4)
(70.8)
4.7
(75.5)
(6.5)
1.8
(80.2)
—
925.3
556.3
1.1
307.6
33.6
1,823.9
(304.8)
(42.7)
—
11.1
(33.8)
—
(0.7)
(66.1)
824.1
578.7
47.8
227.0
1,023.0
630.0
(4.4)
5.8
—
1,677.6
(225.4)
—
1,654.4
311.3
(50.1)
(24.8)
9.6
(17.0)
(127.6)
1.4
(208.5)
(43.4)
(9.8)
19.4
(26.4)
32.5
(13.5)
(41.2)
(370.9)
130.0
(433.9)
20.9
270.1
130.6
(500.9)
(454.8)
139.5
(4.4)
(8.5)
(10.3)
2.3
(0.1)
1.1
(503.0)
5.0
(463.4)
—
130.3
5.0
(88.6)
(92.9)
(93.4)
(80.2)
(508.0)
(463.4)
125.3
—
2.5
—
9.5
6.5
89.0
—
917.4
576.6
30.2
44.9
—
1,569.1
287.6
(51.9)
—
11.4
(42.0)
—
48.5
(34.0)
253.6
247.6
6.0
(13.5)
3.9
(3.6)
—
(3.6)
—
$
(88.6) $
(90.4)
$
(93.4) $
(70.7)
$
(501.5)
$
(374.4) $
125.3
$
(3.6)
$
(0.21) $
—
$
(0.21) $
$
(0.24)
0.01
(0.24)* $
(0.23) $
—
(0.23) $
$
(0.21)
0.02
(0.18)* $
$
(1.22)
0.02
(1.21)* $
(1.20) $
0.23
(0.97) $
0.25** $
—
0.25
$
$
(0.21) $
—
$
(0.21) $
$
(0.24)
0.01
(0.24)* $
(0.23) $
—
(0.23) $
$
(0.21)
0.02
(0.18)* $
$
(1.22)
0.02
(1.21)* $
(1.20) $
0.23
(0.97) $
0.22** $
—
0.22
$
413.3
413.3
381.8
381.8
414.6
414.6
384.3
384.3
415.4
415.4
385.8
385.8
417.8
518.9
(0.01)
—
(0.01)
(0.01)
—
(0.01)
390.3
390.3
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges (reversals)
Long-lived asset impairment and
other charges
Motorsports contract termination
costs
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER
INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total expense and other income
Income (loss) from continuing
operations before provision for
income taxes
Provision for income taxes
Income (loss) from continuing
operations of consolidated
companies
Income applicable to minority
interests (net of tax)
Equity in net income of
unconsolidated affiliates (net of
tax)
Income (loss) from continuing
operations
Dividends on preferred stock
Net income (loss) from continuing
operations
Income from discontinued
operations (net of tax)
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCKHOLDERS
Earnings (loss) per share of
common stock:
Basic:
Continuing operations
Discontinued operations
Total*
Diluted:
Continuing operations
Discontinued operations
Total*
Weighted-average shares:
Basic
Diluted
Does not add due to rounding.
*
** Due to the existence of income from continuing operations, basic and diluted EPS have been calculated using the two-class
method pursuant to EITF Issue 03-6 for the quarter ended December 31, 2004. This resulted in a decrease of $22.6 and $12.2 in
net income (numerator) for the basic and diluted EPS calculations, respectively, for the quarter ended December 31, 2004.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
177
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowances
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current
assets
Assets held for sale
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of
amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Liabilities held for sale
Total current liabilities
Long-term debt
Deferred compensation and employee
benefits
Other non-current liabilities
Minority interests in consolidated
subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies
(Note 19)
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, shares
authorized: 20.0
shares issued and outstanding:
2004 — 7.5; 2003 — 7.5
Common stock, $0.10 par value, shares
authorized: 800.0
shares issued: 2004 — 424.9; 2003 —
418.4
shares outstanding: 2004 — 424.5;
2003 — 418.2
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss,
net of tax
Less:
Treasury stock, at cost:
2004 — 0.4 shares;
2003 — 0.3 shares
Unamortized deferred compensation
RESTATED BALANCE SHEET BY QUARTER
(Unaudited)
As of March 31,
As of June 30,
As of September 30,
2004
2003
2004
2003
2004
2003
$
$
$
1,172.7
295.0
4,604.1
370.9
273.6
211.5
—
6,927.8
682.3
439.0
241.0
3,288.8
$
1,210.2
14.6
4,279.0
437.6
127.4
381.1
414.6
6,864.5
763.4
554.8
340.8
3,251.7
999.0
532.6
4,952.5
384.2
268.4
201.9
—
7,338.6
669.3
453.0
236.2
3,374.1
$
760.7
19.6
4,709.3
447.2
141.4
418.5
452.2
6,948.9
775.3
580.4
332.5
3,353.3
$
1,064.0
398.2
4,583.9
385.2
262.9
194.2
—
6,888.4
673.3
350.6
190.0
3,087.0
736.1
15.5
4,500.9
422.3
116.7
385.0
—
6,176.5
747.9
676.3
374.3
3,200.6
44.6
268.0
4,963.7
$ 11,891.5
7.6
308.8
5,227.1
$ 12,091.6
41.3
276.2
5,050.1
$ 12,388.7
43.4
271.7
5,356.6
$ 12,305.5
40.0
270.2
4,611.1
$ 11,499.5
40.6
279.5
5,319.2
$ 11,495.7
$
$
$
$
5,449.2
1,183.6
133.2
—
6,766.0
2,197.3
518.1
336.9
5,034.1
1,148.4
666.7
121.1
6,970.3
2,623.5
534.5
220.0
6,174.1
1,083.3
97.6
—
7,355.0
2,194.8
506.7
350.4
5,702.3
1,178.5
172.8
149.0
7,202.6
2,593.4
557.4
176.5
$
5,728.1
1,100.4
77.3
—
6,905.8
2,194.2
517.7
378.6
5,350.8
1,252.4
353.4
—
6,956.6
2,197.9
586.2
307.0
59.7
3,112.0
9,878.0
60.1
3,438.1
$ 10,408.4
52.9
3,104.8
$ 10,459.8
57.0
3,384.3
$ 10,586.9
51.3
3,141.8
$ 10,047.6
58.5
3,149.6
$ 10,106.2
$
373.7
—
373.7
—
373.7
—
41.8
39.0
42.2
39.1
42.3
39.2
2,065.5
(123.6)
(279.8)
2,077.6
1,766.5
408.9
(377.9)
1,836.5
2,119.1
(212.0)
(296.8)
2,026.2
1,743.6
338.2
(309.5)
1,811.4
2,116.1
(708.5)
(281.4)
1,542.2
1,753.3
(36.2)
(283.9)
1,472.4
(14.0)
(50.1)
2,013.5
$
(65.0)
(88.3)
1,683.2
$
(14.0)
(83.3)
1,928.9
$
(11.3)
(81.5)
1,718.6
$
(14.0)
(76.3)
1,451.9
$
(11.3)
(71.6)
1,389.5
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
TOTAL STOCKHOLDERS’
EQUITY
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
$ 11,891.5
$ 12,091.6
$ 12,388.7
$ 12,305.5
$ 11,499.5
$ 11,495.7
178
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
RESTATED STATEMENT OF CASH FLOWS BY QUARTER
(Unaudited)
Net cash used in operating activities from
continuing operations
CASH FLOWS FROM INVESTING
ACTIVITIES FROM CONTINUING
OPERATIONS:
Acquisitions, including deferred payments, net
of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed
assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Proceeds from the sale of discontinued
operations, net of cash sold
Net cash provided by investing activities from
continuing operations
CASH FLOWS FROM FINANCING
ACTIVITIES FROM CONTINUING
OPERATIONS:
Increase (decrease) in short-term bank
borrowings
Payments of long-term debt
Proceeds from long-term debt
Debt issuance costs
Preferred stock issuance costs
Preferred stock dividends
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash (used in) provided by financing
activities from continuing operations
Effect of exchange rates on cash and cash
equivalents
Net cash (used in) provided by discontinued
operations
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Three Months Ended
March 31,
2004
2003
Six Months Ended
June 30,
2004
2003
Nine Months Ended
September 30,
2004
2003
$
(342.0)
$
(276.5)
$
(101.4)
$
(23.4)
$
(115.2)
$ (153.0)
(39.0)
(37.8)
17.4
3.9
(7.2)
371.0
(470.5)
(43.5)
(29.6)
6.9
14.2
(20.2)
11.2
(5.7)
(136.3)
(77.5)
(130.4)
(72.1)
29.2
10.6
(10.2)
575.8
(912.9)
3.9
21.3
(37.6)
28.9
(27.8)
(143.8)
(119.3)
28.1
22.9
(15.9)
865.0
(1,067.5)
—
—
—
—
10.0
(162.2)
(66.7)
(521.3)
(213.8)
(420.5)
60.3
(244.4)
0.5
—
(0.8)
(4.8)
(2.3)
(2.7)
4.9
(181.9)
(0.7)
800.7
(22.6)
—
—
2.9
(0.2)
1.0
23.4
(244.7)
0.5
(2.3)
—
(9.8)
0.1
(10.9)
6.1
(186.5)
(581.4)
800.9
(26.9)
—
—
8.0
(7.4)
0.5
3.1
(245.1)
1.0
(2.3)
—
(14.8)
0.7
(17.3)
6.8
(193.3)
(94.2)
17.4
25.2
(30.9)
39.6
(34.3)
376.7
106.2
(238.7)
(741.3)
800.8
(27.5)
—
—
3.1
(12.5)
0.5
(189.3)
599.2
(237.6)
7.2
(267.9)
(215.6)
(5.7)
13.9
(12.6)
50.9
(4.3)
—
(699.2)
1,871.9
$ 1,172.7
(12.9)
257.0
953.2
$ 1,210.2
—
(872.9)
1,871.9
999.0
(13.4)
(192.5)
953.2
$ 760.7
$
$
—
(807.9)
1,871.9
1,064.0
58.7
(13.4)
(217.1)
953.2
736.1
$
179
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The following tables set forth, for each of the quarters and for each of the interim balance sheet dates presented, the amounts of the
restatement adjustments and a reconciliation from previously reported amounts to restated amounts.
Three Months Ended March 31, 2004
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
1,395.1
$
(5.7)
$
1,389.4
874.0
463.3
62.6
5.6
1,405.5
(10.4)
(39.1)
9.7
(3.2)
1.1
(31.5)
(41.9)
(26.8)
(15.1)
(2.4)
0.6
(16.9)
4.8
(21.7)
(21.7)
(0.05)
(0.05)
413.3
413.3
12.7
47.4
(1.0)
0.1
59.2
(64.9)
(4.8)
0.1
—
0.2
(4.5)
(69.4)
(2.2)
(67.2)
(0.2)
0.5
(66.9)
—
(66.9)
(66.9)
(0.16)
(0.16)
$
$
$
886.7
510.7
61.6
5.7
1,464.7
(75.3)
(43.9)
9.8
(3.2)
1.3
(36.0)
(111.3)
(29.0)
(82.3)
(2.6)
1.1
(83.8)
4.8
(88.6)
(88.6)
(0.21)
(0.21)
413.3
413.3
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income (expense)
Total expense and other income
Loss before provision for income taxes
Provision for income taxes
Loss of consolidated companies
Income applicable to minority interests (net of tax)
Equity in net income of unconsolidated affiliates (net of tax)
Loss
Dividends on preferred stock
Net Loss
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Loss per share of common stock:
Basic
Diluted
$
$
$
Weighted-average shares:
Basic
Diluted
180
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Three Months Ended June 30, 2004
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
1,544.1
$
(31.3)
$
1,512.8
893.8
506.8
2.0
3.0
80.0
1,485.6
58.5
(38.4)
10.4
2.3
(25.7)
32.8
33.4
(0.6)
(5.6)
0.8
(5.4)
5.0
(10.4)
(10.4)
(0.03)
(0.03)
414.6
414.6
4.7
46.0
1.9
0.1
—
52.7
(84.0)
(3.6)
—
(0.1)
(3.7)
(87.7)
(2.8)
(84.9)
1.4
0.5
(83.0)
—
(83.0)
(83.0)
(0.20)
(0.20)
$
$
$
898.5
552.8
3.9
3.1
80.0
1,538.3
(25.5)
(42.0)
10.4
2.2
(29.4)
(54.9)
30.6
(85.5)
(4.2)
1.3
(88.4)
5.0
(93.4)
(93.4)
(0.23)
(0.23)
414.6
414.6
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Motorsports contract termination costs
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Other income (expense)
Total expense and other income
Income (loss) from continuing operations before provision for
income taxes
Provision for income taxes
Loss of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Loss
Dividends on preferred stock
Net Loss
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Loss per share of common stock:
Basic
Diluted
$
$
$
Weighted-average shares:
Basic
Diluted
181
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Three Months Ended September 30, 2004
As Previously
Reported
$
1,508.8
Effect of
Restatement
(Unaudited)
$
10.3
As
Restated
$
1,519.1
924.8
519.5
1.0
450.1
33.6
1,929.0
(420.2)
(39.8)
11.1
(33.8)
(0.7)
(63.2)
(483.4)
98.6
(582.0)
(5.1)
2.2
(584.9)
5.0
(589.9)
6.5
(583.4)
(1.42)
0.02
(1.40)
(1.42)
0.02
(1.40)
415.4
415.4
0.5
36.8
0.1
(142.5)
—
(105.1)
115.4
(2.9)
—
—
—
(2.9)
112.5
31.4
81.1
0.7
0.1
81.9
—
81.9
—
81.9
0.20
—
0.19
0.20
—
0.19
$
$
$
$
$
925.3
556.3
1.1
307.6
33.6
1,823.9
(304.8)
(42.7)
11.1
(33.8)
(0.7)
(66.1)
(370.9)
130.0
(500.9)
(4.4)
2.3
(503.0)
5.0
(508.0)
6.5
(501.5)
(1.22)
0.02
(1.21)
(1.22)
0.02
(1.21)
415.4
415.4
$
$
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Motorsports contract termination costs
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income (expense)
Total expense and other income
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Loss from continuing operations
Dividends on preferred stock
Net loss from continuing operations
Income from discontinued operations (net of tax)
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total*
Diluted:
Continuing operations
Discontinued operations
Total*
Weighted-average shares:
Basic
Diluted
$
$
$
$
$
* Does not add due to rounding.
182
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Three Months Ended March 31, 2003
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
1,315.7
$
(5.7)
$
1,310.0
854.7
429.1
—
11.1
1,294.9
20.8
(38.8)
7.9
(2.7)
—
(0.2)
(33.8)
(13.0)
(5.6)
(7.4)
(0.6)
(3.2)
(11.2)
2.6
(8.6)
(0.03)
0.01
(0.02)
(0.03)
0.01
(0.02)
381.8
381.8
13.7
78.3
0.4
—
92.4
(98.1)
(10.8)
0.2
—
—
—
(10.6)
(108.7)
(24.9)
(83.8)
2.1
—
(81.7)
(0.1)
(81.8)
(0.21)
—
(0.22)
(0.21)
—
(0.22)
—
—
$
$
$
$
$
868.4
507.4
0.4
11.1
1,387.3
(77.3)
(49.6)
8.1
(2.7)
—
(0.2)
(44.4)
(121.7)
(30.5)
(91.2)
1.5
(3.2)
(92.9)
2.5
(90.4)
(0.24)
0.01
(0.24)
(0.24)
0.01
(0.24)
381.8
381.8
$
$
$
$
$
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total expense and other income
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Net loss from continuing operations
Income from discontinued operations (net of tax)
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total*
Diluted:
Continuing operations
Discontinued operations
Total*
Weighted-average shares:
Basic
Diluted
$
$
$
$
$
* Does not add due to rounding.
183
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income (expense)
Total expense and other income
Income (loss) from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Net loss from continuing operations
Income from discontinued operations (net of tax)
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total*
Diluted:
Continuing operations
Discontinued operations
Total*
Weighted-average shares:
Basic
Diluted
* Does not add due to rounding.
184
Three Months Ended June 30, 2003
As Previously
Reported
$
1,499.4
Effect of
Restatement
(Unaudited)
$
43.4
As
Restated
$
1,542.8
878.4
463.7
94.4
11.0
1,447.5
51.9
(46.1)
10.2
(9.8)
0.3
(45.4)
6.5
22.4
(15.9)
(8.4)
1.3
(23.0)
9.5
(13.5)
(0.06)
0.02
(0.04)
(0.06)
0.02
(0.04)
384.3
384.3
$
$
$
$
$
12.3
99.3
0.1
—
111.7
(68.3)
(9.3)
—
—
0.3
(9.0)
(77.3)
(17.7)
(59.6)
1.9
0.5
(57.2)
—
(57.2)
(0.15)
—
(0.14)
(0.15)
—
(0.14)
$
$
$
$
$
890.7
563.0
94.5
11.0
1,559.2
(16.4)
(55.4)
10.2
(9.8)
0.6
(54.4)
(70.8)
4.7
(75.5)
(6.5)
1.8
(80.2)
9.5
(70.7)
(0.21)
0.02
(0.18)
(0.21)
0.02
(0.18)
384.3
384.3
$
$
$
$
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Debt prepayment penalty
Interest income
Investment impairments
Litigation charges
Other income (expense)
Total expense and other income
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Net loss from continuing operations
Income from discontinued operations (net of tax)
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
Three Months Ended September 30, 2003
As Previously
Reported
$
1,418.9
Effect of
Restatement
(Unaudited)
$
33.3
As
Restated
$
1,452.2
810.9
508.4
48.0
222.7
1,590.0
(171.1)
(43.5)
(24.8)
9.5
(29.7)
(127.6)
1.2
(214.9)
(386.0)
19.5
(405.5)
(10.4)
(0.3)
(416.2)
89.1
(327.1)
(1.08)
0.23
(0.85)
(1.08)
0.23
(0.85)
385.8
385.8
13.2
70.3
(0.2)
4.3
87.6
(54.3)
(6.6)
—
0.1
12.7
—
0.2
6.4
(47.9)
(1.4)
(49.3)
1.9
0.2
(47.2)
(0.1)
(47.3)
(0.12)
—
(0.12)
(0.12)
—
(0.12)
$
$
$
$
$
824.1
578.7
47.8
227.0
1,677.6
(225.4)
(50.1)
(24.8)
9.6
(17.0)
(127.6)
1.4
(208.5)
(433.9)
20.9
(454.8)
(8.5)
(0.1)
(463.4)
89.0
(374.4)
(1.20)
0.23
(0.97)
(1.20)
0.23
(0.97)
385.8
385.8
$
$
$
$
$
$
$
$
$
$
185
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
REVENUE
OPERATING EXPENSES:
Salaries and related expenses
Office and general expenses
Restructuring charges
Long-lived asset impairment and other charges
Total operating expenses
OPERATING INCOME (LOSS)
EXPENSE AND OTHER INCOME:
Interest expense
Interest income
Investment impairments
Other income (expense)
Total expense and other income
Income before provision for income taxes
Provision for income taxes
Income (loss) of consolidated companies
Income applicable to minority interests
Equity in net income of unconsolidated affiliates
Net income (loss)
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS
Earnings (loss) per share of common stock:
Basic:
Continuing operations
Discontinued operations
Total
Diluted:
Continuing operations
Discontinued operations
Total
Weighted-average shares:
Basic
Diluted
Three Months Ended December 31, 2003
As Previously
Reported
$
1,629.4
Effect of
Restatement
(Unaudited)
$
227.3
As Restated
$
1,856.7
907.8
495.7
33.2
42.1
1,478.8
150.6
(44.4)
11.3
(42.7)
48.7
(27.1)
123.5
217.7
(94.2)
(11.5)
3.2
(102.5)
(102.5)
(0.26)
—
(0.26)
(0.26)
—
(0.26)
390.3
390.3
9.6
80.9
(3.0)
2.8
90.3
137.0
(7.5)
0.1
0.7
(0.2)
(6.9)
130.1
29.9
100.2
(2.0)
0.7
98.9
98.9
0.27
—
0.27
0.27
—
0.27
$
$
$
$
$
917.4
576.6
30.2
44.9
1,569.1
287.6
(51.9)
11.4
(42.0)
48.5
(34.0)
253.6
247.6
6.0
(13.5)
3.9
(3.6)
(3.6)
(0.01)
—
(0.01)
(0.01)
—
(0.01)
390.3
390.3
$
$
$
$
$
$
$
$
$
$
186
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
As Previously
Reported
As of March 31, 2004
Effect of
Restatement
(Unaudited)
As
Restated
1,395.3
—
4,584.3
316.8
201.1
249.7
6,747.2
656.3
397.2
240.3
3,345.4
42.0
272.1
4,953.3
11,700.5
5,050.4
990.3
98.2
6,138.9
2,190.6
512.6
226.8
64.5
2,994.5
9,133.4
$
$
$
$
(222.6)
295.0
19.8
54.1
72.5
(38.2)
180.6
26.0
41.8
0.7
(56.6)
2.6
(4.1)
10.4
191.0
398.8
193.3
35.0
627.1
6.7
5.5
110.1
(4.8)
117.5
744.6
$
$
$
$
1,172.7
295.0
4,604.1
370.9
273.6
211.5
6,927.8
682.3
439.0
241.0
3,288.8
44.6
268.0
4,963.7
11,891.5
5,449.2
1,183.6
133.2
6,766.0
2,197.3
518.1
336.9
59.7
3,112.0
9,878.0
373.7
—
373.7
41.8
2,069.5
384.6
(236.3)
2,633.3
(14.0)
(52.2)
2,567.1
11,700.5
—
(4.0)
(508.2)
(43.5)
(555.7)
—
2.1
(553.6)
191.0
$
$
41.8
2,065.5
(123.6)
(279.8)
2,077.6
(14.0)
(50.1)
2,013.5
11,891.5
$
$
$
$
$
$
$
$
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, less allowance of $133.9
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, shares authorized: 20.0 shares issued
and outstanding: 2004 — 7.5
Common stock, $0.10 par value, shares authorized: 800.0 shares
issued: 2004 — 418.3
shares outstanding: 2004 — 417.9
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2004 — 0.4 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
187
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $133.2
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, shares authorized: 20.0 shares issued and
outstanding: 2004 — 7.5
Common stock, $0.10 par value, shares authorized: 800.0 shares issued:
2004 — 422.4 shares outstanding: 2004 — 422.0
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2004 — 0.4 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
188
As Previously
Reported
As of June 30, 2004
Effect of
Restatement
(Unaudited)
As
Restated
$
$
$
$
$
$
1,434.3
—
4,937.7
330.9
201.4
223.0
7,127.3
643.0
404.1
235.0
3,428.9
38.9
279.0
5,028.9
12,156.2
5,724.4
838.5
34.8
6,597.7
2,189.3
501.4
249.1
56.3
2,996.1
9,593.8
373.7
42.2
2,129.1
374.2
(257.4)
2,661.8
(14.0)
(85.4)
2,562.4
12,156.2
$
$
$
$
$
$
(435.3)
532.6
14.8
53.3
67.0
(21.1)
211.3
26.3
48.9
1.2
(54.8)
2.4
(2.8)
21.2
232.5
449.7
244.8
62.8
757.3
5.5
5.3
101.3
(3.4)
108.7
866.0
—
—
(10.0)
(586.2)
(39.4)
(635.6)
—
2.1
(633.5)
232.5
$
$
$
$
$
$
999.0
532.6
4,952.5
384.2
268.4
201.9
7,338.6
669.3
453.0
236.2
3,374.1
41.3
276.2
5,050.1
12,388.7
6,174.1
1,083.3
97.6
7,355.0
2,194.8
506.7
350.4
52.9
3,104.8
10,459.8
373.7
42.2
2,119.1
(212.0)
(296.8)
2,026.2
(14.0)
(83.3)
1,928.9
12,388.7
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $143.4
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, shares authorized: 20.0 shares issued
and outstanding: 2004 — 7.5
Common stock, $0.10 par value, shares authorized: 800.0 shares
issued: 2004 — 422.8 shares outstanding: 2004 — 422.4
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2004 — 0.4 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
189
As Previously
Reported
As of September 30, 2004
Effect of
Restatement
(Unaudited)
As
Restated
$
$
$
$
$
$
1,438.5
—
4,578.7
315.2
201.4
203.4
6,737.2
646.3
325.7
183.8
2,998.7
37.6
273.0
4,465.1
11,202.3
5,247.3
849.4
74.5
6,171.2
2,188.9
512.8
272.2
55.4
3,029.3
9,200.5
373.7
42.3
2,131.0
(209.2)
(243.6)
2,094.2
(14.0)
(78.4)
2,001.8
11,202.3
$
$
$
$
$
$
(374.5)
398.2
5.2
70.0
61.5
(9.2)
151.2
27.0
24.9
6.2
88.3
2.4
(2.8)
146.0
297.2
480.8
251.0
2.8
734.6
5.3
4.9
106.4
(4.1)
112.5
847.1
—
—
(14.9)
(499.3)
(37.8)
(552.0)
—
2.1
(549.9)
297.2
$
$
$
$
$
$
1,064.0
398.2
4,583.9
385.2
262.9
194.2
6,888.4
673.3
350.6
190.0
3,087.0
40.0
270.2
4,611.1
11,499.5
5,728.1
1,100.4
77.3
6,905.8
2,194.2
517.7
378.6
51.3
3,141.8
10,047.6
373.7
42.3
2,116.1
(708.5)
(281.4)
1,542.2
(14.0)
(76.3)
1,451.9
11,499.5
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Goodwill Impairments
During the third quarter of 2004, prior to the restatement, we recorded goodwill impairment charges of approximately $310.0 at
The Partnership reporting unit, which is comprised of, Lowe Worldwide, Draft Worldwide, Mullen, Dailey & Associates and Berenter
Greenhouse Webst and $132.0 at our CMG reporting unit, which is comprised of Weber Shandwick, Golin Harris, DeVries Public
Relations, Octagon Worldwide FutureBrand. We have historically performed our annual impairment test of goodwill as of
September 30 each year. We also perform an impairment test of goodwill when certain trigger events occur, such as the loss of major
clients or other significant changes in the business environment. Impairment tests are performed in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, which requires a two-step process. Step 1 requires a determination to be made of the fair value
of each of our reporting units. We utilize an independent third party valuation firm to assist us in developing this fair value estimate.
The fair value is then compared to the book value of the reporting unit and if the book value is greater than the fair value, Step 2 is
required to be performed.
Step 2 requires a comparison of the implied fair value of goodwill with the reporting unit’s book value. An impairment loss is
measured by the excess of the book value of goodwill over its implied fair value. The implied fair value of goodwill is determined in
the same manner that goodwill is measured in a business combination under SFAS No. 141, Business Combinations. We allocate the
fair value of a reporting unit to its assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been
acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. In our
industry the most typical unrecognized intangible assets are trade names and customer relationships.
During our Step 2 analysis we omitted the deferred tax liabilities arising from the book and tax basis differences of the
unrecognized intangibles established for trade names and customer relationships as part of the fair value estimate in determining the
implied fair value of goodwill. EITF 02-13, Deferred Income Tax Considerations in Applying the Goodwill Impairment Test in FASB
Statement No. 142, notes that an entity should use the income tax basis of a reporting unit’s assets and liabilities implicit in the tax
structure assumed in its determination of fair value of the reporting unit in Step 1. According to this standard, an entity should use its
existing income tax basis if the assumed structure used to estimate the fair value of the reporting unit was a nontaxable transaction,
and it should use new income tax basis if the assumed structure was a taxable transaction. Based on our analysis we determined that a
non-taxable transaction had the highest economic value to us.
In computing the implied fair value of goodwill we did not establish a deferred tax liability for the basis difference of the
unrecognized intangible assets associated with the trade names and customer relationships valued within the reporting unit. In the
restatement, we re-performed the Step 2 analysis at both The Partnership and CMG reporting units taking into account goodwill
adjustments at The Partnership and CMG of approximately $17.8 and $6.9, respectively, as a result of restatement issues with
accounting for acquisitions. The resulting implied fair value of goodwill reduced the impairment charge by approximately $103.6 and
$41.6 at The Partnership and CMG, respectively from what had previously been recorded in the interim unaudited consolidated
financial statements as of September 30, 2004. We have recorded adjustments as part of the restatement to reduce our impairment
charge recorded during the third quarter of 2004 at the same time increasing our goodwill balances at The Partnership and CMG
reporting units.
We are implementing a policy that will detail the process of how we perform impairment testing at our reporting units. As part of
the testing we will document the tax structure assumed in the transaction. The determination of whether a reporting unit could be sold
in a non-taxable transaction versus a taxable transaction depends on the relevant facts and circumstances and will be evaluated on an
individual basis. In making this determination we will consider whether the assumption is consistent with those that
190
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
marketplace participants would incorporate into their estimates of fair value, the feasibility of the assumed structure and whether the
assumed structure results in the highest economic value for the reporting unit. Accounting for all future Step 2 analyses will be
reviewed and evaluated with the appropriate management oversight prior to the analysis being finalized and will include members of
our Controllers and Tax groups to prevent this type of inappropriate accounting in future periods.
The Partnership was subsequently disbanded in the fourth quarter of 2004 and the remaining goodwill was allocated based on the
relative fair value of the agencies at the time of disbandment. Based on the correction of the goodwill impairment charge in
accordance with EITF No. 02-13, we considered the possibility of impairment at Lowe and Draft, the two largest agencies previously
within The Partnership. However, at this point we have determined that there is no discernible trigger event for an additional
impairment. We will continue to monitor the results and, should operating performance worsen, particularly at Lowe we may conclude
that a trigger event has occurred and impairment may then be required.
191
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $142.5
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Liabilities held for sale
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value, shares authorized: 550.0 shares
issued: 2003 — 389.6 shares outstanding: 2003 — 388.0
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2003 — 1.6 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
192
As Previously
Reported
As of March 31, 2003
Effect of
Restatement
(Unaudited)
As
Restated
$
$
$
$
$
$
1,188.2
—
4,254.1
390.4
58.4
413.6
414.6
6,719.3
727.5
508.5
388.8
3,300.6
6.5
311.9
5,243.8
11,963.1
4,677.4
1,020.8
662.6
121.1
6,481.9
2,618.0
525.6
121.6
64.5
3,329.7
9,811.6
39.0
1,765.7
849.4
(347.2)
2,306.9
(65.0)
(90.4)
2,151.5
11,963.1
$
$
$
$
$
$
22.0
14.6
24.9
69.0
—
(32.5)
—
145.2
35.9
46.3
(48.0)
(48.9)
1.1
(3.1)
(16.7)
128.5
356.7
127.6
4.1
—
488.4
5.5
8.9
98.4
(4.4)
108.4
596.8
—
0.8
(440.5)
(30.7)
(470.4)
—
2.1
(468.3)
128.5
$
$
$
$
$
$
1,210.2
14.6
4,279.0
437.6
127.4
381.1
414.6
6,864.5
763.4
554.8
340.8
3,251.7
7.6
308.8
5,227.1
12,091.6
5,034.1
1,148.4
666.7
121.1
6,970.3
2,623.5
534.5
220.0
60.1
3,438.1
10,408.4
39.0
1,766.5
408.9
(377.9)
1,836.5
(65.0)
(88.3)
1,683.2
12,091.6
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $157.9
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Liabilities held for sale
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value, shares authorized: 800.0
shares issued: 2003 — 391.1
shares outstanding: 2003 — 391.0
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2003 — 0.1 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
193
As Previously
Reported
As of June 30, 2003
Effect of
Restatement
(Unaudited)
As
Restated
$
$
$
$
$
$
700.1
—
4,681.4
414.8
69.4
452.5
452.2
6,770.4
740.0
516.3
352.2
3,399.3
43.6
274.9
5,326.3
12,096.7
5,282.7
1,036.6
129.5
149.0
6,597.8
2,587.1
547.4
75.9
63.0
3,273.4
9,871.2
—
39.1
1,742.9
835.9
(297.5)
2,320.4
(11.3)
(83.6)
2,225.5
12,096.7
$
$
$
$
$
$
60.6
19.6
27.9
32.4
72.0
(34.0)
—
178.5
35.3
64.1
(19.7)
(46.0)
(0.2)
(3.2)
30.3
208.8
419.6
141.9
43.3
—
604.8
6.3
10.0
100.6
(6.0)
110.9
715.7
—
—
0.7
(497.7)
(12.0)
(509.0)
—
2.1
(506.9)
208.8
$
$
$
$
$
$
760.7
19.6
4,709.3
447.2
141.4
418.5
452.2
6,948.9
775.3
580.4
332.5
3,353.3
43.4
271.7
5,356.6
12,305.5
5,702.3
1,178.5
172.8
149.0
7,202.6
2,593.4
557.4
176.5
57.0
3,384.3
10,586.9
—
39.1
1,743.6
338.2
(309.5)
1,811.4
(11.3)
(81.5)
1,718.6
12,305.5
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
ASSETS:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance of $163.6
Expenditures billable to clients
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Land, buildings and equipment, net
Deferred income taxes
Investments
Goodwill
Other intangible assets, net of amortization
Other assets
Total non-current assets
TOTAL ASSETS
LIABILITIES:
Accounts payable
Accrued liabilities
Short-term debt
Total current liabilities
Long-term debt
Deferred compensation and employee benefits
Other non-current liabilities
Minority interests in consolidated subsidiaries
Total non-current liabilities
TOTAL LIABILITIES
Commitments and contingencies (Note 19)
STOCKHOLDERS’ EQUITY:
Common stock, $0.10 par value, shares authorized: 800.0
shares issued: 2003 — 392.0
shares outstanding: 2003 — 391.7
Additional paid-in capital
Retained earnings (deficit)
Accumulated other comprehensive loss, net of tax
Less:
Treasury stock, at cost: 2003 — 0.3 shares
Unamortized deferred compensation
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
194
As Previously
Reported
As of September 30, 2003
Effect of
Restatement
(Unaudited)
As
Restated
$
$
$
$
$
$
695.5
—
4,474.9
389.1
41.7
411.9
6,013.1
713.8
610.5
371.0
3,241.1
40.1
282.5
5,259.0
11,272.1
4,889.0
1,092.1
326.9
6,308.0
2,191.0
576.8
190.5
64.7
3,023.0
9,331.0
39.2
1,752.6
508.8
(274.5)
2,026.1
(11.3)
(73.7)
1,941.1
11,272.1
$
$
$
$
$
$
40.6
15.5
26.0
33.2
75.0
(26.9)
95.9
34.1
65.8
3.3
(40.5)
0.5
(3.0)
60.1
223.6
461.8
160.3
26.5
648.6
6.9
9.4
116.5
(6.2)
126.6
775.2
—
0.7
(545.0)
(9.4)
(553.7)
—
2.1
(551.6)
223.6
$
$
$
$
$
$
$
736.1
15.5
4,500.9
422.3
49.2
385.0
6,176.5
747.9
676.3
374.3
3,200.6
40.6
279.5
5,319.2
11,495.7
5,350.8
1,252.4
353.4
6,956.6
2,197.9
586.2
307.0
58.5
3,149.6
10,106.2
39.2
1,753.3
(36.2)
(283.9)
1,473.4
(11.3)
(71.6)
1,390.5
11,495.7
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Proceeds from the sale of discontinued operations, net of cash sold
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS:
Increase (decrease) in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Preferred stock issuance costs
Preferred stock dividends
Common stock transaction
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash used in financing activities from continuing operations
Effect of exchange rates on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
195
Three Months Ended March 31, 2004
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(347.1)
$
4.8
$
(342.3)
(39.0)
(37.8)
17.1
3.9
(7.2)
13.0
(14.8)
—
(64.8)
59.8
(244.4)
0.5
(0.8)
(4.8)
(2.3)
(2.7)
4.9
(189.8)
(8.7)
(610.4)
2,005.7
1,395.3
$
—
—
0.3
—
—
358.0
(455.7)
—
(97.4)
0.5
—
—
—
—
—
—
—
0.5
3.1
(89.0)
(133.8)
(222.8)
$
(39.0)
(37.8)
17.4
3.9
(7.2)
371.0
(470.5)
—
(162.2)
60.4
(244.4)
0.5
(0.8)
(4.8)
(2.3)
(2.7)
4.9
(189.2)
(5.7)
(699.4)
1,871.9
1,172.5
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Six Months Ended June 30, 2004
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(116.8)
$
15.5
$
(101.3)
(136.3)
(77.5)
28.9
10.6
(10.3)
43.2
(35.4)
(176.8)
(5.1)
(244.7)
0.5
(2.3)
(9.8)
0.9
(10.9)
6.1
(265.3)
(12.5)
(571.4)
2,005.7
1,434.3
—
—
0.3
—
0.1
532.6
(877.5)
(344.5)
28.5
—
—
—
—
(0.8)
—
—
27.7
(0.2)
(301.5)
(133.8)
(435.3)
$
(136.3)
(77.5)
29.2
10.6
(10.2)
575.8
(912.9)
(521.3)
23.4
(244.7)
0.5
(2.3)
(9.8)
0.1
(10.9)
6.1
(237.6)
(12.7)
(872.9)
1,871.9
999.0
$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Debt issuance costs
Preferred stock dividends
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
196
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Nine Months Ended September 30, 2004
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(126.3)
11.1
(115.2)
(143.8)
(119.3)
28.2
22.9
(15.8)
56.8
(39.9)
10.0
(200.9)
34.5
(245.1)
1.0
(2.3)
(14.8)
1.5
(17.3)
6.8
(235.7)
(4.3)
(567.2)
2,005.7
1,438.5
—
—
(0.1)
—
(0.1)
808.2
(1,027.6)
—
(219.6)
(31.4)
—
—
—
—
(0.8)
—
—
(32.2)
—
(240.7)
(133.8)
(374.5)
$
(143.8)
(119.3)
28.1
22.9
(15.9)
865.0
(1,067.5)
10.0
(420.5)
3.1
(245.1)
1.0
(2.3)
(14.8)
0.7
(17.3)
6.8
(267.9)
(4.3)
(807.9)
1,871.9
1,064.0
$
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Proceeds from the sale of discontinued operations, net of cash
sold
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Debt issuance costs
Preferred stock dividends
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash (used in) financing activities from continuing
operations
Effect of exchange rates on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
197
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Three Months Ended March 31, 2003
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(278.1)
$
1.6
$
(276.5)
(52.9)
(29.6)
6.9
14.2
(17.0)
11.2
(18.7)
(85.9)
(164.3)
(0.7)
800.7
(22.6)
2.9
(0.2)
1.0
616.8
15.3
(12.9)
255.2
933.0
1,188.2
9.4
—
—
—
(3.2)
—
13.0
19.2
(17.6)
—
—
—
—
—
(17.6)
(1.4)
—
1.8
20.2
22.0
$
(43.5)
(29.6)
6.9
14.2
(20.2)
11.2
(5.7)
(66.7)
(181.9)
(0.7)
800.7
(22.6)
2.9
(0.2)
1.0
599.2
13.9
(12.9)
257.0
953.2
1,210.2
$
CASH FLOWS FROM OPERATING ACTIVITIES FROM
CONTINUING OPERATIONS:
Net cash used in operating activities from continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Net cash used in investing activities from continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS:
Decrease in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Debt issuance costs and consent fees
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash provided by financing activities from continuing
operations
Effect of exchange rates on cash and cash equivalents
Net cash used in discontinued operations
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
198
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Six Months Ended June 30, 2003
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(19.8)
$
(3.6)
$
(23.4)
(141.3)
(72.1)
3.9
21.3
(37.6)
17.2
(27.8)
(236.4)
(209.1)
(581.4)
800.9
—
(26.9)
8.0
(7.4)
0.5
(15.4)
52.1
(13.4)
(232.9)
933.0
700.1
10.9
11.7
—
22.6
22.6
—
—
—
—
—
—
—
22.6
(1.2)
—
40.4
20.2
60.6
$
(130.4)
(72.1)
3.9
21.3
(37.6)
28.9
(27.8)
(213.8)
(186.5)
(581.4)
800.9
—
(26.9)
8.0
(7.4)
0.5
7.2
50.9
(13.4)
(192.5)
953.2
760.7
$
CASH FLOWS FROM OPERATING ACTIVITIES FROM
CONTINUING OPERATIONS:
Net cash used in operating activities from continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Net cash used in investing activities from continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS:
Decrease in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Proceeds from termination of interest rate swaps
Debt issuance costs
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash (used in) provided by financing activities from continuing
operations
Effect of exchange rates on cash and cash equivalents
Net cash used in discontinued operations
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
199
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Nine Months Ended September 30, 2003
As Previously
Reported
Effect of
Restatement
(Unaudited)
As
Restated
$
(154.0)
$
1.0
$
(153.0)
(194.0)
(94.2)
17.4
25.2
(30.9)
26.3
(34.3)
376.7
92.2
(243.4)
(743.4)
800.8
(27.5)
3.1
(12.5)
0.5
(222.4)
60.1
(13.4)
(237.5)
933.0
695.5
0.7
—
—
—
—
13.3
—
—
14.0
4.7
2.1
—
—
—
—
—
6.8
(1.4)
—
20.4
20.2
40.6
$
(193.3)
(94.2)
17.4
25.2
(30.9)
39.6
(34.3)
376.7
106.2
(238.7)
(741.3)
800.8
(27.5)
3.1
(12.5)
0.5
(215.6)
58.7
(13.4)
(217.1)
953.2
736.1
$
CASH FLOWS FROM OPERATING ACTIVITIES FROM
CONTINUING OPERATIONS:
Net cash used in operating activities from continuing operations
CASH FLOWS FROM INVESTING ACTIVITIES FROM
CONTINUING OPERATIONS:
Acquisitions, including deferred payments, net of cash acquired
Capital expenditures
Proceeds from sales of businesses and fixed assets
Proceeds from sales of investments
Purchases of investments
Maturities of short-term marketable securities
Purchases of short-term marketable securities
Proceeds from the sale of discontinued operations, net of cash sold
Net cash provided by investing activities from continuing operations
CASH FLOWS FROM FINANCING ACTIVITIES FROM
CONTINUING OPERATIONS:
Decrease in short-term bank borrowings
Payments of long-term debt
Proceeds from long-term debt
Debt issuance costs
Issuance of common stock
Distributions to minority interests
Contributions from unconsolidated affiliates
Net cash (used in) financing activities from continuing operations
Effect of exchange rates on cash and cash equivalents
Net cash (used in) discontinued operations
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
$
200
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
The following tables summarize, for each of the quarters and for each of the interim balance sheet dates presented, the impact of
each category of adjustment on previously reported revenue; net income (loss) from continuing operations and earnings per share; and
assets, liabilities and retained earnings.
As previously reported
Revenue Recognition Related to
Vendor Discounts or Credits
Revenue Recognition related to
Customer Contracts
Accounting for Out-of-Pocket
Expenses
Gross versus Net Revenue
Presentation
Internal Investigations
Other Adjustments
Total Adjustments
As restated
3/31/2004
$ 1,395.1
6/30/2004
$ 1,544.1
9/30/2004
$ 1,508.8
Impact of Adjustments on Revenue
3/31/2003
$ 1,315.7
6/30/2003
$ 1,499.4
9/30/2003
$ 1,418.9
12/31/2003
$
1,629.4
(7.2)
(11.6)
(8.7)
(0.1)
(3.5)
(4.5)
(42.5)
(48.6)
(71.4)
(27.9)
(96.5)
(61.6)
(45.2)
184.6
—
—
—
—
—
51.5
(3.3)
3.5
(31.3)
38.6
0.2
8.1
10.3
$ 1,519.1
84.7
(0.8)
7.0
(5.7)
(0.8)
5.1
43.4
$ 1,542.8
80.4
(1.1)
3.7
33.3
$ 1,452.2
$
86.3
(4.5)
3.4
227.3
1,856.7
$ 1,389.4
$ 1,512.8
$ 1,310.0
—
47.9
(1.9)
4.1
(5.7)
—
104.2
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
For the Quarter Ended March 31, 2004
For the Quarter Ended March 31, 2003
Basic
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
Basic
Earnings
(Loss) Per
Share of
Common
Diluted
Earnings
(Loss) Per
Share of
Stock
Common Stock
As previously reported
$
(21.7)
$
(0.05)
$
(0.05)
$
(11.2)
$
(0.03)
$
(0.03)
Revenue Recognition Related to
Vendor Discounts or Credits
Revenue Recognition Related to
Customer Contracts
Future Obligations Related to
Prior Acquisitions
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated
Weighted-average shares:
(6.3)
(46.8)
(3.1)
(4.2)
(2.5)
1.8
(5.8)
(66.9)
(88.6)
$
(0.02)
(0.11)
(0.01)
(0.01)
—
—
(0.01)
(0.16)
(0.21)
413.3
$
(0.02)
(0.11)
(0.01)
(0.01)
—
—
(0.01)
(0.16)
(0.21)
413.3
(1.1)
(99.7)
(3.3)
(2.3)
(2.5)
(5.0)
32.2
(81.7)
(92.9)
$
—
(0.26)
(0.01)
(0.01)
—
(0.01)
0.08
(0.21)
(0.24)
381.8
$
—
(0.26)
(0.01)
(0.01)
—
(0.01)
0.08
(0.21)
(0.24)
381.8
$
$
201
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
For the Quarter Ended June 30, 2004
For the Quarter Ended June 30, 2003
Basic
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
Net
Income
(Loss)
Basic
Earnings
(Loss) Per
Share of
Common
Diluted
Earnings
(Loss) Per
Share of
Stock
Common Stock
As previously reported
$
(10.4)
$
0.03
$
0.03
$
(23.0)
$
(0.06)
$
(0.06)
Revenue Recognition Related
to Vendor Discounts or
Credits
Revenue Recognition Related
to Customer Contracts
Future Obligations Related to
Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment
Impairment
Total Restatement Adjustments
As restated
Weighted-average shares:
(13.0)
(72.2)
0.7
—
(5.6)
(2.4)
(0.6)
10.12
—
(83.0)
(93.4)
$
—
(0.2)
—
—
—
—
—
0.02
—
(0.2)
(0.23)
414.6
$
—
(0.2)
—
—
—
—
—
0.02
—
(0.2)
(0.23)
414.6
$
(4.2)
(61.0)
(3.3)
—
(2.5)
(2.4)
(4.4)
20.60
—
(57.2)
(80.2)
$
(0.01)
(0.16)
(0.01)
—
(0.01)
(0.01)
(0.01)
0.05
—
(0.15)
(0.21)
384.3
$
(0.01)
(0.16)
(0.01)
—
(0.01)
(0.01)
(0.01)
0.05
—
(0.15)
(0.21)
384.3
$
Impact of Adjustments on Net Income (Loss) from Continuing Operations and Earnings per Share
For the Quarter Ended September 30, 2004
For the Quarter Ended September 30, 2003
Basic
Earnings
(Loss) Per
Share of
Common
Stock
Net Income
(Loss)
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
Net Income
(Loss)
Basic
Earnings
(Loss) Per
Share of
Common
Stock
Diluted
Earnings
(Loss) Per
Share of
Common
Stock
As previously reported
$
(589.9)
$
(1.42)
$
(1.42)
$
(416.2)
$
(1.08)
$
(1.08)
Revenue Recognition Related
to Vendor Discounts or
Credits
Revenue Recognition Related
to Customer Contracts
Future Obligations Related to
Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment
Impairment
Total Restatement Adjustments
As restated
Weighted-average shares:
(14.7)
(35.2)
(0.6)
—
2.6
(2.1)
(2.4)
(10.9)
—
(0.1)
—
—
—
—
—
—
145.2
81.9
(508.0)
$
0.3
0.2
(1.22)
415.4
$
$
202
—
(0.1)
—
—
—
—
—
—
0.3
0.2
(1.22)
415.4
(3.8)
(40.7)
(15.1)
—
(2.8)
(2.3)
2.5
15.0
—
(47.2)
(463.4)
$
$
(0.01)
(0.11)
(0.04)
—
(0.01)
(0.01)
0.01
—4
—
(0.12)
(1.20)
385.8
(0.01)
(0.11)
(0.04)
—
(0.01)
(0.01)
0.01
—4
—
(0.12)
(1.20)
385.8
$
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Impact of Adjustments on Net Income (Loss) from
Continuing Operations and Earnings per Share
For the Quarter Ended December 31, 2003
Net Income
(Loss)
Basic Earnings
(Loss) Per Share
of
Common Stock
Diluted Earnings
(Loss) Per Share
of
Common Stock
As previously reported
Revenue Recognition Related to Vendor Discounts or
$
(102.5)
$
Credits
Revenue Recognition Related to Customer Contracts
Future Obligations Related to Prior Acquisitions
Internal Investigations
International Compensation Arrangements
Accounting for Leases
Other Adjustments
Total Restatement Adjustments
As restated
Weighted-average shares:
(36.3)
185.5
(2.4)
(10.9)
(1.6)
4.3
(39.7)
98.9
(3.6)
$
(0.26)
(0.09)
0.47
(0.01)
(0.03)
(0.00)
0.01
(0.10)
0.25
(0.01)
390.3
$
(0.26)
(0.09)
0.47
(0.01)
(0.03)
(0.00)
0.01
(0.10)
0.25
(0.01)
390.3
Impact of Adjustments on Consolidated Balance Sheet Accounts
As previously reported
Revenue Recognition Related
to Vendor Discounts or
Credits
Revenue Recognition Related
to Customer Contracts
Future Obligations Related to
Prior Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International Compensation
Arrangements
Accounting for Leases
Other Adjustments
Total Adjustments
As restated
Total Assets
$
11,700.5
As of March 31, 2004
Total
Liabilities
$ 9,133.4
Stockholders’
Equity
Total Assets
As of March 31, 2003
Total
Liabilities
Stockholders’
Equity
$
2,567.1
$
11,963.1
$
9,811.6
$
2,151.5
37.2
36.4
(2.4)
(38.5)
(0.5)
207.2
172.1
67.1
(2.6)
55.5
2.7
37.7
118.4
191.0
11,891.5
31.6
64.8
148.9
744.6
$ 9,878.0
$
(170.0)
(135.7)
(69.5)
(36.0)
(56.0)
(28.9)
(27.2)
(30.3)
(553.6)
2,013.5
$
203
25.6
32.2
(5.0)
(38.3)
(3.5)
131.2
196.6
40.6
(2.6)
30.2
2.0
48.2
67.3
128.5
12,091.6
22.0
76.9
101.9
596.8
$ 10,408.4
$
$
(105.6)
(164.4)
(45.5)
(35.7)
(33.7)
(20.0)
(28.6)
(34.8)
(468.3)
1,683.2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
As previously reported
Revenue Recognition
Related to Vendor
Discounts or Credits
Revenue Recognition
Related to Customer
Contracts
Future Obligations
Related to Prior
Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International
Compensation
Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment
As previously reported
Revenue Recognition
Related to Vendor
Discounts or Credits
Revenue Recognition
Related to Customer
Contracts
Future Obligations
Related to Prior
Acquisitions
Pre-Acquisition Earnings
Internal Investigations
International
Compensation
Arrangements
Accounting for Leases
Other Adjustments
Goodwill and Investment
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in Millions, Except Per Share Data)
Impacts of Adjustments on Consolidated Balance Sheet Accounts
Total Assets
$ 12,156.2
As of June 30, 2004
Total
Liabilities
Stockholders’
Equity
$
9,593.8
$
2,562.4
Total Assets
$ 12,096.7
As of June 30, 2003
Total
Liabilities
Stockholders’
Equity
$
9,871.2
$
2,225.5
36.4
217.6
(181.2)
25.4
139.5
(114.0)
32.2
238.6
(206.3)
28.7
258.3
(229.5)
(1.0)
(38.5)
3.5
—
37.4
162.1
68.6
(2.6)
64.4
34.1
64.8
180.5
(69.6)
(35.9)
(60.9)
(34.1)
(27.4)
(18.1)
(5.0)
(38.4)
(3.4)
2.0
47.3
152.2
43.9
(2.6)
33.6
24.4
81.1
137.6
(48.9)
(35.8)
(37.0)
(22.4)
(33.8)
14.5
Impairment
Total Adjustments
As restated
—
232.5
$ 12,388.7
—
866.0
$ 10,459.8
$
—
(633.5)
1,928.9
—
208.8
$ 12,305.5
—
715.7
$ 10,586.9
$
—
(506.9)
1,718.6
Impacts of Adjustments on Consolidated Balance Sheet Accounts
Total Assets
$ 11,202.3
As of September 30, 2004
Total
Liabilities
Stockholders’
Equity
$
9,200.5
$
2,001.8
Total Assets
$ 11,272.1
As of September 30, 2003
Total
Liabilities
Stockholders’
Equity
$
9,331.0
$
1,941.1
31.7
228.4
(196.7)
26.1
144.3
(118.3)
21.3
264.7
(243.4)
26.7
299.6
(272.9)
(1.4)
(38.5)
12.2
—
32.1
94.7
68.8
(2.6)
71.1
36.6
62.0
118.2
(70.2)
(36.0)
(58.9)
(36.6)
(29.9)
(23.5)
(2.3)
(38.4)
(0.2)
2.0
45.9
163.9
61.7
(2.6)
39.7
26.8
77.6
128.2
(64.0)
(35.8)
(39.9)
(24.7)
(31.7)
35.7
Impairment
Total Adjustments
As restated
145.2
297.2
$ 11,499.5
—
847.1
$ 10,047.6
145.2
(549.9)
1,451.9
—
223.6
$ 11,495.7
—
775.2
$ 10,106.2
$
—
(551.6)
1,389.5
$
204
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Column A
Description
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2004
SCHEDULE II — 1 of 2
Allowance for Doubtful Accounts — deducted from Accounts Receivable in the Consolidated Balance Sheet:
134.1
2004
36.7
$
$
2003 (Restated)
2002 (Restated)
$
$
138.3
89.0
$
$
32.6
74.7
Column B
Column C
Balance at
Beginning
of Period
Charged to
Costs &
Expenses
Column D
Additions/(Deductions)
Charged
to Other
Accounts
(Amounts in millions)
Deductions
Column E
Column F
Balance
at End
of Period
$
$
$
136.1
134.1
138.3
$
$
$
$
$
— (1)
(0.8) (2)
6.8 (3)
8.5 (1)
(2.1) (2)
$
$
$
0.1 (1)
1.8 (2)
17.2 (3)
$
$
$
$
$
$
$
$
(3.0)(4)
(45.6) (5)
7.9 (6)
(2.3)(4)
(34.0) (5)
(6.9)(6)
(45.4) (5)
0.9 (6)
(1) Allowance for doubtful accounts of acquired and newly consolidated companies.
(2) Miscellaneous.
(3) Reclassifications.
(4) Dispositions.
(5) Principally amounts written off.
(6) Foreign currency translation adjustment.
205
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
SCHEDULE II — 2 of 2
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2004
Column A
Column B
Column C
Column D
Column E
Column F
Description
Balance at
Beginning
of Period
Charged to
Costs &
Expenses
Additions
Charged
to Other
Accounts
Deductions
Balance
at End
of Period
(Amounts in millions)
Valuation Allowance — deducted from Deferred Income Taxes on the Consolidated Balance Sheet:
$
$
$
2004
2003 (Restated)
2002 (Restated)
252.6
123.9
96.4
236.0
111.4
27.5
—
17.3(1)
—
$
$
$
$
$
$
$ —
$ —
$ —
$
$
$
488.6
252.6
123.9
(1)
Included in discontinued operations related to NFO.
206
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Management’s Assessment on Internal Control Over Financial Reporting and the Report of Independent Registered Public
Accounting Firm located in Item 8 are incorporated by reference herein.
Disclosure controls and procedures
We have carried out an evaluation under the supervision of, and with the participation of, our management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2004. Our evaluation has disclosed numerous material weaknesses in our internal control over
financial reporting as noted in Management’s Assessment on Internal Control over Financial Reporting located in Item 8. Material
weaknesses in internal controls may also constitute deficiencies in our disclosure controls. Based on an evaluation of these material
weaknesses, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are
not effective. However, based on significant work performed to date, management believes that there are no material inaccuracies or
omissions of material fact in this 2004 annual report. Management, to the best of its knowledge, believes that the financial statements
contained in the 2004 annual report are fairly presented in all material respects.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control objectives.
Changes in internal control over financial reporting
We have assessed our internal control over financial reporting as of December 31, 2004 and reported on our assessment in Item 8
of this report. In connection with that assessment, we have begun to implement a plan to extensively change our internal controls, as
described in Management’s Assessment on Internal Control Over Financial Reporting located in Item 8.
207
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
PART III
Item 10. Directors and Executive Officers of Interpublic
Below follows the information disclosed in accordance with Item 401 of Regulation S-K of the SEC as required by Item 10 of
Form 10-K with respect to our directors and executive officers as of August 31, 2005.
Directors of Interpublic
The following information with respect to the principal occupation or employment, recent employment history, age and
directorships in other companies is as of August 31, 2005, and has been furnished or confirmed to us by the respective directors. The
information provided also identifies the committees of the Board of Directors on which each director serves. Our directors will hold
office until our next Annual Meeting of Stockholders and until their successors are elected and qualify or until their earlier death,
resignation or removal.
DAVID A. BELL became Co-Chairman of Interpublic, effective January 19, 2005. Prior to that time, Mr. Bell served as our
President and Chief Executive Officer, effective July 13, 2004. Mr. Bell was Chairman of the Board, President and Chief Executive
Officer of Interpublic from February 2003 through July 2004. Prior to that time, he was our Vice Chairman from June 2001 to
February 2003. Mr. Bell also served as one of our directors between June 2001 and February 2002. Mr. Bell served as Chairman and
Chief Executive Officer of True North Communications, Inc. (“True North”) from April 1999 through June 2001. Mr. Bell has been a
member of the Board of Directors since February 2003. He is a director of Primedia Inc. and Warnaco Inc. Age 62.
Chairman of the Executive Committee.
FRANK J. BORELLI has been a Senior Adviser to MMC Capital, a wholly-owned subsidiary of Marsh & McLennan Companies,
Inc. (“Marsh & McLennan”) since his retirement on January 2, 2001. Prior to that time he was Senior Vice President of Marsh &
McLennan from January through December 2000 and was Senior Vice President and Chief Financial Officer from 1984 through 1999.
He is a director of Express Scripts, Inc. and was a director of Marsh & McLennan until September 30, 2000. Mr. Borelli is past
Chairman and director of the Financial Executives International and is also a member of the Board of Trustees of the National
Multiple Sclerosis Society, a Trustee of St. Thomas Aquinas College and Chairman of the Nyack Hospital. Mr. Borelli has been a
member of the Board of Directors since 1995. Age 68.
Presiding Director. Member of the Executive Committee.
REGINALD K. BRACK is the Former Chairman and Chief Executive Officer of Time, Inc. From September 1994 to June 1997,
Mr. Brack was Chairman of Time, Inc. and was its Chairman, President and Chief Executive Officer from December 1986 until
August 1994. Mr. Brack is also a director of Quebecor World, Inc. Mr. Brack has been a member of the Board of Directors since
1996. Age 66.
Chairman of the Compensation Committee. Member of the Audit, Executive and Corporate Governance Committees.
JILL M. CONSIDINE has been Chairman and Chief Executive Officer of The Depository Trust & Clearing Corporation since
1999. The Depository Trust & Clearing Corporation is a holding company that is the parent of various securities clearing corporations
and The Depository Trust Company, which is a large securities depository limited purpose trust company and clearing corporation.
She was President of the New York Clearing House Association from 1993 to 1998. Ms. Considine served as Managing Director,
Chief Administrative Officer and a member of the Board of Directors of American Express Bank, Ltd. from 1991 to 1993. She is a
trustee of Atlantic Mutual Insurance Companies. She also is a
208
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
director of Ambac Financial Group, Inc. Ms. Considine has been a member of the Board of Directors since February 1997. Age 60.
Chairman of the Corporate Governance Committee. Member of the Audit and Finance Committees.
JOHN J. DOONER, JR. became Chairman and Chief Executive Officer of Interpublic’s McCann-Erickson WorldGroup, effective
February 27, 2003. Prior to that time, Mr. Dooner served as Chairman of the Board, President and Chief Executive Officer of
Interpublic from December 2000 to February 2003. Mr. Dooner was President and Chief Operating Officer of Interpublic from
April 1, 2000 through December 14, 2000. Mr. Dooner was Chairman and Chief Executive Officer of McCann-Erickson WorldGroup
from 1995 through March 2000 and previously was Chief Executive Officer of McCann-Erickson Advertising Worldwide from 1994
to 1995. From 1992 to 1994, Mr. Dooner was President of McCann-Erickson Advertising Worldwide. He served as President of
McCann-Erickson North America from 1988 to 1992. Mr. Dooner has been a member of the Board of Directors since 1995. Age 57.
Member of the Finance Committee.
RICHARD A. GOLDSTEIN became Chairman and Chief Executive Officer of International Flavors & Fragrances Inc. in June
2000. He served as Business Group President of Unilever North American Foods from 1996 to June 2000 and as President and Chief
Executive Officer of Unilever United States, Inc. from 1989 to June 2000. Prior to that time, Mr. Goldstein served as Chairman and
Chief Executive Officer of Unilever Canada Limited from 1984 to 1989. He also is a director of Fiduciary Trust Company
International and Continuum Health Partners. Mr. Goldstein has been a member of the Board of Directors since 2001. Age 63.
Chairman of the Finance and Audit Committees. Member of the Corporate Governance Committee.
H. JOHN GREENIAUS has been President of G-Force, Inc. since 1998. He was Chairman and Chief Executive Officer of Nabisco,
Inc. from 1993 through 1997. Mr. Greeniaus has been a member of the Board of Directors since December 2001. He is a director of
Primedia Inc. Age 60.
Member of the Audit, Compensation and Finance Committees.
MICHAEL I. ROTH became our Chairman of the Board and Chief Executive Officer, effective January 19, 2005. Prior to that time
Mr. Roth served as our Chairman of the Board from July 13, 2004 to January 2005. Mr. Roth served as Chairman and Chief Executive
Officer of The MONY Group Inc. from February 1994 to June 2004. Mr. Roth has been a member of the Board of Directors since
February 2002. He is also a director of Pitney Bowes Inc. and Gaylord Entertainment Company. Age 59.
J. PHILLIP SAMPER has been Founding Partner of Gabriel Venture Partners L.L.C. since December 1998 and was Chief
Executive Officer and President of Avistar Systems Corp. from 1997 to October 1998. Prior to that time, Mr. Samper was Chairman,
Chief Executive Officer and President of Quadlux, Inc. from 1996 to 1997. He was Chairman and Chief Executive Officer of Cray
Research, Inc. during 1995 and was President of Sun Microsystems Computer Corporation from 1994 to 1995. Mr. Samper was Vice
Chairman and Executive Officer of the Eastman Kodak Company from 1986 to 1989 and a member of the Board of Directors from
1983 to 1989. He was President and Chief Executive Officer of Kinder-Care Learning Centers from 1990 to 1991. Mr. Samper has
been a member of the Board of Directors since 1990. Age 70.
Member of the Audit, Compensation and Corporate Governance Committees.
DAVID M. THOMAS has been the Executive Chairman of IMS Health Inc. (“IMS”) since January 2005. From November 2000
until January 2005, Mr. Thomas served as Chairman and Chief Executive Officer of IMS. Prior to joining IMS, Mr. Thomas was
Senior Vice President and Group Executive of IBM from January 1998 to July 2000. Mr. Thomas is a director of Fortune Brands Inc.
Mr. Thomas has been a member of the Board of Directors since October 2004. Age 55.
209
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Member of the Audit and Corporate Governance Committees.
Executive Officers of Interpublic
Name
Michael I. Roth(1)
David A. Bell(1)
Nicholas J. Camera
Albert S. Conte
Nicholas S. Cyprus
Thomas A. Dowling
Stephen Gatfield
Philippe Krakowsky
Frank Mergenthaler
Timothy A. Sompolski
(1) Also a Director
Age
59
62
58
55
52
54
47
43
44
53
Office
Chairman of the Board and Chief Executive Officer
Co-Chairman
Senior Vice President, General Counsel and Secretary
Senior Vice President, Taxes and General Tax Counsel
Senior Vice President, Controller and Chief Accounting
Officer
Senior Vice President, Chief Risk Officer
Executive Vice President, Global Operations and Innovation
Senior Vice President, Director of Corporate Communications
Executive Vice President and Chief Financial Officer
Executive Vice President, Chief Human Resources Officer
On January 19, 2005, we announced that Michael Roth has succeeded David Bell as President and Chief Executive Officer.
Mr. Roth had been Executive Chairman at Interpublic since July 2004. We also announced that Mr. Bell would serve as Co-Chairman
and that Mr. Bell would retain his seat on our Board of Directors.
There is no family relationship among any of the executive officers.
For the employment histories for the past five years of Messrs. Roth and Bell, see Item 10. Directors and Executive Officers of
Interpublic — Directors of Interpublic in this Annual Report.
Mr. Camera was hired in May 1993. He was elected Vice President, Assistant General Counsel and Assistant Secretary in June
1994, Vice President, General Counsel and Secretary in December 1995, and Senior Vice President, General Counsel and Secretary in
February 2000.
Mr. Conte was hired in March 2000 as Senior Vice President, Taxes and General Tax Counsel. Prior to joining us, Mr. Conte
served as Vice President, Senior Tax Counsel for Revlon Consumer Products Corporation from September 1987 to February 2000.
Mr. Cyprus was hired in May 2004 as Senior Vice President, Controller and Chief Accounting Officer. Prior to joining us,
Mr. Cyprus served as Vice President and Controller of AT&T from January 1999 to May 2004.
Mr. Dowling was hired in January 2000 as Vice President and General Auditor. He was elected Senior Vice President, Financial
Administration of Interpublic in February 2001, and Senior Vice President, Chief Risk Officer in November 2002. Prior to joining us,
Mr. Dowling served as Vice President and General Auditor for Avon Products, Inc. from April 1992 to December 1999.
Mr. Gatfield was hired in April 2004 as Executive Vice President, Global Operations and Innovation. Prior to joining us, he served
as Chief Operating Officer from 2001 to 2004 and as Regional Managing Director for the Asia Pacific region from 1997 to 2000 for
Leo Burnett Worldwide.
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Mr. Krakowsky was hired in January 2002 as Senior Vice President, Director of Corporate Communications. Prior to joining us,
he served as Senior Vice President, Communications Director for Young & Rubicam from August 1996 to December 2000. During
2001, Mr. Krakowsky was complying with the terms of a non-competition agreement entered into with Young & Rubicam.
Mr. Mergenthaler was hired in August 2005 as Executive Vice President and Chief Financial Officer. Prior to joining us, he served
as Executive Vice President and Chief Financial Office for Columbia House Company from July 2002 to July 2005. Mr. Mergenthaler
served as Senior Vice President and Deputy Chief Financial Officers for Vivendi Universal from December 2001 to March 2002. Prior
to that time Mr. Mergenthaler was an executive at Seagram Company Ltd. from November 1996 to December 2001.
Mr. Sompolski was hired in July 2004 as Executive Vice President, Chief Human Resources Officer. Prior to joining us, he served
as Senior Vice President of Human Resources and Administration for Altria Group from November 1996 to January 2003.
The table below provides membership information for our audit committee:
Name
Richard A. Goldstein
Reginald K. Brack
Jill M. Considine
H. John Greeniaus
J. Phillip Samper
David M. Thomas
Audit
Chair
Member
Member
Member
Member
Member
The Board of Directors has determined that each member of the Audit Committee (i) qualifies as an “audit committee financial
expert” within the meaning of applicable SEC rules and (ii) is independent under the independence standards set forth in Interpublic’s
Corporate Governance Guidelines, and under the applicable rules of the SEC and the NYSE listing standards. The Audit Committee
held seven meetings in 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act) requires our directors and executive officers, and persons
who beneficially own more than 10 percent of a registered class of our equity securities, to file with the SEC and the NYSE initial
reports of beneficial ownership and reports of changes in beneficial ownership of our equity securities.
To our knowledge, based upon the reports filed or written statements that no such reports were required to be filed during the
fiscal year ended December 31, 2004, none of our directors or executive officers failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act.
Code of Conduct
We have adopted a code of ethics, known as the Code of Conduct, which applies to all of our employees and employees of our
affiliates. Our Corporate Governance Guidelines provide that members of the Board of Directors and officers (which includes our
Chief Executive Officer, Chief Financial Officer, Controller and other persons performing similar functions) must comply with the
Code of Conduct. In addition, the Corporate Governance Guidelines state that the Board will not waive any provision of the Code of
Conduct for any Director or executive officer. The Code of Conduct, including future amendments, is available free of charge on our
website at http://www.interpublic.com or by writing to The Interpublic Group of Companies, Inc., 1114 Avenue of the Americas, New
York, NY 10036, Attention: Secretary.
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NYSE Certification
In 2004, our CEO provided the Annual CEO Certification to the NYSE, as required under Section 303A.12(a) of the New York
Stock Exchange Listed Company Manual.
Report of the Compensation Committee of the Board of Directors
Compensation Governance
As the Compensation Committee, we are responsible for approving compensation awarded to senior corporate and operating
executives, including the named executive officers, and authorizing all awards under Interpublic’s 2004 Performance Incentive Plan.
We operate under a written charter adopted by the Board of Directors and available on Interpublic’s web site, and include three
non-employee directors in accordance with the Committee’s Charter. Each Committee member qualifies as an independent director as
defined by the New York Stock Exchange listing standards, a “non-employee director” under Rule 16b-3 under the Securities
Exchange Act of 1934 and an “outside director” under Section 162(m) of the Internal Revenue Code.
As a Committee, we approve policies under which compensation is paid or awarded to Interpublic’s executives, and individually
review the performance and compensation levels of, and all compensation actions pertaining to, Interpublic’s senior executive group,
including the Chairman and Chief Executive Officer. Annually, we evaluate and revise, as necessary, Interpublic’s compensation
philosophy and approaches, including the fixed and variable elements of total compensation, and the design of incentive compensation
programs.
During 2004, we engaged Hewitt Associates to provide independent counsel to the Committee and Board on executive
compensation and talent management matters, both generally and specific to our industry. Hewitt Associates’ selection was the result
of a review of proposals from three highly-regarded firms, and represented a change from prior consulting relationships. We will
assess this relationship annually.
Working with the Committee and management, Hewitt Associates has provided valuable input to the Committee in the form of
latest trends and policies noted in other world-class compensation committees and has provided independent perspectives on a wide
variety of talent-related topics. Early in 2005, we completed a self-assessment of the Committee’s capabilities and performance and
we intend to repeat this process annually.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits to $1 million the tax deduction for compensation paid to the executive officers
listed in Item 11 “Executive Compensation-Compensation of Executive Officers-Summary Compensation Table” of this annual report
(the “named executive officers”). Compensation in excess of $1 million is deductible only if requirements are met that qualify the
compensation as performance-based. Our policy is to comply with the requirements of Section 162(m) except where we determine
that compliance is not in the best interests of Interpublic and its shareowners. Interpublic’s stock option grants currently meet the
performance-based requirements under Section 162(m). Interpublic’s 2004 restricted stock grants do not meet the performance-based
requirements under Section 162(m).
The February 2005 grant of performance-based restricted shares, discussed below, to Mr. Roth exceeded the individual award limit
under the 2004 Performance Incentive Plan, resulting in a portion of this award being non-tax deductible under 162(m). The
Committee nevertheless concluded that this award was appropriate in light of Mr. Roth’s promotion, the degree of stretch inherent in
the related performance objectives, and its preference for using performance-based restricted shares rather than time-vested restricted
stock.
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Compensation Philosophy
Interpublic’s executive compensation programs have been designed to attract, retain and motivate the executive resources
necessary to Interpublic’s long-term success and the creation of shareholder value. In evaluating and administering Interpublic’s
executive compensation program, we are guided by three key principles:
• Alignment with shareholders: Compensation should align the interests of executives and shareholders through the use of
equity-based compensation and performance-based awards.
• Performance-based: Compensation should emphasize pay-for-performance by placing a significant portion of total
compensation “at risk,” the payout of which is tied to the financial performance of Interpublic and the achievement of other
critical objectives.
• Market-based: Total compensation levels should be competitive with those at other advertising and marketing service
companies, and within other relevant executive labor markets as appropriate.
We find it is more appropriate to compare our compensation programs to those of competitors for talent, rather than limit our focus
to the companies that make up the Peer Group used in the Stock Performance Graph set forth in Item 11 “Executive
Compensation-Five Year Performance Comparison” of this annual report. Important to this consideration is the limited amount of
competitive pay data available for Interpublic’s direct competitors and the fact that, for some positions, Interpublic competes for
executive talent within a broader labor market.
Interpublic’s overall compensation program comprises three principal elements: base salary, annual incentives, and long-term
incentives that include stock options and restricted stock awards. An overview of each of the major compensation program elements
follows.
Base Salary
Each year, we determine the base salaries for the Chairman and Chief Executive Officer, senior executive officers reporting to the
Chief Executive Officer, and selected other senior executive positions. We consider several quantitative and qualitative factors when
determining base salaries, including the executive’s individual performance, level of responsibility, tenure, prior experience, and a
comparison to base salaries paid for comparable positions within Interpublic and multiple compensation survey groups comprising
comparably-sized advertising, marketing, and general service industry companies with similar client focus and talent strategies. For
many of the senior executives, salary is fixed by contract, which Interpublic has the ability to increase, but not decrease.
For 2004, base salaries for Named Executive Officers were not increased.
Annual Incentives
Annual incentive awards to senior executives are made under the shareholder-approved 2004 Performance Incentive Plan (the
“2004 PIP”). For purposes of bonus awards, the executive officers of Interpublic participate in the Interpublic corporate bonus pool,
unless they are affiliated with one of Interpublic’s operating units, in which case they participate in that operating subsidiary’s bonus
pool. The 2004 PIP limits the bonus amount that may be earned by any one individual to $5 million. For named executive officers,
awards are earned under Committee-approved formulas that meet the requirements for tax deductibility under Section 162(m) of the
Internal Revenue Code, and we retain the right to exercise negative discretion and reduce the bonus amount based on our further
assessment of performance for the previous calendar year.
The size of 2004 bonus pool for corporate and the operating units reflected each unit’s specific operating results and progress
toward improving future operating performance.
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Long-Term Incentives
Long-term incentive awards are made under the 2004 PIP. In 2004, we approved grants of stock options and/or restricted stock to
officers and key employees of Interpublic and its subsidiaries. Such awards are designed to focus the recipients on the long-term
performance of Interpublic and align their interests with our shareholders.
Beginning in 2004, Interpublic has significantly shifted the long-term incentive mix away from stock options toward restricted
stock and also dramatically reduced the number of stock option recipients. This shift was in response to labor market trends, changes
in stock option accounting requirements that take affect in 2005, and our assessment of the appropriateness and effectiveness of the
respective types of award for different employee groups. We intend to introduce performance-based stock awards for senior
executives in 2005.
Stock options, when granted are on such terms as are approved by our Committee, provided that the term of the option may not
exceed ten years and the exercise price may not be less than the fair market price of the Common Stock on the date of grant. The
majority of stock options granted in 2004, and all stock options granted to executive officers in 2004, vest in increments of one-third
on the second, third and fourth anniversaries of the date of grant. Grants to the named executive officers are shown in Item 11.
Executive Compensation-Compensation of Executive Officers-Stock Option Grants in 2004.
The sale or transfer of shares granted as restricted stock are typically restricted for a period of three years from date of grant and
are generally forfeited if the executive should leave the employment of Interpublic before the restrictions expire, unless we as a
Committee determines otherwise.
In determining grants of stock options and restricted stock, we consider each executive’s current total compensation, recent
performance, expected future contributions and impact on shareholder value, equity grant history, and potential retention risk;
competitive need to provide equity-based compensation to a given position; and Interpublic’s financial performance. We also review
outside survey data that describe the equity grant practices within Interpublic’s relevant labor markets.
Other Programs
Interpublic also provides its officers and key managers with life and medical insurance, retirement savings and compensation
deferral programs, perquisites, and other benefits that are competitive with market practices (described in greater detail in Item 11.
“Executive Compensation” of this annual report). As part of our review of senior executive compensation, we assess the
appropriateness of these plans and the level of participation annually.
CEO and Chairman Compensation and Evaluation
For 2004, we elected not to adjust Mr. Bell’s salary and it remained at $1,000,000 for the year. After considering Interpublic’s
2004 financial performance, including reviewing performance relative to Earnings per Share (EPS) and revenue objectives, we
decided not to grant Mr. Bell an annual incentive award for 2004.
In May 2004, we awarded Mr. Bell 124,466 shares of restricted stock, which vest in full three years after the grant date. In
addition, the Committee awarded Mr. Bell 248,933 stock options with an exercise price of $14.06, based on the average of the high
and low market prices of Interpublic Common Stock on the May 18, 2004 grant date. These stock options become exercisable in
increments of one-third on the second, third and fourth anniversaries of the date of grant.
As a result of these compensation actions, we believe Mr. Bell’s total compensation was appropriate to his role and performance
relative to external market practices and the compensation levels for similar positions at other like-sized advertising, marketing and
service companies. We also believe these actions ensured that his total compensation would have the appropriate level of performance
sensitivity.
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Michael I. Roth was named Chairman of Interpublic on July 13, 2004. After considering data and counsel from Hewitt Associates
related to appropriate pay levels and form to non-CEO Chairmen in other publicly-held companies, and Mr. Roth’s compensation
relative to Mr. Bell’s as CEO, we approved an employment agreement with Mr. Roth that set his base salary at $950,000, provided
him with a $100,000 annual contribution to a Capital Accumulation Account, granted him 161,974 stock options with an exercise
price equal to the then current fair market price for Interpublic stock and vesting in equal parts on the second, third and fourth
anniversaries of their grant, and granted 80,987 shares of restricted stock that vest on the third anniversary of their grant. In addition,
after considering Interpublic’s 2004 financial performance, including reviewing performance relative to Earnings per Share (EPS) and
revenue objectives, we decided not to grant Mr. Roth an annual incentive award for 2004.
On January 19, 2005, Mr. Roth was promoted to Chairman and Chief Executive Officer of Interpublic. In conjunction with this
promotion, we, with the support of all non-employee directors of Interpublic, approved several amendments to his employment
agreement. These pay-related actions were based on an assessment of competitive data for CEOs of comparable companies, advice
from Hewitt Associates, and consideration of Interpublic’s ongoing priorities and desired results and consisted of the following:
• An increase in Mr. Roth’s annual base salary from $950,000 to $1,100,000, effective January 19, 2005.
• A grant of options (the “Options”) to purchase 450,000 shares of Interpublic Common Stock at an exercise price of $13.645 per
share, based on the average of the high and low market prices of Interpublic Common Stock on the February 14, 2005 grant date.
The Options will vest and become exercisable in three equal annual installments of 150,000 on the second, third and fourth
anniversaries of the grant date, subject to Mr. Roth’s continued employment with Interpublic through the applicable vesting date,
and will vest automatically on a change of control of Interpublic in accordance with the terms of the 2004 PIP. On any
termination of Mr. Roth’s employment with Interpublic, any unvested Options will be forfeited.
• A grant of 450,000 performance based restricted shares (the “Restricted Shares”) under the 2004 PIP. At grant, the Restricted
Shares had an aggregate value of $6,120,000 and a risk-adjusted value of $4,500,000 . The Restricted Shares will only vest if
certain performance conditions are met (subject to accelerated vesting of a portion of the Restricted Shares on a change of
control of Interpublic, as described below). In particular:
• 150,000 of the Restricted Shares will vest on the second anniversary of the grant date, subject to Mr. Roth’s continued
employment with Interpublic through such date, if: (1) Interpublic attains cumulative constant dollar revenue reflecting average
annual growth of 4.5% or better in 2005-2006; (2) in 2006, Interpublic’s growth equals or exceeds 5%; and (3) Interpublic’s
average operating margins during 2005 and 2006 are at 10.5% or higher. In the event these performance targets are not achieved,
these restricted shares are forfeited.
• 300,000 of the Restricted Shares will vest on the fifth anniversary of the grant date, subject to Mr. Roth’s continued employment
with Interpublic through such date, if: (1) Interpublic’s average constant-dollar revenue growth for the 2007-2009 period is 6.3%
or higher; (2) during 2009, constant dollar revenue growth is at least 7%; (3) Interpublic’s average operating margins during the
period from 2007-2009 are at 14.7% or higher; (4) cumulative constant dollar revenue during the period from 2005-2010 is
$35.6 billion or greater; and (5) cumulative operating income during the period from 2005-2010 is $4.7 billion or greater. In the
event these performance targets are not achieved, these restricted shares are forfeited.
The Board of Directors of Interpublic retains discretion to make adjustments to the performance goals in the event of extraordinary
corporate events, such as acquisitions or divestitures.
If Mr. Roth’s employment terminates for any reason prior to the vesting of the Restricted Shares, the unvested Restricted Shares
will be forfeited. A pro rata portion of any unvested portion of the Restricted
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Table of Contents
Shares will vest in the event of a “change of control” of Interpublic, as such term is defined in Mr. Roth’s executive severance
agreement described in greater detail in Item 10. “Directors and Executive Officers of Interpublic-Employment Agreements
Termination of Employment and Change-In-Control Arrangements-Executive Severance Agreements” of this annual report. The
pro-rata portion will be determined based on a fraction the numerator of which will equal the number of months elapsed since the
grant date plus 12 and the denominator equal to 60.
Executive Compensation for 2005
For 2005, we expanded on the three key principles articulated early in this report. These expanded principles provide direction
related to Interpublic’s general people-related practices, compensation approaches for the executive and broad employee populations,
and talent management, including, but not limited to, succession planning, employee and leadership development.
Following our original three and this expanded set of principles, we have redesigned Interpublic’s senior executive annual
incentive program to increase its link to performance against Interpublic and its units’ key financial and strategic objectives by
providing individual incentive payouts directly tied to the achievement of pre-established performance goals set at the beginning of the
plan year and approved by the Committee. Specifically, annual incentive awards for senior executives will be based on the
achievement of pre-defined operating income, operating margin, and other measurable individual performance goals. We believe these
goals serve to focus executives on the factors that are critical to the future success and financial health of Interpublic.
In addition, 2005 long-term incentive awards will be delivered in the form of stock options, restricted stock and/or
performance-based stock, the grant of which is contingent on Interpublic or unit’s attainment of pre-established multi-year
performance goals. Generally, stock options will vest in increments of one-third on the second, third and fourth anniversaries of the
date of grant. Restricted stock grants vest fully on the third anniversary of the date of grant and performance-based stock grants will be
tied to the attainment of three-year operating margin and revenue growth goals of the unit and may vary from 0% to 200% of target
award levels based on performance.
We approved the revised long-term incentive design to reinforce the achievement of critical performance priorities of Interpublic,
improve the performance-orientation of executive total compensation, better align management and shareholder interests, and
facilitate executive stock ownership. Stock option grants and performance-based restricted stock grants made in 2005 and beyond are
intended to comply with Section 162(m) consistent with the Committee’s policy stated above.
Conclusion
Attracting, motivating and retaining talented employees and managers is central to our mission of increasing long-term
shareholder value. Aligning our executives’ interests to our shareholders, making certain that compensation is linked to performance,
and ensuring that executive compensation is competitive within the source markets for Interpublic’s talent are our objectives and the
cornerstones of our methodology. We believe that Interpublic’s 2004 executive compensation program met these objectives.
Respectfully submitted,
Reginald K. Brack, Chair
H. John Geeniaus
J. Phillip Samper
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Compensation Committee Interlocks and Insider Participation
None of the Committee members were officers or employees of Interpublic or any of our subsidiaries or had any relationship
requiring disclosure by us under Item 404 of the SEC’s Regulation S-K during or prior to 2004.
Item 11.
Executive Compensation
Compensation of Executive Officers
The following table sets forth information concerning the compensation paid by us and our subsidiaries to (i) Mr. Bell, who served
as the Chief Executive Officer during 2004, (ii) each of our four most highly compensated executive officers, other than our CEO
(based on aggregate salary and bonus in 2004), who were serving as executive officers on December 31, 2004 and (iii) Michael I.
Roth, who became Chairman of the Board and Chief Executive Officer, effective January 19, 2005 (the “named executive officers”).
In each instance, the compensation shown is for services rendered in all capacities for the three-year period ended on December 31,
2004. As used in this Annual Report, our executive officers include any director who served as the chief executive officer of
McCann-Erickson WorldGroup, a significant operating unit.
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Name and Principal
Fiscal
Position
David A. Bell(1)
President and Chief
Executive Officer, Director
of Interpublic
Michael I. Roth(1)
Executive Chairman,
Director of Interpublic
Christopher J. Coughlin(1)
Executive Vice President,
Chief Operating Officer,
Chief Financial Officer and
Director
Nicholas Cyprus
Senior Vice President,
Chief Accounting Officer
John J. Dooner, Jr.(1)
Chairman and CEO of
McCann-Erickson
WorldGroup, Director of
Interpublic
Stephen J. Gatfield
Executive Vice President,
Global Operations and
Innovation
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary(2)(3)
Year
2004 $ 1,000,000
2003 $ 1,000,000
$ 1,000,000
2002
2004 $
2003
2002
2004 $
2003 $
2002
446,212
—
—
800,000
433,333
—
Other
Annual
Compensation(5)
Bonus(4)
— $
$1,300,000 $
—
66,381
75,658
—
—
—
—
—
$900,000
—
272,727
2004 $
—
2003
2002
—
2004 $ 1,250,000
2003 $ 1,250,000
$ 1,250,000
2002
$2,005,000
—
—
$1,000,000 $
$750,000 $
$
—
2004 $
2003
2002
605,303
—
—
$1,327,500 $
—
—
Long Term Compensation
Awards
Payouts
Securities
Restricted Stock
Underlying
LTIP
Awards(6)
Options(7)
Payouts(8)
All Other
Compen-
sation(9)
$
$
$
$
$
$
$
$
1,750,000
—
294,750
1,049,996
—
—
750,000
—
—
1,249,997
—
—
375,000
—
2,947,500
317,400
—
—
248,933
200,000
55,000
161,974
—
—
106,685
200,000
—
118,797
—
—
53,342
176,709
375,000
30,000
—
—
—
—
—
—
—
—
—
—
—
$
$
9,565
13,745
$ 212,472
$ 100,129
—
—
6,679
3,120
—
$
$
—
—
—
—
—
2,480,000
—
—
—
$
$
$
$
$
83,026
—
—
78,020
82,904
9,927
255
—
—
—
—
—
—
—
—
—
—
—
97,683
73,029
80,046
56,183
—
—
(1) On January 19, 2005, Michael Roth succeeded David Bell as Chief Executive Officer.
On January 19, 2005, Mr. Bell was appointed co-Chairman.
Mr. Roth became Executive Chairman on July 13, 2004 and his compensation is reported from and after that date.
On May 24, 2004, Mr. Cyprus was hired as Senior Vice President, Controller and Chief Accounting Officer and his compensation
is reported from and after that date.
On June 16, 2003, Mr. Coughlin was hired as Executive Vice President, Chief Financial Officer and Chief Operating Officer and
his compensation is reported from and after that date.
On April 1, 2004, Mr. Gatfield was hired as Executive Vice President, Global Operations and Innovation and his compensation is
reported from and after that date.
(2) The salaries of executive officers continuing to serve in the same position are generally reviewed every two years.
(3) Does not include annual salary in the amount of $150,000 that Mr. Bell has elected to forgo in 2004 in consideration for the
receipt of a Special Deferred Benefit Agreement which is more fully described in Item 11. “Executive Compensation — Special
Deferred Benefit Agreements” of this Annual Report.
Does not include annual salary in the amount of $100,000 that Mr. Coughlin has elected to forgo in 2004 in consideration for the
receipt of a Special Deferred Benefit Agreement which is more fully described in Item 11. “Executive Compensation — Special
Deferred Benefit Agreements” of this Annual Report.
Does not include annual salary in the amount of $112,500 that Mr. Bell has elected to forgo in 2003 in consideration for the
receipt of a Special Deferred Benefit Agreement which is more fully described in Item 11. Executive Compensation — Special
Deferred Benefit Agreements of this Annual Report.
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Does not include annual salary in the amount of $54,167 that Mr. Coughlin has elected to forgo in 2003 in consideration for
receipt of a Special Deferred Benefit Agreement which is more fully described in Item 11. Executive Compensation — Special
Deferred Benefit Agreements of this Annual Report.
(4) The bonus shown for Mr. Cyprus in 2004 includes a cash sign-on bonus of $1,830,000 that we paid to him shortly after he was
hired. Fifty percent of the bonus shown for Mr. Dooner was paid in April 2005 and the balance will be paid when the
2004 year-end financial statements for McCann-Erickson WorldGroup have been reported in final form and assessed. The bonus
shown for Mr. Gatfield in 2004 includes a cash sign-on bonus of $750,000 that we paid to him shortly after he was hired. The
bonus shown for Mr. Bell in 2003 includes a cash sign-on bonus of $100,000 that was paid to him shortly after he assumed the
position of Chairman, CEO and President. The bonus in 2003 for Mr. Coughlin includes a sign-on bonus consisting of
unrestricted shares of Interpublic Common Stock with a fair market value of $400,000 on June 16, 2003, his date of hire.
In accordance with SEC rules, information is shown in this column only if as to any named executive officer the aggregate value
of perquisites and other personal benefits received during the year exceeds the lesser of (i) $50,000 and (ii) 10% of the named
executive officer’s total salary and bonus for that year. SEC rules further require that if the value of perquisites and other
personal benefits are required to be reported for any year, the type and amount of any perquisite or other personal benefit that
exceeds 25% of total perquisites and other personal benefits must be described.
(5)
Other Annual Compensation for 2004 includes $31,278 in premiums for medical/dental coverage paid on behalf of Mr. Bell;
$31,278 in premiums for medical/dental coverage paid on behalf of Mr. Dooner; and $25,000 in club dues and $22,156 in
premiums for medical/dental coverage paid on behalf of Mr. Gatfield.
Other Annual Compensation for 2003 includes $28,755 in premiums for medical/dental coverage and $26,885 in respect of club
dues paid on behalf of Mr. Bell (including a one-time club initiation fee); and $28,755 in premiums for medical/dental coverage
and $19,108 in club dues paid on behalf of Mr. Dooner.
Other Annual Compensation for 2002 includes $28,272 in premiums for medical/dental coverage and $22,887 of club dues paid
on behalf of Mr. Dooner.
(6) The aggregate number and value of shares of restricted stock held by the named executive officers at December 31, 2004 (based
on the closing price of the Common Stock on December 31, 2004) are as follows: Mr. Bell — 209,466 shares ($2,806,844);
Mr. Roth — 87,187 shares ($1,168,305); Mr. Coughlin — 53,342 shares ($714,783); Mr. Cyprus — 87,351 ($1,170,503);
Mr. Dooner — 476,671 shares ($6,387,391); Mr. Gatfield — 20,000 ($268,000). Mr. Bell and Mr. Dooner have announced
publicly that they will not sell any of their shares of restricted stock when the transfer restrictions are released until the shares of
our Common Stock reach a price of $20.00 per share.
The shares of restricted stock shown in the table as awarded to each named executive officer generally have at least a three-year
vesting period, subject to the discretion of the Compensation Committee to release the restrictions not earlier than one year after
the grant date, except for the following grants:
Mr. Cyprus received an award of 69,881 shares of restricted stock on May 24, 2004, 23,060 shares of which vested on May 24,
2005 and another 23,060 shares of which will vest on May 24, 2006. The balance will vest on May 24, 2007.
Mr. Gatfield received an award of 20,000 shares of restricted stock on April 15, 2004, all of which shares of which vested on
April 15, 2005.
Dividends on restricted stock are paid on the same basis as ordinary dividends on the Common Stock. No ordinary dividends were
paid on the Common Stock during 2004.
(7) During 2003, Mr. Bell voluntarily agreed to the cancellation of 131,100 of the 256,100 shares of our Common Stock underlying
stock options that he received in 2001. He relinquished these option
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Table of Contents
awards with the express intent of permitting the underlying shares to be issued to our other employees under the 2002
Performance Incentive Plan.
During 2003, Mr. Dooner voluntarily cancelled option awards with respect to 248,000 shares and 252,000 shares of Common
Stock that were granted to him on March 24, 2000 and December 15, 2000, respectively. These awards are not required to be
reported in this annual report but were reported in previous years. Mr. Dooner relinquished these grants with the express intent of
permitting the underlying shares to be issued to employees of one of our subsidiaries under the 2002 Performance Incentive Plan.
In addition to Messrs. Dooner and Bell, several executives of our subsidiaries also voluntarily cancelled options with the express
intent of permitting the underlying shares to be issued to our other employees under the 2002 Performance Incentive Plan. Options
to purchase a total of 1,350,348 shares were cancelled (including those awards described above for Messrs. Bell and Dooner).
(8) Payouts under the Long-Term Performance Incentive Plan (“LTPIP”) prior to 2002 were made at the end of four-year
performance periods. In 2002, the original 1999-2002 performance period was shortened to three years in order to institute a new
performance plan. Payouts received in 2002 were calculated based on the value of the 1999-2001 performance period at the end
of 2001 after giving effect to our restructuring costs taken in 2001.
(9) All Other Compensation for 2004 consisted of: (i) the following amounts paid to the named executive officers: matching
contributions under the Interpublic Savings Plan — Mr. Bell — $9,225; Mr. Coughlin — $6,150; Mr. Cyprus — $2,750; and
Mr. Dooner — $9,225; (ii) premiums paid on group life insurance — Mr. Bell — $5,465; Mr. Roth — $129; Mr. Coughlin —
$529; Mr. Cyprus — $276; Mr. Dooner — $1,032; and Mr. Gatfield — $255; (iii) supplemental compensation plan payout —
Mr. Dooner — $17,763; (iv) annual contributions paid under the Interpublic Capital Accumulation Plan — Mr. Roth —
$100,000; and Mr. Cyprus — $80,000 and (v) premiums paid by Interpublic on a life insurance policy for Mr. Dooner —
$50,000.
The following table provides information on grants of stock options in 2004 to the named executive officers and the estimated
grant date present value of the options.
Stock Option Grants In 2004
Number of
Securities
Underlying
Options
Granted(1)
248,933(2)
161,974(3)
106,685(4)
118,797(5)
53,342(6)
30,000(7)
Individual Grants
% of Total
Options
Granted to
Employees
in Fiscal Year
11.31%
7.36%
4.85%
5.40%
2.42%
1.36%
Exercise
Price
($/Sh)
$
$
$
$
$
$
14.06
12.96
14.06
14.31
14.06
15.87
Grant Date
Expiration
Present Value
Date
05/18/14
07/16/14
05/18/14
05/24/14
05/18/14
04/15/14
$
$
$
$
$
$
($)(8)
1,720,127
1,015,577
737,193
835,143
368,593
230,100
Name
David A. Bell
Michael I. Roth
Christopher J. Coughlin
Nicholas Cyprus
John J. Dooner, Jr.
Stephen J. Gatfield
(1) All options have a ten-year term and have an exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant.
(2) Mr. Bell was granted a stock option award covering 248,933 shares of Common Stock on May 18, 2004. The option becomes
exercisable as to (i) 82,147 shares of Common Stock on May 18, 2006, (ii) 82,147 shares of Common Stock on May 18, 2007
and (iii) 84,639 shares of Common Stock on May 18, 2008.
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(3) Mr. Roth was granted a stock option award covering 161,974 shares of Common Stock on June 16, 2004. The option becomes
exercisable as to (i) 53,451 shares of Common Stock on July 16, 2006, (ii) 53,451 shares of Common Stock on July 16, 2007 and
(iii) 55,072 shares of Common Stock on July 16, 2008.
(4) Mr. Coughlin was granted a stock option award covering 106,685 shares of Common Stock on May 18, 2004. The option
becomes exercisable as to (i) 35,206 shares of Common Stock on May 18, 2006, (ii) 35,206 shares of Common Stock on
May 18, 2007, and (iii) 36,273 shares of Common Stock on May 18, 2008.
(5) Mr. Cyprus was granted a stock option award covering 83,857 shares of Common Stock on May 24, 2004. The option becomes
exercisable as to (i) 27,672 shares of Common Stock on May 24, 2005, (ii) 27,672 shares of Common Stock on May 24, 2006,
and (iii) 28,513 shares of Common Stock on May 24, 2007. Mr. Cyprus received another stock option award covering
34,940 shares of Common Stock on May 24, 2004. The option becomes exercisable as to (i) 11,530 shares of Common Stock on
May 24, 2006, (ii) 11,530 shares of Common Stock on May 24, 2007, and (iii) 11,880 shares of Common Stock on May 24,
2008.
(6) Mr. Dooner was granted a stock option award covering 53,342 shares of Common Stock on May 18, 2004. The option becomes
exercisable as to (i) 17,602 shares of Common Stock on May 18, 2006, (ii) 17,602 shares of Common Stock on May 18, 2007
and (iii) 18,138 shares of Common Stock on May 18, 2008.
(7) Mr. Gatfield was granted a stock option award covering 30,000 shares of Common Stock on April 15, 2004. The option becomes
exercisable as to (i) 9,900 shares of Common Stock on April 15, 2006, (ii) 9,900 shares of Common Stock on April 15, 2007,
and (iii) 10,200 shares of Common Stock on April 15, 2008.
(8) The grant date present value of each of the stock option awards to the named executive officers is calculated using the Black
Scholes Option Pricing Model and assumes the options are held for six years. The option awarded to Mr. Gatfield on April 15,
2004 includes the following assumptions: volatility of 44.58%, dividend yield of 0% and risk-free rate of return of 3.89%. The
options awarded to the named executive officers on May 18, 2004 include the following assumptions: volatility of 44.68%,
dividend yield of 0% and risk-free rate of return of 4.32%. The options awarded to Mr. Cyprus on May 24, 2004 includes the
following assumptions: volatility of 44.68%, dividend yield of 0% and risk-free rate of return of 4.31%. The option awarded to
Mr. Roth on July 16, 2004 includes the following assumptions: volatility of 44.52%, dividend yield of 0% and risk-free rate of
return of 3.93%.
Aggregated Option Exercises in 2004 and Fiscal Year-End Option Values
The following table provides information on stock option exercises and the number and the year-end value of options held by the
named executive officers.
Name
David A. Bell
Michael I. Roth
Christopher J. Coughlin
Nicholas Cyprus
John J. Dooner, Jr.
Stephen J. Gatfield
Shares Acquired
on Exercise (#)
None
None
None
None
None
None
Value
Realized
($)
0
0
0
0
0
0
Number of Shares of
Common Stock Underlying
Unexercised Options At
December 31, 2004 (#)
Value of Unexercised
In-the-Money Options at
December 31, 2004 ($)(1)
Exercisable
Unexercisable
Exercisable
Unexercisable
218,078
0
50,000
0
668,840
0
570,683
165,974
0
118,797
719,451
30,000
0
0
0
0
448,214
0
752,000
70,459
0
0
664,426
0
(1) Calculated based on the closing price of $13.400 for the Common Stock on December 31, 2004.
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Table of Contents
Employment Contracts and Termination of Employment and Change in Control Arrangements
Employment Agreements
Each of the following named executive officers has an employment agreement with us. Each employment agreement includes
provisions describing the named executive officer’s position and responsibilities, his salary and eligibility for incentive compensation.
Each agreement also includes covenants pursuant to which the named executive officer agrees not to divulge our confidential
information and agrees for a period of time after termination of employment to refrain from soliciting our employees and from
soliciting or handling the business of our clients. The termination date of the respective employment agreements and the current salary
of each of the named executive officers are set forth below:
Name
David A. Bell
Michael I. Roth
Christopher J. Coughlin
Nicholas Cyprus
John J. Dooner, Jr.
Stephen J. Gatfield
Salary
$1,000,000
1,100,000
800,000
483,400
1,250,000
850,000
Termination Date
None*
None*
**
None*
None*
None*
* The executive’s employment has no termination date. We may terminate the executive’s employment in the manner described in
the summary of the executive’s employment agreement below.
** Mr. Coughlin’s Employment Agreement has been terminated. See Item 11. Executive Compensation — Employment Contracts
Termination of Employment and Change-In-Control Arrangements-Termination and Change In Control Agreements-Christopher
Coughlin Separation Agreement.
David Bell Employment Agreement
Effective January 18, 2005, David Bell became our Co-Chairman and entered into an employment agreement us, replacing both
his previous agreement with us and his employment agreement with True North Communications, Inc. (“True North”) to which we
became a party when we acquired True North in June of 2001. The agreement provides that in addition to his annual salary in the
amount indicated above, Mr. Bell will be eligible for an target annual bonus under the Annual Management Incentive Plan equal to
133% of his base salary, with the actual award between 0% and 200% of the target depending on our performance, his individual
performance, and management discretion. The agreement also provides that we are obligated to purchase an annuity on his behalf in
the amount of $2 million, with the terms and conditions of payment of the annuity to be agreed upon between us and Mr. Bell, a car
and driver and a garage space in New York City.
Under the agreement (i) we may terminate Mr. Bell’s employment with or without “cause” (as that term is defined in the
agreement) and (ii) at any time after January 18, 2006, Mr. Bell may voluntarily terminate his employment upon providing the
requisite notice to us. In the event we terminate Mr. Bell’s employment without “cause,” he would continue to receive payment of his
base salary for a period of 12 months and all employee benefits accorded to him prior to the termination of his employment, as well as
suitable office space, the services of an assistant and a car and driver. In the event we terminate Mr. Bell’s employment without
“cause” or through a voluntary termination, the agreement provides that (a) Mr. Bell shall become a consultant to us for a period of
five years (the “Consulting Period”), subject to our right to terminate the consulting arrangement for “cause,” and (b) stock options
grants and restricted stock awards previously awarded to Mr. Bell will fully vest on the date of the termination of Mr. Bell’s
employment. During the Consulting Period, Mr. Bell is required to make himself available, upon reasonable notice, to provide
services that are commensurate with his years of experience and level of skill for no more than the equivalent of ten full business days
per quarter. As compensation for his consulting services, Mr. Bell will receive an annual consulting fee of $750,000. Upon termination
for
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“cause,” Mr. Bell would be entitled to received his salary through the date of termination, but no other benefits under the agreement.
Michael Roth Employment Agreement
On July 13, 2004, in connection with becoming our Executive Chairman, Mr. Roth entered into an employment agreement, which
provided for (i) an annual salary of $950,000, (ii) a target annual bonus under the Annual Management Incentive Plan equal to 133%
of his base salary, with the actual award between 0% and 150% of the target depending on our profits, his individual performance, and
management discretion, (iii) a grant of restricted stock having an aggregate market value of $1,050,000 on the date of grant vesting on
the third anniversary of the grant date, and (iv) a grant of options to purchase shares of our Common Stock having an aggregate
market value of $1,050,000 on the grant date vesting in equal annual amounts on the second, third and fourth anniversaries of the
grant date.
Mr. Roth’s agreement also provides that, commencing in 2005, he shall participate in our performance based long-term incentive
programs with a total expected annual target award value of $2,100,000 provided in a manner consistent with those provided to other
executives and may comprise stock options, restricted stock, performance-based restricted stock or another form of incentive at the
discretion of the Compensation Committee, with awards subject to performance and vesting terms and conditions consistent with
those generally required of the executive team. In addition, the agreement provides that Mr. Roth is entitled to (i) participate in our
Capital Accumulation Plan, with an annual contribution of $100,000, (ii) an automobile allowance of $10,000, (iii) a club allowance
of $20,000, (iv) a financial planning allowance of $2,500, and (v) participate in such other employee benefits and programs as are
available from time to time to other key management executives generally.
After Mr. Roth, effective January 19, 2005, became our Chief Executive Officer in addition to the Chairman, we entered into a
supplement to his employment agreement increasing his base salary to $1,100,000 and granting him (i) options to
purchase 450,000 shares of our Common Stock vesting in three equal installments on the second, third and fourth anniversaries of the
date of grant, and (ii) 450,000 shares of restricted stock, of which 150,000 shares will vest on the second anniversary of the grant date,
subject to our achieving specified performance goals over such two year period, and 300,000 shares will vest on the fifth anniversary
of the grant date, subject to our achieving specified performance goals over such five year period.
If we terminate Mr. Roth’s employment without “cause” (as defined in the agreement), he is entitled to receive a severance
payment equal to the amount by which his annual salary rate exceeds the salary paid to him over the period beginning on the date such
notice is given and ending on the employment termination date (the “Severance Period”). During the Severance Period, Mr. Roth will
be entitled to receive all employee benefits accorded him prior to termination which are made available to employees generally until
he accepts employment with another employer offering similar benefits. Mr. Roth may terminate his employment at any time by
giving us notice at least three months in advance.
Nicholas Cyprus Employment Agreement
On May 24, 2004, we entered into an employment agreement with Mr. Cyprus. The agreement provides that in addition to his
annual salary in the amount indicated above, Mr. Cyprus will be eligible for a target annual bonus under the Annual Management
Incentive Plan equal to at least 50% of his base salary, with a guaranteed minimum award for 2004 equal to 75% of the target award
(without pro-ration) and with the actual award in future years dependent on the achievement of established performance criteria.
Under the agreement, Mr. Cyrus received a cash sign-on bonus of $1,830,000, but which is subject to forfeiture if within two years
either (i) Mr. Cyprus terminates his employment other than for “good reason” (as defined by the agreement) or (ii) we terminate his
employment for “cause” (as defined by the agreement). In addition, the agreement provides that Mr. Cyprus is entitled to
(i) participate in our Capital Accumulation Plan, with an annual contribution by us of $80,000, (ii) a perquisite allowance of $45,000,
(iii) in the event we terminate his employment, other than for “cause”, post-termination
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Table of Contents
personal and family medical coverage to age 65 at a level comparable with the coverage being provided by us to active employees,
and (iv) participate in such other employee benefits and programs as are available from time to time to other key management
executives generally.
The agreement also provides for (i) a long-term incentive grant of restricted stock having an aggregate market value of $1,000,000
on the date of grant vesting in three equal annual amounts on the first, second and third anniversaries of the grant date, (ii) a long-term
incentive grant of options to purchase shares of our Common Stock having an aggregate Black-Scholes value of $600,000 on the date
of grant, vesting in three equal annual amounts on the first, second and third anniversaries of the grant date, (iii) a long-term incentive
grant of restricted stock having an aggregate market value of $250,000 vesting on the third anniversary date of the grant date, and
(iv) a grant of options to purchase shares of our Common Stock having an aggregate Black-Scholes value of $250,000 vesting in equal
annual amounts on the second, third and fourth anniversaries of the grant date.
If we terminate Mr. Cyprus’ employment without “cause” (as defined in the agreement) or Mr. Cyprus terminates his employment
for “good reason” (as defined by the agreement), (i) he will be entitled to the continued payment of his base salary for a period of
24 months if his employment is terminated on of before May 24, 2006, or for a period of 12 months if his employment is terminated
thereafter (the “severance period”), and during the severance period, the payment of bonuses that become payable during the
severance period and, unless he commences employment with another employer offering similar benefits, the continued receipt of all
employee benefits accorded him prior to termination and (ii) the $1,000,000 restricted stock and the $600,000 stock option grants
referred to above will become non-forfeitable. Mr. Cyprus may terminate his employment at any time by giving us notice at least
45 days in advance.
John Dooner Employment Agreement
On January 1, 1994, we entered into an employment agreement with Mr. Dooner dated January 1, 1994. On April 1, 2000, we
entered into a supplement to Mr. Dooner’s agreement increasing his base salary to $1,250,000. On November 7, 2002, we entered into
a supplemental agreement with Mr. Dooner which provides for us to obtain a 10 year $10,000,000 term life insurance policy for
Mr. Dooner and to pay the annual premiums of such policy, which shall be taxable income to Mr. Dooner.
If we terminate Mr. Dooner’s employment, other than for violating certain covenants contained in the agreement, (i) he will be
entitled to the continued payment of his base salary for a period of 12 months. Mr. Dooner may terminate his employment at any time
by giving us notice at least twelve months in advance.
Stephen Gatfield Employment Agreement
On February 2, 2004, we entered into an employment agreement with Mr. Gatfield, which provided for the commencement of his
employment to begin on April 1, 2004 (the “Commencement Date”). The agreement provides that in addition to his annual salary in
the amount indicated above, Mr. Gatfield will be eligible for a target annual bonus under the Annual Management Incentive Plan
equal to 100% of his base salary, with a guaranteed minimum award for 2004 equal to 50% of his base salary and with the actual
award in future years up to a maximum of 150% of base salary depending on our profits, his individual performance, and management
discretion. Under the agreement, Mr. Gatfield received a cash sign-on bonus of $750,000. In addition, the agreement provides that
Mr. Gatfield is entitled to (i) an automobile allowance of $10,000, (ii) a club allowance of $25,000, (iii) a financial planning allowance
of $2,500, and (iv) participate in such other employee benefits and programs as are available from time to time to other key
management executives generally.
The agreement also provides for (i) a grant of 20,000 shares of restricted stock vesting on the first anniversary of the grant date and
(ii) a grant of options to purchase 30,000 shares of our Common Stock, vesting in equal annual amounts on the second, third and
fourth anniversaries of the grant date. We may terminate Mr. Gatfield’s employment without “cause” (as defined in the agreement)
after the second
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Table of Contents
anniversary of the Commencement Date and Mr. Gatfield may terminate his employment for “good reason” (as defined by the
agreement), which, under either event, he is entitled to the continued payment of his base salary for a period of 12 months (the
“severance period”), and during the severance period, the payment of bonuses that become payable during the severance period and,
unless he commences employment with another employer offering similar benefits, the continued receipt of all employee benefits
accorded him prior to termination. During the severance period, (i) Mr. Gatfield will be entitled to the payment of any bonuses that
become payable during the severance period and, unless he commences employment with another employer offering similar benefits,
the continued receipt of all employee benefits accorded him prior to termination and (ii) the restricted stock and stock option grants
referred to above will continue to vest. Mr. Gatfield may terminate his employment at any time by giving us notice at least 45 days in
advance.
Deferred Benefit Arrangements
Bell Deferred Compensation Arrangement
Mr. Bell is a participant in the True North Communications Inc. Deferred Compensation Plan, which provides that if he dies while
he is employed by us, his beneficiaries will receive $60,000 annually for 15 years. In addition, upon Mr. Bell’s retirement at any age
or the termination of his employment we will pay him (or in the event of his death, his beneficiaries) $60,000 per year for 15 years.
Special Deferred Benefit Agreements
Each of the following named executive officers have entered into special deferred benefit agreements with us as described below.
In 2003, we entered into an agreement with Mr. Bell which provides that if he dies while he is employed by us $232,500 per year
will be paid to his beneficiaries for 15 years following his death. In addition, if he retires, resigns or is no longer our employee (other
than by reason of his death) on or after his 68th birthday, but before his 69th birthday, he will receive payments of $204,600 per year
for a period of 15 years, and if he retires, resigns or is no longer our employee (other than by reason of his death) on or after his
69th birthday, he will receive payments of $232,500 per year for a period of 15 years. If he ceases to be employed by us prior to his
68th birthday for any reason other than his death, he will receive a lump sum payment of $150,000 for each full year (and a pro rata
portion for each partial year) that he was our employee beginning from the date he entered into the agreement.
After Mr. Bell’s employment terminates, if he were to die before all applicable payments were made under the agreement, we
would make the remaining payments to his beneficiaries.
Mr. Dooner is a party to three agreements which in the aggregate provide that if he dies while he is employed by us $2,186,000 per
year will be paid to his beneficiaries for 15 years following his death. In addition, if Mr. Dooner’s employment is terminated due to
him becoming disabled $2,186,000 per year will be paid to him for 15 years following such termination. Alternatively, if he retires,
resigns or is otherwise no longer our employee (other than by reason of his death) he will receive payments for 15 years ranging from
$930,200 to $2,186,000 per year, depending upon the year his employment terminates. Mr. Dooner is a party to a fourth agreement
that provides that if he dies while he is employed by us, $240,000 per year will be paid to his beneficiaries for 15 years following his
death. Alternatively, if he retires, resigns or is otherwise no longer our employee (other than by reason of his death) on or after his
56th birthday he will receive payments for 15 years ranging from $153,600 to $240,000 per year, depending upon the year his
employment terminates. In the event Mr. Dooner’s employment terminates prior to his 56th birthday (other than by reason of death),
he will be paid lesser sums but not less than an aggregate of $700,000. We have also entered into an agreement with Mr. Dooner
which provides that (i) if he dies while he is employed by us, his beneficiaries will receive $88,500 annually for 15 years, (ii) if his
employment is terminated due to him becoming disabled, $88,500 per year will be paid to him for 15 years following such termination
or (iii) upon his retirement he will receive retirement benefits at the rate of $88,500 per year for 15 years.
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After Mr. Dooner’s employment terminates, if he were to die before all applicable payments were made under these agreements,
we would make the remaining payments to his beneficiaries.
Mr. Coughlin is a party to an agreement with us that provides if he dies while employed by us, his beneficiaries will be paid
$200,000 per year for 15 years. If he retires from employment with us on or after his 60th birthday, we will make payments to him for
15 years of $200,000 per year, and if he retires, resigns or his employment is terminated on or after his 59th birthday but prior to his
60th birthday, he will receive payments for 15 years of $176,000 per year. If he ceased to be our employee (other than by reason of
death) prior to his 59th birthday, he will receive lesser sums but not less than $75,000. If his employment is terminated prior to
June 16, 2005 (other than for cause or voluntary resignation), then in addition to any other payments to which he would be entitled
under the agreement he would receive an annuity payment of $50,000 per year for 15 years commencing on his 60th birthday.
Mr. Coughlin’s employment was terminated on December 31, 2004. In accordance with the terms of his agreement with us
described in the previous paragraph, Mr. Coughlin will receive $168,548 to be paid in 21 equal monthly installments.
Termination and Change in Control Agreements
Christopher Coughlin Separation Agreement
Effective December 31, 2004, Mr. Coughlin resigned from all positions that he held with us. In connection with his resignation,
we entered into a Confidential Separation Agreement and General Release with Mr. Coughlin (the “Separation Agreement”).
The Separation Agreement provided that Mr. Coughlin would remain eligible for his annual bonus under the Interpublic Annual
Management Incentive Plan and to defer amounts under his Special Deferred Benefit Agreement described above under the heading
Deferred Benefit Arrangements - Special Deferred Benefit Agreements.
In addition, the Separation Agreement accelerated the vesting of 50,000 stock options (25% of the 200,000 stock options granted
to Mr. Coughlin upon the commencement of his employment) and allowed the accelerated options to remain exercisable for a 90-day
period following December 31, 2004. The balance of his options was forfeited.
Executive Severance Agreements
We have entered into an agreement with each of the named executive officers, other than Mr. Bell, pursuant to which a cash
severance payment would become payable to the executive individual if, within two years after a “change of control,” (i) we terminate
the executive’s employment other than for “cause” or (ii) the executive resigns for “good reason.”
The agreements provide that a “change of control” occurs if: (a) any person, other than Interpublic or any of its subsidiaries,
becomes the beneficial owner (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of 30% or
more of the combined voting power of our then outstanding voting securities; (b) the stockholders approve an agreement to merge or
consolidate with another corporation (other than one of our subsidiaries) or an agreement to sell or dispose of all or substantially all of
our the business or assets; or (c) during any period of two consecutive years, individuals who, at the beginning of such period,
constituted the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election or the nomination
for election by our stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
Under the agreements, we shall have “cause” to terminate an executive, following a “change of control”, if the executive:
(a) engages in conduct that constitutes a felony and that results in the personal enrichment of the executive at our expense; (b) refuses
to substantially perform his responsibilities for us; or (c) deliberately and materially breaches any agreement between himself and us
and fails to remedy that
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breach within a 30-day cure period. An executive may resign for “good reason” following a “change in control” if, without his
consent, in any circumstance other than his disability, his office in Interpublic or the geographical area of his employment should be
changed or his compensation should not continue to be paid and increased on the same basis as had been in effect prior to the “change
of control” or the individual should determine in good faith that we had, without his consent, effected a significant change in his status
within, or the nature or scope of his duties or responsibilities with, us and we failed to cure such situation within 30 days after written
notice from the individual.
The severance payment to which an executive, other than Messrs. Cyprus and Gatfield, would be entitled is equal to three times
the individual’s average annual compensation during the two calendar years ended prior to the date of a “change of control”.
Messrs. Cyprus and Gatfield are entitled to receive two times such executive’s average annual compensation. In addition, each
executive is entitled to receive a partial annual bonus based on the most recent bonus paid to such executive within the two years
preceding the year such executive is terminated prorated for the elapsed portion of the year in which employment terminated. In
general, if no bonus was paid to an executive in such prior years, such executive would be entitled to a pro rata bonus based on the
greater of the last bonus actually awarded to such executive and the target bonus award established for such executive. The average
compensation used in calculating the severance payment would be the executive’s taxable compensation plus any deferred
compensation accrued during the two relevant years, but would not include any deferred compensation earned in prior years but paid
during the two years and would not include any taxable compensation relating to any of our stock option or restricted stock plans.
Each agreement also provides that if the executive’s employment terminates in circumstances entitling him to a severance
payment, he will, for a period of 18 months following the termination of his employment, neither (a) solicit any of our employees to
leave such employ to enter into the employ of the individual, or any person or entity with which the individual is associated, nor
(b) solicit or handle, on his own behalf or on behalf of any person or entity with which he is associated, the advertising, public
relations, sales promotion or market research business of any advertiser which was a client of ours on the date the individual’s
employment terminates.
The agreements give the executive an option to limit payment under the agreements to such sum as would avoid subjecting the
individual to the excise tax imposed by Section 4999 of the Internal Revenue Code.
Also under the severance agreements, sums previously deferred by the executive pursuant to employment agreements and under
the Management Incentive Compensation Plans and amounts payable under Special Deferred Benefit Agreements would become
payable within 30 days following a “change of control” if the individual has elected to receive the distribution prior to the “change of
control.”
In accordance with the terms of the Separation Agreement between us and Mr. Coughlin, Mr. Coughlin’s Executive Severance
Agreement was terminated, effective December 31, 2004.
The Interpublic Senior Executive Retirement Income Plan
Effective as of August 1, 2003, we established a Senior Executive Retirement Income Plan (“SERIP”) to provide our US-based
senior executives with certain retirement benefits. This new plan is intended to replace our prior program of providing Special
Deferred Benefit Agreements to key executives selected by the Compensation Committee. In general, under the SERIP, we will
provide an eligible participant with a monthly payment for 15 years beginning upon the termination of the executive’s employment at
age of 60 and after any non-competition and non-solicitation agreements of the executive have expired. However, a participant who is
at least age 55 and who has completed at least five years of participation in the SERIP may elect to receive a reduced benefit. Each
participant must execute a Participation Agreement that provides for the amount of the annual benefit to be paid. Generally, at the end
of three years of participation in the SERIP, 30% of the annual benefit is vested, with the vested portion increasing by 10% for the
next seven years. However, if the executive breaches a non-competition or non-solicitation agreement, the executive’s entire vested
benefit is subject to forfeiture. Any participant
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who is a party to a Special Deferred Benefit Agreement at the time the participant begins to participate in the SERIP is deemed to have
participated in the SERIP for up to three years. Any portion of a participant’s benefit that is not vested will be forfeited upon
termination of employment.
An executive who becomes disabled will continue to participate fully in the SERIP until the executive’s employment terminates. If
an executive dies before his benefit is fully vested, the participant’s will be entitled to only the vested portion of the benefit.
Of the named executive officers, only Mr. Gatfield participates in the SERIP. Under his Participation Agreement, Mr. Gatfield will
be entitled to receive an annual payment of $200,000 per year. This benefit will become fully vest on April 14, 2014.
The Interpublic Capital Accumulation Plan
Effective as of August 1, 2003, we established a Capital Accumulation Plan (“CAP”) to provide deferred compensation to our
senior management employees selected by the Management Human Resources Committee (the “Committee”). This new plan is
intended to replace our prior program of providing Special Deferred Benefit Agreements to key executives. Under the plan, a
participant receives an annual credit of a specified dollar amount on December 31 of each year that the participant continues to be
employed by us. The credited amount accrues interest each year at an applicable interest rate which can be adjusted upward or
downward at the discretion of the Committee. This account balance becomes fully vested as to both prior and future dollar and interest
credits when the executive has completed three years of participation in the CAP, except that all interest credits are subject to
forfeiture if the executive breaches a non-competition or non-solicitation agreement. Any portion of a participant’s benefit that is not
vested will be forfeited upon termination of employment.
The vested account balance will be distributed following termination of employment with us and the expiration of any
non-competition and non-solicitation agreements of the executive at such time as the executive shall elect. Unless otherwise specified
by the participant, the vested account balance will be paid by us in a lump sum payment. Alternatively, a participant whose
employment terminates after age 55 and who has completed at least five years of participation in the CAP may elect a distribution in
monthly installment over a period of between 10 and 15 years. Each participant must execute a Participation Agreement that specifies
for the amount of the annual credit. An executive who becomes disabled will continue to participate fully in the CAP until the
executive’s employment terminates. An executive who dies before his account balance is vested will forfeit the entire account balance.
Of the named executive officers, only Messrs. Cyprus and Roth participate in the CAP. Under Mr. Cyprus’ Participation
Agreement, he is entitled to an annual credit of $80,000 and his account balance will fully vest on May 15, 2007. Under Mr. Roth’s
Participation Agreement, he is entitled to an annual credit of $100,000 and his account balance will fully vest on May 15, 2007.
During 2004, interest was credited at the rate of 4.25%.
Retirement Plan
As of January 1, 1992, we adopted the Interpublic Retirement Account Plan to provide benefits under a “cash balance formula” to
most of our employees who have at least five years of service. Each year a participant’s account balance is credited with an amount
equal to a percentage of the participant’s annual compensation and interest credits. The percentage of annual compensation varies
based on the sum of the participant’s age and years of service from 1.5% for participants with a sum less than 40 years to 5% for
participants with a sum of 80 or more years. Interest credits are based on the 1-year US Treasury bill rate plus 1 percentage point,
compounded quarterly, and are guaranteed to be at least 5% per year, compounded quarterly.
Until July 31, 1987, most of our employees were entitled in general to receive at retirement a monthly retirement benefit pursuant
to a defined benefit pension formula computed as a percentage of average monthly compensation during the five consecutive calendar
years with highest compensation with certain
228
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exclusions. The percentage of average monthly compensation used to calculate the monthly benefit was determined by multiplying the
number of years of accredited service (which is defined in the Plan as the period of participation in the Plan) by 1.3%.
Beginning July 31, 1987, the method of calculating the pension benefit was changed to a career average formula based on annual
compensation. The percentage of annual compensation used to calculate the benefit was 1% of each year’s compensation up to
$15,000 plus 1.3% of any compensation in excess of that amount.
Participants under the defined benefit pension formula on December 31, 1991, had their normal retirement benefit converted on an
actuarial basis into an “opening cash balance” as of January 1, 1992. In addition, participants continued to accrue benefits pursuant to
the career average formula and became eligible to receive upon retirement the higher of (1) the participant’s benefit under the cash
balance formula or (2) the participant’s accrued retirement benefit under the career average formula as of December 31, 1991, plus
any accrual after that date calculated pursuant to the career average formula. Employees hired by us after December 31, 1991, were
eligible to accrue benefits only under the cash balance formula.
With certain minor exceptions, “compensation” under the career average formula as well as the cash balance formula includes all
compensation subject to federal income tax withholding. Annual compensation for pension accruals since December 31, 1988 has
been limited by federal tax law.
As of March 31, 1998, we froze benefit accruals under the Interpublic Retirement Account Plan and participants whose benefits
were not already vested became fully vested as of April 1, 1998. Retirement account balances as of that date will continue to be
credited with interest until benefits begin in accordance with the generally applicable Plan provisions, but additional allocations by us
have been discontinued as of March 31, 1998.
Effective April 1, 1998, employees with five or more years of Retirement Account Plan participation began to participate in a new
Compensation Plan. Under the New Compensation Plan, an account is established for each eligible employee and credited with up to
ten annual allocations depending on the employee’s years of participation in the Retirement Account Plan. Each annual allocation
approximates the discontinued allocations under the Retirement Account Plan. In general, the balance in each employee’s account
begins to vest gradually after five years of participation in the new Compensation Plan. Payouts generally are made while the
employee is still employed by us.
Mr. Dooner is the only eligible participant in both the Retirement Account Plan and the New Compensation Plan. The estimated
annual retirement benefit that Mr. Dooner would receive at the normal retirement age of 65 years old, payable as a straight life annuity
under the Interpublic Retirement Account Plan is $62,185. Alternatively, Mr. Dooner could take the benefit as a lump sum estimated
at $740,292.
Under the New Compensation Plan, Mr. Dooner will receive, prior to normal retirement age, a total distribution in the amount of
$108,500.
Messrs. Bell, Coughlin, Cyprus, Gatfield and Roth each were hired by us after the Retirement Age Account Plan was frozen and
accordingly are not entitled to receive any benefits under the Interpublic Retirement Account Plan or the New Compensation Plan.
Non-Management Directors’ Compensation
Each Non-Management Director receives as cash compensation for services rendered, an annual retainer of $40,000, an annual
retainer of $2,000 for each committee on which he or she serves, a fee of $1,500 for each meeting of the Board attended and a fee of
$1,500 for each committee meeting attended. The Chairperson of the Compensation Committee, the Chairperson of the Finance
Committee and the Chairperson of the Corporate Governance Committee each receives an additional retainer of $7,500 per year and
the Chairperson of the Audit Committee receives an additional retainer of $10,000 per year.
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As Presiding Director of the Board, Mr. Borelli receives an annual retainer of $50,000, reduced from $200,000 effective March 2,
2005.
Each Non-Management Director also receives, as consideration for services rendered as a member of the Board, stock-based
compensation under the Interpublic Non-Management Directors’ Stock Incentive Plan, which was approved by the stockholders in
2004 (the “Non-Management Directors’ Plan”) and replaced the Outside Directors Stock Incentive Plan (the “Outside Directors’
Plan”). The Non-Management Directors’ Plan to provide for an annual grant to each Non-Management Director of (i) 800 shares of
our Common Stock that are not subject to transfer restrictions or forfeiture (the “Freely Tradeable Shares”) and (ii) at the election of
each Non-Management Director, either (a) 1,600 restricted shares of our Common Stock (“Restricted Shares”) or (b) 1,600 restricted
share units (“Share Units”). The Non-Management Directors’ Plan provides that the grants would be made each January, commencing
with the year 2005, while the Non-Management Directors’ Plan remains in effect. With respect to the Restricted Shares, the recipient
has all rights of ownership, including the right to vote and to receive dividends, except that, prior to the expiration of a three-year
period after the date of grant (the “Restricted Period”), the recipient is prohibited from selling or otherwise transferring the shares.
With respect to the Share Units, and subject to the expiration of Restricted Period, each recipient has the right to receive at the time
such recipient’s service as a director terminates, a cash payment in an amount equal to the fair market value of the corresponding
number of shares of Common Stock. At the discretion of the Corporate Governance Committee, the Share Units balance of a
Non-Management Director may be credited with additional Share Units corresponding to any dividends that are paid from time on the
Common Stock. If, on or after the first anniversary of the grant of the Restricted Shares or the Share Units, as applicable, the
recipient’s service as a director terminates for any reason (including death) during the Restricted Period, the respective restrictions will
lapse immediately in proportion that the number of months that have elapsed since the date of grant bears to the total number of
months of the Restricted Period, and the remainder of such Restricted Shares or the remaining value of the Restricted Units, as
applicable, will be forfeited. If the recipient’s service as a director terminates for any reason (including death) before the first
anniversary of the date of grant, all such Restricted Shares and Share Units, as applicable, will be forfeited. The Corporate Governance
Committee, which is responsible for the administration of the Non-Management Directors’ Plan, may in its discretion direct us to
make cash payments to the recipient of Restricted Shares to assist in satisfying the federal income tax liability with respect to the
receipt or vesting of the Restricted Shares.
On March 9, 2004, in accordance with the Outside Director’s Plan, each of Ms. Considine and Messrs. Borelli, Brack, Goldstein,
Greeniaus, Roth and Samper received a grant of 800 Freely-Tradeable Shares of Common Stock and a grant of 1,600 Restricted
Shares. In 2005, in accordance with the Non-Management Directors’ Plan, each of Ms. Considine and Messrs. Borelli, Brack,
Goldstein, Greeniaus, Samper and Thomas received a grant of 800 Freely-Tradeable Shares and 1,600 Restricted Shares.
Mr. Goldstein and Ms. Considine each has an agreement with us for the deferral of all fees that the individual is entitled to receive
as a director or as a member of any committee of the Board of Directors. The amounts deferred earn credits equivalent to interest in
accordance with the terms of our Plan for Credits Equivalent to Interest on Balances of Deferred Compensation Owing under
Employment Agreements. Payments of the amounts deferred, together with accrued interest, will be made to the director, or his or her
designated beneficiaries as the case may be, in a lump-sum upon the director’s death, disability or retirement from the Board. Each
Non-Management Director who, as of December 31, 1995, had accumulated at least five years of service is entitled to receive an
annual retirement benefit under the Interpublic Outside Directors’ Pension Plan (the “Outside Directors’ Pension Plan”). In general,
the benefit becomes payable in the month following the month the director leaves the Board. The benefit is equal to the amount of the
annual retainer paid to the director as a Board member in the year in which he or she ceased to serve as a director and will be paid for
the same number of years as the director’s years of service, up to a maximum of 15 years. In the event of the death of a director with a
vested retirement benefit, the then present value of the director’s unpaid retirement benefits will be paid to the surviving spouse or the
estate of the director. Effective December 31, 1995, the Outside Directors’ Pension
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Plan was terminated, except to the extent benefits were accrued prior to termination. As a result there have been no further accruals for
the benefit of existing directors under the Outside Directors’ Pension Plan for subsequent years. Any director with fewer than five
years of service on the date that the Plan was terminated will not receive any benefits under the Plan. Mr. Samper is the only current
director entitled to receive benefits under the Outside Directors Pension Plan.
Five Year Performance Comparison
The table below provides an indicator of cumulative total shareholder returns for our common stock compared with the S&P 500
Stock Index (S&P 500) and our peer group indices.
Interpublic
S&P 500
Peer Group(2)
Explanation
1999
100.0
100.0
100.0
2000
74.46
90.89
80.11
2001
52.27
80.09
69.67
2002
25.36
62.39
46.01
2003
28.09
80.29
59.32
2004
24.13
89.02
59.43
The graph assumes $100 is invested on December 31, 1999, and that all dividends are reinvested. The Peer Group index for 2004
consists of Interpublic, Omnicom, Grey Advertising and WPP Group. The Peer Group also included, for years prior to 2003, Cordiant
PLC which was acquired by WPP Group on August 1, 2003, for years prior to 2001, True North Communications, Inc., which was
acquired by us in June 2001, and for the years prior to 2000, Young and Rubicam, Inc., which was acquired by WPP Group in
October 2000. Total shareholder return is weighted according to market capitalization at the beginning of each annual period.
231
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Item 12.
Security Ownership of Certain Beneficial Owners and Management
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding the shares of common stock to be issued or which may be issued under our
equity compensation plans:
Equity Compensation Plan Information
Number of Shares of
Common Stock to
be Issued Upon
Exercise of
Outstanding
Stock Options
(a)
38,646,208
840,075
Weighted-
Average
Exercise
Price of
Outstanding
Stock Options
(b)
$
$
26.36
27.53
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(c)(1)
26,529,906
0
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans Not Approved
by Security Holders(2)
(1)
Includes 11,681,753 shares of our common stock available for issuance under the Employee Stock Purchase Program (1995) (the
“Stock Purchase Program”) as of December 31, 2004. The Stock Purchase Program expired by its terms on June 30, 2005, and
consequently, these shares are no longer available for issuance.
(2) Consists of special stock option grants awarded to certain True North executives following our acquisition of True North (“True
North Options”). The True North Options were granted on August 23, 2001 at the fair market value of our common stock on the
date of the grant. The terms and conditions of these stock option awards are governed by our 1997 Performance Incentive Plan
which provides that stock options are exercisable as determined by the Compensation Committee of the Board of Directors.
Generally, options become exercisable between two and five years after the date of the grant and expire ten years from the grant
date. The True North Options vested approximately 40% and 30% on August 23, 2004 and August 23, 2005, respectively, and
will vest approximately 30% on August 23, 2006.
232
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Outstanding Shares
Our outstanding capital stock at the close of business on August 31, 2005 consisted of 427,268,023 shares of Common Stock and
7,475,000 shares of 53/8% Series A Mandatory Convertible Preferred Stock (the “Series A Preferred Stock”). The following table sets
forth information concerning direct and indirect beneficial ownership of our Common Stock as of December 31, 2004 (assuming no
change in their beneficial ownership of Common Stock since the date indicated) by persons known to us to have beneficial ownership
of more than 5% of the Common Stock:
Name and Address
AMVESCAP PLC
11 Devonshire Square
London EC2M 4YR
England
of Beneficial Owner
AXA Financial, Inc.
1290 Avenue of the Americas
New York, NY
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
Capital Group International Inc
11100 Santa Monica Boulevard
Los Angeles, CA 90025
Pacific Financial Research, Inc
9601 Wilshire Boulevard
Suite 800
Beverly Hills, CA 90210
Barclays Global Investors NA
45 Fremont Street
San Francisco, CA 94105
Amount and Nature of
Beneficial Ownership of
Common Stock(1)
23,115,284
Percent of
Class
5.47%
42,312,272
28,658,220
22,275,090
25,501,405
10.0%
6.71%
5.30%
6.00%
22,668,039
5.25%
(1) The rules of the SEC deem a person to be the beneficial owner of a security (for purposes of proxy statement disclosure) if that
person has or shares either or both voting or dispositive power with respect to such security. Additionally, a security is deemed to
be beneficially owned by a person who has the right to acquire beneficial ownership thereof within 60 days, for example, through
the conversion of notes.
(2) Calculated based on the number of shares of Common Stock outstanding on August 31, 2005.
(3) This disclosure is based on information supplied by AMVESCAP PLC and a number of its subsidiaries in a Schedule 13G filed
with the SEC on February 15, 2005, in which AMVESCAP PLC and such subsidiaries report that collectively they have sole
voting power with respect to 23,115,284 shares of Common Stock and sole dispositive power with respect to 23,115,284 shares
of Common Stock.
(4) This disclosure is based on information supplied by AXA Financial, Inc., primarily through Alliance Capital Management L.P.,
as well as a number of other affiliates, in a Schedule 13G filed with the SEC on March 10, 2005, in which AXA Financial, Inc.
and such affiliates report that collectively they have sole voting power with respect to 21,198,110 shares of Common Stock and
sole dispositive power with respect to 42,278,457 shares of Common Stock.
(5) This disclosure is based on information supplied by Capital Research and Management Company (“Capital”) in an amended
Schedule 13G filed with the SEC on February 14, 2005, in which Capital
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Table of Contents
reported that it is an investment adviser that has sole dispositive power with respect to 28,658,220 shares of Common Stock
including 2,664,220 shares issuable upon the conversion of 877,600 shares of the Series A Preferred Stock.
(6) This disclosure is based on information supplied by Capital Group International Inc. (“CGI”) in an amended Schedule 13G filed
with the SEC on February 14, 2005, in which CGI reported that it is a holding company of a group of investment management
companies that in the aggregate have sole voting power with respect to 18,708,850 shares of Common Stock and sole dispositive
power with respect to 22,275,090 shares of Common Stock, including 563,140 shares issuable upon the conversion of
185,500 shares of Series A Preferred Stock.
(7) This disclosure is based on information supplied by Pacific Financial Research, Inc. (“Pacific”) in an amended Schedule 13G
filed with the SEC on February 11, 2005, in which Pacific reported that it is an investment adviser that has sole voting power
with respect to 23,853,205 shares of Common Stock and sole dispositive power with respect to 25,501,405 shares of Common
Stock.
(8) This disclosure is based on information supplied by Barclays Bank PLC and a number of its affiliates in a Schedule 13G filed
with the SEC on February 14, 2005, in which Barclays Bank PLC and such affiliates report that collectively they have sole
voting power with respect to 20,890,747 shares of Common Stock and sole dispositive power with respect to 22,668,039 shares
of Common Stock.
The following table sets forth information concerning the direct and indirect beneficial ownership of our Common Stock as of
August 31, 2005 by each director, each nominee for election as a director, each executive officer named in the Summary
Compensation Table, and all our directors and executive officers as a group:
Name of
Beneficial Owner(1)(2)
David A. Bell
Frank J. Borelli
Reginald K. Brack
Jill M. Considine
Christopher J. Coughlin
Nick Cyprus
John J. Dooner, Jr.
Stephen J. Gatfield
Richard A. Goldstein
H. John Greeniaus
Michael I. Roth
J. Phillip Samper
David M. Thomas
All directors and executive officers as a group
Common Stock
Ownership(2)(3)(4)(5)
Options
Exercisable
Within 60 Days
646,836
17,700
25,700
16,200
0
89,268
1,027,770
27,479
14,231
45,220
625,990
25,720
2,400
2,564,514
333,578
14,436
12,510
12,510
0
27,672
826,913
0
4,000
2,000
2,000
14,436
0
1,250,055
Total
980,414
32,136
38,210
28,710
0
116,940
1,856,683
27,479
18,231
47,220
627,990
40,156
2,400
3,814,569
(1) On January 19, 2005, Michael Roth succeeded David Bell as Chief Executive Officer.
(2) Effective December 31, 2004, Mr. Coughlin resigned his position as Chief Financial Officer.
(3) The rules of the SEC deem a person to be the beneficial owner of a security (for purposes of proxy statement disclosure) if that
person has or shares either or both voting or dispositive power with respect to such security. Additionally, a security is deemed to
be beneficially owned by a person who has the right to acquire beneficial ownership thereof within 60 days, for example through
the exercise of a stock option. Common Stock ownership set forth in this table includes unvested shares of restricted stock
awarded under any of the 2004 Performance Incentive Plan, 2002 Performance Incentive Plan, the 1997 Performance Incentive
Plan, the Interpublic Outside Directors’ Stock Incentive Plan and the Interpublic Non-Management Directors’ Stock Incentive
Plan due to the right
234
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of the persons identified to exercise voting power with respect to the shares. Except as otherwise indicated, each person has sole
voting and sole dispositive power over the shares indicated as beneficially owned.
(4) No individual identified in the table has beneficial ownership of more than 1% of the outstanding shares of Common Stock. The
directors and executive officers as a group do not beneficially own more than 1% of the outstanding shares.
Includes for Mr. Bell 8,047 shares owned by a family trust and for Mr. Goldstein 800 shares owned by his spouse.
(5)
(6) No executive officer or director is a beneficial owner of any shares of the Series A Preferred Stock.
Item 13.
Certain Relationships and Related Transactions
Since January 1, 2004, a brother of Christopher J. Coughlin, who resigned as Chief Financial Officer of Interpublic as of
December 31, 2004, was employed by a subsidiary of Interpublic at an annual salary of $250,000.
Item 14.
Principal Accountant Fees and Services
Fees Paid to PricewaterhouseCoopers LLP
The following table sets forth the aggregate fees billed by PricewaterhouseCoopers for audit services performed in connection
with the our consolidated financial statements and reports for fiscal years 2004 and 2003, respectively, and for other services rendered
us during those years.
Fee Category
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total Fees
2004
81,210,000
3,692,100
7,768,000
—
92,670,100
$
$
% of Total
$
88%
4%
8%
100%
$
2003
26,540,000
3,909,000
8,918,900
—
39,367,900
% of Total
67%
10%
23%
100%
Audit Fees: Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and
review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by
PricewaterhouseCoopers in connection with statutory and regulatory filings or engagements, and attest services, except those not
required by statute or regulation.
Audit Related Fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the
audit or review of our consolidated financial statements and are not reported under Audit Fees. These services include employee
benefit plan audits, accounting consultations in connections with acquisitions/divestitures, assisting us with our preparations for
compliance with Section 404 of the Sarbanes Oxley Act of 2002, and attest services that are not required by statute or regulation.
Tax Fees: Consists of tax compliance/preparation and other tax services. Tax compliance/ preparation consist of fees billed for
professional services related to federal, state and international tax compliance, assistance with tax audits and appeals, assistance with
custom and duties audits, expatriate tax services and assistance related to the impact of mergers, acquisitions and divestitures on tax
return preparation. Other tax services include miscellaneous tax consulting and planning.
All Other Fees: There were no amounts that comprised other fees.
235
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Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The Audit Committee approves all audit and permissible non-audit services provided by the independent auditors. The permissible
non-audit services may include audit-related services, tax-related services and all other services. The Audit Committee has adopted a
policy for the pre-approval of services provided by the independent auditors. Under the policy, pre-approval is generally provided for
up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In
addition, the Audit Committee may pre-approve particular services on a case-by-case basis. The Audit Committee has delegated
pre-approval authority to its Chairman for projects less than $100,000, who must report any decision to the Audit Committee at the
next scheduled meeting.
236
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Table of Contents
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Listed below are all financial statements, financial statement schedules and exhibits filed as part of this Report on Form 10-K.
1. Financial Statements:
The Interpublic Group of Companies, Inc. and Subsidiaries Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31,
2004, 2003 and 2002
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Valuation and Qualifying Accounts (for the three years ended December 31, 2004)
All other schedules are omitted because they are not applicable.
3. Exhibits:
(Numbers used are the numbers assigned in Item 601 of Regulation S-K and the EDGAR Filer Manual. An additional copy of this
exhibit index immediately precedes the exhibits filed with this Report on Form 10-K and the exhibits transmitted to the SEC as part of
the electronic filing of this Report.)
Exhibit No.
3(i)
3(ii)
3(iii)
4(iii)(A)
4(iii)(B)
Description
3
Restated Certificate of Incorporation of the Registrant, as amended through May 29, 2003, is
incorporated by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003 filed with the Securities and Exchange Commission (the
“SEC”) on November 14, 2003.
By-Laws of the Registrant, as amended and restated through January 18, 2005, are incorporated
by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on
January 21, 2005.
Certificate of Designations of 5
the Registrant, as filed with the Delaware Secretary of State on December 17, 2003 is
incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
with the SEC on December 19, 2003.
Certificate of Designations of 5
the Registrant, as filed with the Delaware Secretary of State on December 17, 2003, is
incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
with the SEC on December 19, 2003.
Senior Debt Indenture, dated as of October 20, 2000 (the “2000 Indenture”), between the
Registrant and The Bank of New York, as trustee, is incorporated by reference to Exhibit 99.1 to
the Registrant’s Current Report on Form 8-K filed with the SEC on October 24, 2000.
/8% Series A Senior Mandatory Convertible Preferred Stock of
/8% Series A Senior Mandatory Convertible Preferred Stock of
3
237
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
4(iii)(C)
4(iii)(D)
4(iii)(E)
4(iii)(F)
4(iii)(G)
4(iii)(H)
4(iii)(I)
4(iii)(J)
4(iii)(K)
4(iii)(L)
4(iii)(M)
4(iii)(N)
Description
First Supplemental Indenture, dated as of August 22, 2001, to the 2000 Indenture, with respect to
the 7.25% Senior Unsecured Notes due 2011 is incorporated by reference to Exhibit 4.2 to the
Registrant’s Registration Statement on Form S-4 filed with the SEC on December 4, 2001.
Second Supplemental Indenture, dated as of December 14, 2001, to the 2000 Indenture, with
respect to the Zero-Coupon Convertible Senior Notes due 2021 is incorporated by reference to
Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 5,
2002.
Third Supplemental Indenture, dated as of March 13, 2003, to the 2000 Indenture, with respect to
the 4.50% Convertible Senior Notes due 2023 is incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2003.
Fifth Supplemental Indenture, dated as of March 28, 2005, to the 2000 Indenture, as modified by
the First Supplemental Indenture, dated as of August 22, 2001, with respect to the 7.25% Senior
Unsecured Notes due 2011 is incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed with the SEC on April 1, 2005.
Sixth Supplemental Indenture, dated as of March 30, 2005, to the 2000 Indenture, as modified by
the Third Supplemental Indenture, dated as of March 13, 2003, with respect to the
4.50% Convertible Senior Notes due 2023 is incorporated by reference to Exhibit 4.3 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Seventh Supplemental Indenture, dated as of August 11, 2005, to the 2000 Indenture, as modified
by the Third Supplemental Indenture, dated as of March 13, 2003, and the Sixth Supplemental
Indenture, dated as of March 30, 2005, with respect to the 4.50% Senior Convertible Notes due
2023 is incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on August 15, 2005.
Senior Debt Indenture entered into between the Registrant and Suntrust Bank, as Trustee, dated as
of November 12, 2004 (the “2004 Indenture”), is incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on November 15, 2004.
First Supplemental Indenture, dated as of November 18, 2004, to the 2004 Indenture, with respect
to the 5.40% Notes Due 2009 is incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on November 19, 2004.
Second Supplemental Indenture, dated as of November 18, 2004, to the 2004 Indenture, with
respect to the 6.25% Notes Due 2014 is incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on November 19, 2004.
Third Supplemental Indenture, dated as of March 28, 2005, to the 2004 Indenture, as modified by
the Second Supplemental Indenture, dated as of November 18, 2004, with respect to the
6.25% Senior Unsecured Notes due 2014 is incorporated by reference to Exhibit 4.4 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Fourth Supplemental Indenture, dated as of March 29, 2005, to the 2004 Indenture, as modified
by the First Supplemental Indenture, dated as of November 18, 2004, with respect to the
5.40% Senior Unsecured Notes due 2009 is incorporated by reference to Exhibit 4.5 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Fifth Supplemental Indenture, dated as of July 25, 2005, to the 2004 Indenture, with respect to the
Floating Rate Notes due 2008 is incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on July 26, 2005.
238
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
10(i)(A)
10(i)(B)
10(i)(C)
10(i)(D)
10(i)(E)
10(i)(F)
10(i)(G)
10(i)(H)
10(i)(I)
10(i)(J)
10(i)(K)
Description
3-Year Credit Agreement, dated as of May 10, 2004, among the Registrant, the Initial Lenders,
Initial Issuing Banks and Swing Line Bank, Named Therein and Citibank, N.A., as Administrative
Agent is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on May 12, 2004.
Amendment No. 1, dated as of September 29, 2004, to the 3-Year Agreement, dated as of May 10,
2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent is incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed with the SEC on November 5, 2004.
Amendment No. 2, dated as of March 31, 2005 to the 3-Year Agreement, dated as of May 10,
2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as amended
by Amendment No. 2, dated as of September 29, 2004 is incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 5, 2005.
Letter agreement, dated as of March 31, 2005, between the Registrant and the lenders party to the
3-Year Credit Agreement, waiving breaches of the 3-Year Credit Agreement is incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on
April 5, 2005.
Amendment No. 3, dated as of June 22, 2005 to the 3-Year Agreement, dated as of May 10, 2004,
among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as amended by
Amendment No. 1, dated as of September 29, 2004 and Amendment No. 2, dated as of March 31,
2005 is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K,
filed with the SEC on June 28, 2005.
Letter agreement, dated as of June 22, 2005, between the Registrant and the lenders party to the
3-Year Credit Agreement, waiving breaches of the 3-Year Credit Agreement is incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on
June 28, 2005.
Amended and Restated 3-year Credit Agreement, dated as of May 10, 2004, amended and restated
as of September 27, 2005, among the Registrant, the Initial Lenders Named Therein, and
Citibank, N.A., as Administrative Agent.
364-Day Credit Agreement, dated as of May 10, 2004, among the Registrant, the Initial Lenders
Named therein and Citibank, N.A., as Administrative Agent is incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 12,
2004.
Amendment No. 1, dated as of September 29, 2004, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent is incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K, filed with the SEC on November 5, 2004.
Amendment No. 2, dated as of March 31, 2005, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent, as amended by Amendment No 1., dated as of September 29, 2004 is
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed
with the SEC on April 5, 2005.
Letter agreement, dated as of March 31, 2005, between the Registrant and the lenders party to the
364-Day Credit Agreement, waiving breaches of the 364-Day Credit Agreement is incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC
on April 5, 2005.
239
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
10(i)(L)
10(i)(M)
(i) Michael Roth
10(iii)(A)(1)
10(iii)(A)(2)
10(iii)(A)(3)
10(iii)(A)(4)
(ii) David A. Bell
10(iii)(A)(5)
10(iii)(A)(6)
10(iii)(A)(7)
10(iii)(A)(8)
10(iii)(A)(9)
10(iii)(A)(10)
10(iii)(A)(11)
Description
Amendment No. 3, dated as of June 22, 2005, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent, as amended by Amendment No. 1, dated as of September 29, 2004 and
Amendment No. 2, dated as of March 31, 2005 is incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed with the SEC on June 28, 2005.
Letter agreement, dated as of June 22, 2005, between the Registrant and the lenders party to the
364-Day Credit Agreement, waiving breaches of the 364-Day Credit Agreement is incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC
on June 28, 2005.
Employment Agreement, made as of July 13, 2004, by and between the Registrant and Michael I.
Roth, is incorporated by reference to Exhibit 10(iii)(A)(9) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2004.
Executive Severance Agreement, dated July 13, 2004 and executed as of July 27, 2004, by and
between the Registrant and Michael I. Roth, is incorporated by reference to Exhibit 10(iii)(A)(10)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2004.
Supplemental Employment Agreement, dated as of January 19, 2005, between the Registrant and
Michael I. Roth, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on January 21, 2005.
Supplemental Employment Agreement, dated as of February 14, 2005, between the Registrant and
Michael I. Roth, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on February 17, 2005.
David A. Bell Employment Agreement, dated as of January 1, 2000, between True North
Communications Inc. and David A. Bell is incorporated by reference to Exhibit 10(b)(iii)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2001.
Employment Agreement Amendment, dated as of March 1, 2001, to an Employment Agreement,
dated as of January 1, 2000, between True North Communications Inc. and David A. Bell is
incorporated by reference to Exhibit 10(b)(iii)(b) to the Registrant’s Report on Form 10-K for the
year ended December 31, 2001.
Employment Agreement Amendment, dated as of June 1, 2001, and signed as of October 1, 2002,
between True North Communications Inc. and David A. Bell to an Employment Agreement,
dated as of January 1, 2000, as amended, is incorporated by reference to Exhibit 10(b)(i)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of February 28, 2003, to an Employment Agreement, made as
of January 1, 2000, between the Registrant and David A. Bell, is incorporated by reference to
Exhibit 10(iii)(A)(i) to the Registrant’s Report on Form 10-Q for the quarter ended March 31,
2003.
Executive Special Benefit Agreement, made as of April 1, 2003, by and between the Registrant
and David A. Bell, is incorporated by reference to Exhibit 10(iii)(A)(i)(a) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
Memorandum dated May 1, 2003, from David A. Bell, providing for Cancellation of Certain
Stock Options, is incorporated by reference to Exhibit 10(iii)(A)(I)(b) to the Registrant’s Report
on Form 10-Q for the quarter ended June 30, 2003.
Employment Agreement, dated as of January 18, 2005, between the Registrant and David A. Bell,
is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed
with the SEC on January 21, 2005.
240
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Table of Contents
Exhibit No.
(iii) Nicholas J. Camera
10(iii)(A)(12)
10(iii)(A)(13)
10(iii)(A)(14)
10(iii)(A)(15)
10(iii)(A)(16)
(iv) Albert Conte
10(iii)(A)(17)
10(iii)(A)(18)
10(iii)(A)(19)
10(iii)(A)(20)
(v) Nicholas S. Cyprus
10(iii)(A)(21)
10(iii)(A)(22)
10(iii)(A)(23)
Description
Executive Special Benefit Agreement, dated as of January 1, 1995, between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(b)(v)(c) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2002.
Executive Severance Agreement, dated as of January 1, 1998, between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(b)(vi)(a) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Employment Agreement, dated as of November 14, 2002, between the Registrant and Nicholas J.
Camera, is incorporated by reference to Exhibit 10(b)(v)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of January 1, 2003 and executed as of June 23, 2003 to an
Executive Severance Agreement, made as of January 1, 1998, by and between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(iii)(A)(iii)(a) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made
as of January 1, 1998, by and between the Registrant and Nicholas J. Camera, is incorporated by
reference to Exhibit 10(iii)(A)(iii)(b) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Employment Agreement, dated as of February 21, 2000, between the Registrant and Albert Conte,
is incorporated by reference to Exhibit 10(b)(vii)(a) to the Registrant’s Report on Form 10-K for
the year ended December 31, 2001.
Supplemental Agreement, made as of June 15, 2004, to an Employment Agreement, made as of
February 21, 2000, by and between the Registrant and Albert Conte, is incorporated by reference
to Exhibit 10(iii)(A)(3) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
The Interpublic Capital Accumulation Plan Participation Agreement, effective June 15, 2004, by
and between the Registrant and Albert Conte, is incorporated by reference to Exhibit 10(iii)(A)(4)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2004.
Executive Special Benefit Agreement, made as of January 1, 2002 and executed as of June 26,
2004, by and between the Registrant and Albert Conte, is incorporated by reference to
Exhibit 10(iii)(A)(5) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
Employment Agreement, made as of May 2004, by and between the Registrant and Nicholas S.
Cyprus, is incorporated by reference to Exhibit 10(iii)(A)(6) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2004.
Executive Severance Agreement, made as of May 24, 2004, by and between the Registrant and
Nicholas S. Cyprus, is incorporated by reference to Exhibit 10(iii)(A)(7) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2004.
The Interpublic Capital Accumulation Plan Participation Agreement, effective May 15, 2004, by
and between the Registrant and Nicholas S. Cyprus, is incorporated by reference to
Exhibit 10(iii)(A)(8) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
241
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Table of Contents
Exhibit No.
(vi) Thomas Dowling
10(iii)(A)(24)
10(iii)(A)(25)
10(iii)(A)(26)
10(iii)(A)(27)
10(iii)(A)(28)
10(iii)(A)(29)
(vii) Steven Gatfield
10(iii)(A)(30)
10(iii)(A)(31)
10(iii)(A)(32)
(viii) Philippe Krakowsky
10(iii)(A)(33)
10(iii)(A)(34)
10(iii)(A)(35)
10(iii)(A)(36)
Description
Employment Agreement, dated as of November 1999, between the Registrant and Thomas
Dowling, is incorporated by reference to Exhibit 10(b)(iii)(A)(1) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2002.
Executive Special Benefit Agreement, dated as of February 1, 2000, between the Registrant and
Thomas Dowling, is incorporated by reference to Exhibit 10(b)(viii)(a) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Executive Special Benefit Agreement, dated as of February 1, 2001, between the Registrant and
Thomas Dowling, is incorporated by reference to Exhibit 10(b)(viii)(b) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Supplemental Agreement, dated as of October 1, 2002, to an Employment Agreement, dated as of
November 1999, between the Registrant and Thomas Dowling, is incorporated by reference to
Exhibit 10(b)(vii)(b) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, dated as of November 14, 2002, to an Employment Agreement, dated
as of November 1999, between the Registrant and Thomas Dowling, is incorporated by reference
to Exhibit 10(b)(vii)(a) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Executive Severance Agreement, dated November 14, 2002, between the Registrant and Thomas
Dowling, is incorporated by reference to Exhibit 10(iii)(A)(vii) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Employment Agreement, made as of February 2, 2004, by and between the Registrant and Steve
Gatfield, is incorporated by reference to Exhibit 10(iii)(A)(1) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
Participation Agreement under The Interpublic Senior Executive Retirement Income Plan, dated
as of January 30, 2004, between the Registrant and Steve Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrant’s Report on Form 10-Q for the quarter ended March 31,
2004.
Executive Severance Agreement, made as of April 1, 2004, by and between the Registrant and
Steve Gatfield, is incorporated by reference to Exhibit 10(iii)(A)(3) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
Employment Agreement, dated as of January 28, 2002, between the Registrant and Philippe
Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(2) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2002.
Executive Special Benefit Agreement, dated as of February 1, 2002, and signed as of July 1, 2002,
between the Registrant and Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(v) to the Registrant’s Report on Form 10-Q for the quarter ended September 30,
2002.
Special Deferred Compensation Agreement, dated as of April 1, 2002, and signed as of July 1,
2002, between the Registrant and Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(iv) to the Registrant’s Report on Form 10-Q for the quarter ended
September 30, 2002.
Executive Severance Agreement, dated September 13, 2002, between the Registrant and Philippe
Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(vi) to the Registrant’s Report on
Form 10-Q for the quarter ended September 30, 2002.
242
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Table of Contents
Exhibit No.
10(iii)(A)(37)
10(iii)(A)(38)
10(iii)(A)(39)
(ix) Robert J. Thompson
10(iii)(A)(40)
10(iii)(A)(41)
(x) Frank Mergenthaler
10(iii)(A)(42)
10(iii)(A)(43)
(xi) Timothy A. Sompolski
10(iii)(A)(44)
10(iii)(A)(45)
10(iii)(A)(46)
(xii) John J. Dooner, Jr.
10(iii)(A)(47)
10(iii)(A)(48)
10(iii)(A)(49)
Description
Executive Special Benefit Agreement, dated September 30, 2002, between the Registrant and
Philippe Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(vi) to the Registrant’s
Report on Form 10-Q for the quarter ended September 30, 2002.
Supplemental Agreement, made as of April 8, 2003, to an Employment Agreement, made as of
January 28, 2002, by and between the Registrant and Philippe Krakowsky, is incorporated by
reference to Exhibit 10(iii)(A)(viii)(a) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made
as of November 14, 2002, by and between the Registrant and Philippe Krakowsky, is incorporated
by reference to Exhibit 10(iii)(A)(viii)(b) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Employment Agreement, dated as of October 1, 2003, between the Registrant and Robert J.
Thompson, is incorporated by reference to Exhibit 10(b)(vii)(a) to the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2003.
Capital Accumulation Plan Participation Agreement, entered into as of November 12, 2003,
between the Registrant and Robert J. Thompson, is incorporated by reference to
Exhibit 10(b)(vii)(b) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Employment Agreement, made as of July 13, 2005, between the Registrant and Frank
Mergenthaler is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on July 19, 2005.
Executive Severance Agreement, made as of July 13, 2005, between the Registrant and Frank
Mergenthaler is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on July 19, 2005.
Employment Agreement, made as of July 6, 2004, by and between the Registrant and Timothy
Sompolski, is incorporated by reference to Exhibit 10(iii)(A)(11) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
Executive Severance Agreement, made as of July 6, 2004, by and between the Registrant and
Timothy Sompolski, is incorporated by reference to Exhibit 10(iii)(A)(12) to the Registrant’s
Report on Form 10-Q for the quarter ended March 31, 2004.
The Interpublic Capital Accumulation Plan Participation Agreement, effective July 6, 2004, by
and between the Registrant and Timothy Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(13) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
Executive Special Benefit Agreement, dated as of July 1, 1986, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(e) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Executive Severance Agreement, dated as of August 10, 1987, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(h) to the Registrant’s Report on Form 10-K
for the year ended December 31, 1995.
Supplemental Agreement, dated as of May 23, 1990, to an Executive Special Benefit Agreement,
dated as of July 1, 1986, between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(l) to the Registrant’s Report on Form 10-K for the year ended
December 31, 1995.
243
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Table of Contents
Exhibit No.
10(iii)(A)(50)
10(iii)(A)(51)
10(iii)(A)(52)
10(iii)(A)(53)
10(iii)(A)(54)
10(iii)(A)(55)
10(iii)(A)(56)
10(iii)(A)(57)
10(iii)(A)(58)
10(iii)(A)(59)
10(iii)(A)(60)
10(iii)(A)(61)
10(iii)(A)(62)
10(iii)(A)(63)
Description
Executive Special Benefit Agreement, dated as of, July 1, 1992, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(q) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of August 10, 1992, to an Executive Severance Agreement,
dated as of August 10, 1987, between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(p) to the Registrant’s Report on Form 10-K for the year ended
December 31, 1995.
Employment Agreement, dated as of January 1, 1994, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(r) to the Registrant’s Report on Form 10-K
for the year ended December 31, 1995.
Executive Special Benefit Agreement, dated as of June 1, 1994, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(s) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of July 1, 1995, to an Employment Agreement between the
Registrant and John J. Dooner, Jr., dated as of January 1, 1994, is incorporated by reference to
Exhibit 10(B) to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 1995.
Supplemental Agreement, dated as of July 1, 1995, to an Employment Agreement, dated as of
January 1, 1994, between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(t) to the Registrant’s Report on Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of September 1, 1997, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(k) to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 1997.
Executive Severance Agreement, dated January 1, 1998, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(b) to the Registrant’s Report on Form 10-Q
for the quarter ended March 31, 1998.
Supplemental Agreement, dated as of January 1, 1999, to an Employment Agreement dated as of
January 1, 1994, between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(e) to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 1999.
Supplemental Agreement, dated as of April 1, 2000, to an Employment Agreement between the
Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b) to the
Registrant’s Report on Form 10-Q for the quarter ended March 31, 2000.
Executive Special Benefit Agreement, dated as of May 20, 2002, between the Registrant and John
J. Dooner, Jr., signed as of November 11, 2002, is incorporated by reference to
Exhibit 10(b)(xv)(c) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, dated as of November 7, 2002, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b)(xv)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, dated as of November 7, 2002, to an Executive Special Benefit
Agreement between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(b)(xv)(b) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, made as of January 1, 2003 and executed as of June 17, 2003, to an
Executive Severance Agreement, made as of January 1, 1998, by and between the Registrant and
John J. Dooner, Jr., is incorporated by reference to Exhibit 10(iii)(A)(iv)(b) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
244
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Table of Contents
Exhibit No.
10(iii)(A)(64)
10(iii)(A)(65)
10(iii)(A)(66)
10(iii)(A)(67)
(xiii) Jill Considine
10(iii)(A)(68)
(xiv) Richard A. Goldstein
10(iii)(A)(69)
(xv) Christopher J. Coughlin
10(iii)(A)(70)
10(iii)(A)(71)
10(iii)(A)(72)
10(iii)(A)(73)
(xvi) Brian Brooks
10(iii)(A)(74)
10(iii)(A)(75)
10(iii)(A)(76)
Description
Supplemental Agreement, made as of March 31, 2003, to an Employment Agreement made as of
January 1, 1994, as amended between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(iii)(A)(v) to the Registrant’s Report on Form 10-Q for the quarter ended
March 31, 2003.
Supplemental Agreement, made as of March 31, 2003 and executed as of April 15, 2003, to an
Employment Agreement, made as of January 1, 1994, by and between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(iii)(A)(iv)(a) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2003.
Letter Agreement, dated May 8, 2003, between the Registrant and John J. Dooner, Jr., providing
for cancellation of certain Stock Options, is incorporated by reference to Exhibit 10(iii)(A)(iv)(c)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2003.
Supplemental Agreement dated as of November 12, 2003, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b)(viii)(u) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2003.
Deferred Compensation Agreement, dated as of April 1, 2002, between the Registrant and Jill
Considine, is incorporated by reference to Exhibit 10(c) to the Registrant’s Report on Form 10-Q
for the quarter ended June 30, 2002.
Richard A Goldstein Deferred Compensation Agreement, dated as of June 1, 2001, between the
Registrant and Richard A. Goldstein, is incorporated by reference to Exhibit 10(c) to Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2001.
Employment Agreement, made as of May 6, 2003, by and between the Registrant and Christopher
J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(ii) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Executive Special Benefit Agreement, made as of June 16, 2003, by and between the Registrant
and Christopher J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(iii) to the
Registrant’s Report on Form 10-Q for the quarter ended March 31, 2003.
Executive Severance Agreement, made as of June 16, 2003, by and between the Registrant and
Christopher J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(iv) to the Registrant’s
Report on Form 10-Q for the quarter ended March 31, 2003.
Confidential Separation Agreement and General Release, between the Registrant and Christopher
J. Coughlin is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on January 6, 2005.
Executive Severance Agreement, dated November 8, 2002, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(iii)(A)(ix) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Employment Agreement, dated as of November 18, 2002, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(b)(viii)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of April 7, 2003, to an Employment Agreement, dated as of
November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(iii)(A)(ii)(a) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
245
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
10(iii)(A)(77)
10(iii)(A)(78)
10(iii)(A)(79)
10(iii)(A)(80)
10(iii)(A)(81)
10(iii)(A)(82)
(xvii) Gunnar Wilmot
10(iii)(A)(83)
10(iii)(A)(84)
10(iii)(A)(85)
10(iii)(A)(86)
10(iii)(A)(87)
10(iii)(A)(88)
10(iii)(A)(89)
10(iii)(A)(90)
Description
Supplemental Agreement, made as of May 20, 2003, to an Employment Agreement, dated as of
November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(iii)(A)(ii)(b) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, dated
as of November 14, 2002, between the Registrant and Brian Brooks, is incorporated by reference
to Exhibit 10(iii)(A)(ii)(c) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
Senior Executive Retirement Income Plan Participation Agreement, effective as of November 10,
2003, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(b)(xi)(g) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Supplemental Agreement, made as of November 10, 2003, to an Employment Agreement, dated
as of November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference
to Exhibit 10(b)(xi)(h) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Confidential Separation Agreement and General Release, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(b)(xi)(i) to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2003.
Supplemental Agreement, made as of January 31, 2005, to a Confidential Agreement and General
Release, made as of February 27, 2004, by and between the Registrant and Brian J. Brooks.
Executive Special Benefit Agreement, dated as of January 1, 1990, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(d) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
Supplemental Agreement, dated as of May 23, 1990, to an Executive Special Benefit Agreement,
dated as of January 1, 1990, between the Registrant and Gunnar Wilmot, is incorporated by
reference to Exhibit 10(b)(x)(c) to the Registrant’s Report on Form 10-K for the year ended
December 31, 2001.
Executive Special Benefit Agreement, dated as of October 1, 1996, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(b) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
Executive Special Benefit Agreement, dated as of April 1, 1999, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
Executive Special Benefit Agreement, dated as of January 1, 2002, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Letter Agreement, dated June 27, 2003, between the Registrant and Gunnar Wilmot providing for
the Cancellation of Certain Stock Options is incorporated by reference to Exhibit 10(iii)(A)(xi) to
the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2003.
Executive Special Benefit Agreement, dated as of May 16, 2003, and signed as of November 6,
2003, between the Registrant and Gunnar Wilmot, is incorporated by reference to
Exhibit 10(b)(xiii)(g) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Trust Agreement, dated as of June 1, 1990, between the Registrant, Lintas Campbell-Ewald
Company, McCann-Erickson USA, Inc., McCann-Erickson Marketing, Inc., Lintas, Inc. and
Chemical Bank, as Trustee, is incorporated by reference to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1990.
246
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Table of Contents
Exhibit No.
10(iii)(A)(91)
10(iii)(A)(92)
10(iii)(A)(93)
10(iii)(A)(94)
10(iii)(A)(95)
10(iii)(A)(96)
10(iii)(A)(97)
10(iii)(A)(98)
10(iii)(A)(99)
10(iii)(A)(100)
10(iii)(A)(101)
10(iii)(A)(102)
10(iii)(A)(103)
10(iii)(A)(104)
10(iii)(A)(105)
10(iii)(A)(106)
10(iii)(A)(107)
10(iii)(A)(108)
Description
The Stock Option Plan (1988) and the Achievement Stock Award Plan of the Registrant are
incorporated by reference to Appendices C and D of the Prospectus, dated May 4, 1989, forming
part of its Registration Statement on Form S-8 (No. 33-28143).
The Management Incentive Compensation Plan of the Registrant is incorporated by reference to
the Registrant’s Report on Form 10-Q for the quarter ended June 30, 1995.
The 1986 Stock Incentive Plan of the Registrant is incorporated by reference to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 1993.
The 1986 United Kingdom Stock Option Plan of the Registrant is incorporated by reference to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992.
The Employee Stock Purchase Plan (1985) of the Registrant, as amended, is incorporated by
reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993.
The Long-Term Performance Incentive Plan of the Registrant is incorporated by reference to
Appendix A of the Prospectus dated December 12, 1988 forming part of its Registration
Statement on Form S-8 (No. 33-25555).
Resolution of the Board of Directors adopted on February 16, 1993, amending the Long-Term
Performance Incentive Plan is incorporated by reference to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1992.
Resolution of the Board of Directors adopted on May 16, 1989 amending the Long-Term
Performance Incentive Plan is incorporated by reference to the Registrant’s Report on Form 10-K
for the year ended December 31, 1989.
The 1996 Stock Incentive Plan of the Registrant is incorporated by reference to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 1996.
The 1997 Performance Incentive Plan of the Registrant is incorporated by reference to the
Registrant’s Report on Form 10-Q for the quarter ended June 30, 1997.
True North Communications Inc. Stock Option Plan is incorporated by reference to Exhibit 4.5 of
Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4
(Registration No. 333-59254).
Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock Option Plan is incorporated by reference to
Exhibit 4.5 of Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 (Registration No. 333-59254).
True North Communications Inc. Deferred Compensation Plan is incorporated by reference to
Exhibit (c)(xiv) of the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2002.
Resolution of the Board of Directors of True North Communications Inc. adopted on March 1,
2002 amending the Deferred Compensation Plan is incorporated by reference to Exhibit (c)(xv) of
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.
The 2002 Performance Incentive Plan of the Registrant is incorporated by reference to Appendix
A to the Registrant’s Proxy Statement on Schedule 14A, filed April 17, 2002.
The Interpublic Senior Executive Retirement Income Plan is incorporated by reference to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 2003.
The Interpublic Capital Accumulation Plan is incorporated by reference to the Registrant’s Report
on Form 10-Q for the quarter ended September 30, 2003.
The Interpublic Outside Directors Stock Incentive Plan of Interpublic, as amended through
August 1, 2003, is incorporated by reference to the Registrant’s Report on Form 10-Q for the
quarter ended September 30, 2003.
247
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Table of Contents
Exhibit No.
10(iii)(A)(109)
10(iii)(A)(110)
10(iii)(A)(111)
10(iii)(A)(112)
10(iii)(A)(113)
10(iii)(A)(114)
10(iii)(A)(115)
10(iii)(A)(116)
10(iii)(A)(117)
10(iii)(A)(118)
(21)
(24)
(31.1)
(31.2)
(32)
Description
2004 Performance Incentive Plan of the Registrant is incorporated by reference to Appendix B to
the Registrant’s Proxy Statement on Schedule 14A, filed with the SEC on April 23, 2004.
The Interpublic Non-Management Directors’ Stock Incentive Plan is incorporated by reference to
Appendix C to the Registrant’s Proxy Statement on Schedule 14A, filed with the SEC on
April 23, 2004.
The Interpublic Senior Executive Retirement Income Plan — Form of Participation Agreement is
incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K, filed
with the SEC on October 27, 2004.
The Interpublic Capital Accumulation Plan — Form of Participation Agreement is incorporated
by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K, filed with the SEC
on October 27, 2004.
The Interpublic Group of Companies, Inc. 2004 Performance Incentive Plan (the “PIP”) — Form
of Instrument of Restricted Stock is incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, filed with the SEC on October 27, 2004.
PIP — Form of Instrument of Restricted Stock Units is incorporated by reference to Exhibit 10.3
to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 27, 2004.
PIP — Form of Option Certificate is incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K, filed with the SEC on October 27, 2004.
Interpublic’s Non-Management Directors’ Stock Incentive Plan (the “Non-Management
Directors’ Plan”) — Form of Instrument of Restricted Shares is incorporated by reference to
Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 27,
2004.
The Non-Management Directors’ Plan — Form of Instrument of Restricted Share Units is
incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K, filed
with the SEC on October 27, 2004.
The Non-Management Directors’ Plan — Form of Plan Option Certificate is incorporated by
reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K, filed with the SEC on
October 27, 2004.
Subsidiaries of the Registrant.
Power of Attorney to sign Form 10-K and resolution of Board of Directors re Power of Attorney.
Certification dated as of September 30, 2005 and executed by Michael I. Roth, under Section 302
of the Sarbanes-Oxley Act of 2002 (“S-OX”).
Certification dated as of September 30, 2005 and executed by Frank Mergenthaler, under
Section 302 of S-OX.
Certification dated as of September 30, 2005 and executed by Michael I. Roth and Frank
Mergenthaler, furnished pursuant to Section 906 of S-OX.
248
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Registrant)
By: /s/ Michael I. Roth*
Michael I. Roth
Chairman of the Board
and Chief Executive Officer
September 30, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Name
/s/ Michael I. Roth*
Michael I. Roth
/s/ Frank Mergenthaler*
Frank Mergenthaler
/s/ David A. Bell*
David A. Bell
/s/ Frank J. Borelli*
Frank J. Borelli
/s/ Reginald K. Brack*
Reginald K. Brack
/s/ Jill M. Considine*
Jill M. Considine
/s/ John J. Dooner, Jr.*
John J. Dooner, Jr.
/s/ Richard A. Goldstein*
Richard A. Goldstein
/s/ H. John Greeniaus*
H. John Greeniaus
Title
Date
Chairman of the Board, and Chief
Executive Officer (Principal Executive
Officer)
September 30,
2005
Executive Vice President, Chief Financial
Officer (Principal Financial Officer)
September 30,
2005
Director
Director
Director
Director
Director
Director
Director
249
September 30,
2005
September 30,
2005
September 30,
2005
September 30,
2005
September 30,
2005
September 30,
2005
September 30,
2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Name
/s/ J. Phillip Samper*
J. Phillip Samper
/s/ David M. Thomas*
David M. Thomas
/s/ Nicholas S. Cyprus*
Nicholas S. Cyprus
Title
Director
Director
Date
September 30,
2005
September 30,
2005
Senior Vice President and Controller
(Principal Accounting Officer)
September 30,
2005
*by
/s/ Nicholas J. Camera
Nicholas J. Camera
Attorney-in-Fact
September 30,
2005
250
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
3(i)
3(ii)
3(iii)
4(iii)(A)
4(iii)(B)
4(iii)(C)
4(iii)(D)
4(iii)(E)
4(iii)(F)
4(iii)(G)
4(iii)(H)
4(iii)(I)
EXHIBIT INDEX
Description
3
3
/8% Series A Senior Mandatory Convertible Preferred Stock of
/8% Series A Senior Mandatory Convertible Preferred Stock of
Restated Certificate of Incorporation of the Registrant, as amended through May 29, 2003, is
incorporated by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003 filed with the Securities and Exchange Commission (the
“SEC”) on November 14, 2003.
By-Laws of the Registrant, as amended and restated through January 18, 2005, are incorporated
by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on
January 21, 2005.
Certificate of Designations of 5
the Registrant, as filed with the Delaware Secretary of State on December 17, 2003 is
incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
with the SEC on December 19, 2003.
Certificate of Designations of 5
the Registrant, as filed with the Delaware Secretary of State on December 17, 2003, is
incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
with the SEC on December 19, 2003.
Senior Debt Indenture, dated as of October 20, 2000 (the “2000 Indenture”), between the
Registrant and The Bank of New York, as trustee, is incorporated by reference to Exhibit 99.1 to
the Registrant’s Current Report on Form 8-K filed with the SEC on October 24, 2000.
First Supplemental Indenture, dated as of August 22, 2001, to the 2000 Indenture, with respect to
the 7.25% Senior Unsecured Notes due 2011 is incorporated by reference to Exhibit 4.2 to the
Registrant’s Registration Statement on Form S-4 filed with the SEC on December 4, 2001.
Second Supplemental Indenture, dated as of December 14, 2001, to the 2000 Indenture, with
respect to the Zero-Coupon Convertible Senior Notes due 2021 is incorporated by reference to
Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 5,
2002.
Third Supplemental Indenture, dated as of March 13, 2003, to the 2000 Indenture, with respect to
the 4.50% Convertible Senior Notes due 2023 is incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2003.
Fifth Supplemental Indenture, dated as of March 28, 2005, to the 2000 Indenture, as modified by
the First Supplemental Indenture, dated as of August 22, 2001, with respect to the 7.25% Senior
Unsecured Notes due 2011 is incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed with the SEC on April 1, 2005.
Sixth Supplemental Indenture, dated as of March 30, 2005, to the 2000 Indenture, as modified by
the Third Supplemental Indenture, dated as of March 13, 2003, with respect to the
4.50% Convertible Senior Notes due 2023 is incorporated by reference to Exhibit 4.3 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Seventh Supplemental Indenture, dated as of August 11, 2005, to the 2000 Indenture, as modified
by the Third Supplemental Indenture, dated as of March 13, 2003, and the Sixth Supplemental
Indenture, dated as of March 30, 2005, with respect to the 4.50% Senior Convertible Notes due
2023 is incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on August 15, 2005.
Senior Debt Indenture entered into between the Registrant and Suntrust Bank, as Trustee, dated as
of November 12, 2004 (the “2004 Indenture”), is incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on November 15, 2004.
251
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
4(iii)(J)
4(iii)(K)
4(iii)(L)
4(iii)(M)
4(iii)(N)
10(i)(A)
10(i)(B)
10(i)(C)
10(i)(D)
10(i)(E)
10(i)(F)
10(i)(G)
Description
First Supplemental Indenture, dated as of November 18, 2004, to the 2004 Indenture, with respect
to the 5.40% Notes Due 2009 is incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on November 19, 2004.
Second Supplemental Indenture, dated as of November 18, 2004, to the 2004 Indenture, with
respect to the 6.25% Notes Due 2014 is incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on November 19, 2004.
Third Supplemental Indenture, dated as of March 28, 2005, to the 2004 Indenture, as modified by
the Second Supplemental Indenture, dated as of November 18, 2004, with respect to the
6.25% Senior Unsecured Notes due 2014 is incorporated by reference to Exhibit 4.4 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Fourth Supplemental Indenture, dated as of March 29, 2005, to the 2004 Indenture, as modified
by the First Supplemental Indenture, dated as of November 18, 2004, with respect to the
5.40% Senior Unsecured Notes due 2009 is incorporated by reference to Exhibit 4.5 to the
Registrant’s Current Report on Form 8-K filed with the SEC on April 1, 2005.
Fifth Supplemental Indenture, dated as of July 25, 2005, to the 2004 Indenture, with respect to the
Floating Rate Notes due 2008 is incorporated by reference to Exhibit 4.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on July 26, 2005.
3-Year Credit Agreement, dated as of May 10, 2004, among the Registrant, the Initial Lenders,
Initial Issuing Banks and Swing Line Bank, Named Therein and Citibank, N.A., as Administrative
Agent is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on May 12, 2004.
Amendment No. 1, dated as of September 29, 2004, to the 3-Year Agreement, dated as of May 10,
2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent is incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed with the SEC on November 5, 2004.
Amendment No. 2, dated as of March 31, 2005 to the 3-Year Agreement, dated as of May 10,
2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as amended
by Amendment No. 2, dated as of September 29, 2004 is incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on April 5, 2005.
Letter agreement, dated as of March 31, 2005, between the Registrant and the lenders party to the
3-Year Credit Agreement, waiving breaches of the 3-Year Credit Agreement is incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on
April 5, 2005.
Amendment No. 3, dated as of June 22, 2005 to the 3-Year Agreement, dated as of May 10, 2004,
among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as amended by
Amendment No. 1, dated as of September 29, 2004 and Amendment No. 2, dated as of March 31,
2005 is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K,
filed with the SEC on June 28, 2005.
Letter agreement, dated as of June 22, 2005, between the Registrant and the lenders party to the
3-Year Credit Agreement, waiving breaches of the 3-Year Credit Agreement is incorporated by
reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K, filed with the SEC on
June 28, 2005.
Amended and Restated 3-year Credit Agreement, dated as of May 10, 2004, amended and restated
as of September 27, 2005, among the Registrant, the Initial Lenders Named Therein, and
Citibank, N.A., as Administrative Agent.
252
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Table of Contents
Exhibit No.
10(i)(H)
10(i)(I)
10(i)(J)
10(i)(K)
10(i)(L)
10(i)(M)
(i) Michael Roth
10(iii)(A)(1)
10(iii)(A)(2)
10(iii)(A)(3)
10(iii)(A)(4)
(ii) David A. Bell
10(iii)(A)(5)
10(iii)(A)(6)
Description
364-Day Credit Agreement, dated as of May 10, 2004, among the Registrant, the Initial Lenders
Named therein and Citibank, N.A., as Administrative Agent is incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 12,
2004.
Amendment No. 1, dated as of September 29, 2004, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent is incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K, filed with the SEC on November 5, 2004.
Amendment No. 2, dated as of March 31, 2005, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent, as amended by Amendment No 1., dated as of September 29, 2004 is
incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed
with the SEC on April 5, 2005.
Letter agreement, dated as of March 31, 2005, between the Registrant and the lenders party to the
364-Day Credit Agreement, waiving breaches of the 364-Day Credit Agreement is incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC
on April 5, 2005.
Amendment No. 3, dated as of June 22, 2005, to the 364-Day Credit Agreement, dated as of
May 10, 2004, among the Registrant, the Initial Lenders Named Therein, and Citibank, N.A., as
Administrative Agent, as amended by Amendment No. 1, dated as of September 29, 2004 and
Amendment No. 2, dated as of March 31, 2005 is incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed with the SEC on June 28, 2005.
Letter agreement, dated as of June 22, 2005, between the Registrant and the lenders party to the
364-Day Credit Agreement, waiving breaches of the 364-Day Credit Agreement is incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed with the SEC
on June 28, 2005.
Employment Agreement, made as of July 13, 2004, by and between the Registrant and Michael I.
Roth, is incorporated by reference to Exhibit 10(iii)(A)(9) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2004.
Executive Severance Agreement, dated July 13, 2004 and executed as of July 27, 2004, by and
between the Registrant and Michael I. Roth, is incorporated by reference to Exhibit 10(iii)(A)(10)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2004.
Supplemental Employment Agreement, dated as of January 19, 2005, between the Registrant and
Michael I. Roth, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on January 21, 2005.
Supplemental Employment Agreement, dated as of February 14, 2005, between the Registrant and
Michael I. Roth, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on February 17, 2005.
David A. Bell Employment Agreement, dated as of January 1, 2000, between True North
Communications Inc. and David A. Bell is incorporated by reference to Exhibit 10(b)(iii)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2001.
Employment Agreement Amendment, dated as of March 1, 2001, to an Employment Agreement,
dated as of January 1, 2000, between True North Communications Inc. and David A. Bell is
incorporated by reference to Exhibit 10(b)(iii)(b) to the Registrant’s Report on Form 10-K for the
year ended December 31, 2001.
253
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Table of Contents
Exhibit No.
10(iii)(A)(7)
10(iii)(A)(8)
10(iii)(A)(9)
10(iii)(A)(10)
10(iii)(A)(11)
(iii) Nicholas J. Camera
10(iii)(A)(12)
10(iii)(A)(13)
10(iii)(A)(14)
10(iii)(A)(15)
10(iii)(A)(16)
(iv) Albert Conte
10(iii)(A)(17)
10(iii)(A)(18)
10(iii)(A)(19)
Description
Employment Agreement Amendment, dated as of June 1, 2001, and signed as of October 1, 2002,
between True North Communications Inc. and David A. Bell to an Employment Agreement,
dated as of January 1, 2000, as amended, is incorporated by reference to Exhibit 10(b)(i)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of February 28, 2003, to an Employment Agreement, made as
of January 1, 2000, between the Registrant and David A. Bell, is incorporated by reference to
Exhibit 10(iii)(A)(i) to the Registrant’s Report on Form 10-Q for the quarter ended March 31,
2003.
Executive Special Benefit Agreement, made as of April 1, 2003, by and between the Registrant
and David A. Bell, is incorporated by reference to Exhibit 10(iii)(A)(i)(a) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
Memorandum dated May 1, 2003, from David A. Bell, providing for Cancellation of Certain
Stock Options, is incorporated by reference to Exhibit 10(iii)(A)(I)(b) to the Registrant’s Report
on Form 10-Q for the quarter ended June 30, 2003.
Employment Agreement, dated as of January 18, 2005, between the Registrant and David A. Bell,
is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed
with the SEC on January 21, 2005.
Executive Special Benefit Agreement, dated as of January 1, 1995, between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(b)(v)(c) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2002.
Executive Severance Agreement, dated as of January 1, 1998, between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(b)(vi)(a) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Employment Agreement, dated as of November 14, 2002, between the Registrant and Nicholas J.
Camera, is incorporated by reference to Exhibit 10(b)(v)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of January 1, 2003 and executed as of June 23, 2003 to an
Executive Severance Agreement, made as of January 1, 1998, by and between the Registrant and
Nicholas J. Camera, is incorporated by reference to Exhibit 10(iii)(A)(iii)(a) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made
as of January 1, 1998, by and between the Registrant and Nicholas J. Camera, is incorporated by
reference to Exhibit 10(iii)(A)(iii)(b) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Employment Agreement, dated as of February 21, 2000, between the Registrant and Albert Conte,
is incorporated by reference to Exhibit 10(b)(vii)(a) to the Registrant’s Report on Form 10-K for
the year ended December 31, 2001.
Supplemental Agreement, made as of June 15, 2004, to an Employment Agreement, made as of
February 21, 2000, by and between the Registrant and Albert Conte, is incorporated by reference
to Exhibit 10(iii)(A)(3) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
The Interpublic Capital Accumulation Plan Participation Agreement, effective June 15, 2004, by
and between the Registrant and Albert Conte, is incorporated by reference to Exhibit 10(iii)(A)(4)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2004.
254
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
10(iii)(A)(20)
(v) Nicholas S. Cyprus
10(iii)(A)(21)
10(iii)(A)(22)
10(iii)(A)(23)
(vi) Thomas Dowling
10(iii)(A)(24)
10(iii)(A)(25)
10(iii)(A)(26)
10(iii)(A)(27)
10(iii)(A)(28)
10(iii)(A)(29)
(vii) Steven Gatfield
10(iii)(A)(30)
10(iii)(A)(31)
10(iii)(A)(32)
Executive Special Benefit Agreement, made as of January 1, 2002 and executed as of June 26,
2004, by and between the Registrant and Albert Conte, is incorporated by reference to
Exhibit 10(iii)(A)(5) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
Description
Employment Agreement, made as of May 2004, by and between the Registrant and Nicholas S.
Cyprus, is incorporated by reference to Exhibit 10(iii)(A)(6) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2004.
Executive Severance Agreement, made as of May 24, 2004, by and between the Registrant and
Nicholas S. Cyprus, is incorporated by reference to Exhibit 10(iii)(A)(7) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2004.
The Interpublic Capital Accumulation Plan Participation Agreement, effective May 15, 2004, by
and between the Registrant and Nicholas S. Cyprus, is incorporated by reference to
Exhibit 10(iii)(A)(8) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
Employment Agreement, dated as of November 1999, between the Registrant and Thomas
Dowling, is incorporated by reference to Exhibit 10(b)(iii)(A)(1) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2002.
Executive Special Benefit Agreement, dated as of February 1, 2000, between the Registrant and
Thomas Dowling, is incorporated by reference to Exhibit 10(b)(viii)(a) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Executive Special Benefit Agreement, dated as of February 1, 2001, between the Registrant and
Thomas Dowling, is incorporated by reference to Exhibit 10(b)(viii)(b) to the Registrant’s Report
on Form 10-K for the year ended December 31, 2001.
Supplemental Agreement, dated as of October 1, 2002, to an Employment Agreement, dated as of
November 1999, between the Registrant and Thomas Dowling, is incorporated by reference to
Exhibit 10(b)(vii)(b) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, dated as of November 14, 2002, to an Employment Agreement, dated
as of November 1999, between the Registrant and Thomas Dowling, is incorporated by reference
to Exhibit 10(b)(vii)(a) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Executive Severance Agreement, dated November 14, 2002, between the Registrant and Thomas
Dowling, is incorporated by reference to Exhibit 10(iii)(A)(vii) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Employment Agreement, made as of February 2, 2004, by and between the Registrant and Steve
Gatfield, is incorporated by reference to Exhibit 10(iii)(A)(1) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
Participation Agreement under The Interpublic Senior Executive Retirement Income Plan, dated
as of January 30, 2004, between the Registrant and Steve Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrant’s Report on Form 10-Q for the quarter ended March 31,
2004.
Executive Severance Agreement, made as of April 1, 2004, by and between the Registrant and
Steve Gatfield, is incorporated by reference to Exhibit 10(iii)(A)(3) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
255
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
(viii) Philippe Krakowsky
10(iii)(A)(33)
10(iii)(A)(34)
10(iii)(A)(35)
10(iii)(A)(36)
10(iii)(A)(37)
10(iii)(A)(38)
10(iii)(A)(39)
(ix) Robert J. Thompson
10(iii)(A)(40)
10(iii)(A)(41)
(x) Frank Mergenthaler
10(iii)(A)(42)
10(iii)(A)(43)
(xi) Timothy A. Sompolski
10(iii)(A)(44)
10(iii)(A)(45)
Description
Employment Agreement, dated as of January 28, 2002, between the Registrant and Philippe
Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(2) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2002.
Executive Special Benefit Agreement, dated as of February 1, 2002, and signed as of July 1, 2002,
between the Registrant and Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(v) to the Registrant’s Report on Form 10-Q for the quarter ended September 30,
2002.
Special Deferred Compensation Agreement, dated as of April 1, 2002, and signed as of July 1,
2002, between the Registrant and Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(iv) to the Registrant’s Report on Form 10-Q for the quarter ended
September 30, 2002.
Executive Severance Agreement, dated September 13, 2002, between the Registrant and Philippe
Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(vi) to the Registrant’s Report on
Form 10-Q for the quarter ended September 30, 2002.
Executive Special Benefit Agreement, dated September 30, 2002, between the Registrant and
Philippe Krakowsky, is incorporated by reference to Exhibit 10(iii)(A)(vi) to the Registrant’s
Report on Form 10-Q for the quarter ended September 30, 2002.
Supplemental Agreement, made as of April 8, 2003, to an Employment Agreement, made as of
January 28, 2002, by and between the Registrant and Philippe Krakowsky, is incorporated by
reference to Exhibit 10(iii)(A)(viii)(a) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, made
as of November 14, 2002, by and between the Registrant and Philippe Krakowsky, is incorporated
by reference to Exhibit 10(iii)(A)(viii)(b) to the Registrant’s Report on Form 10-Q for the quarter
ended June 30, 2003.
Employment Agreement, dated as of October 1, 2003, between the Registrant and Robert J.
Thompson, is incorporated by reference to Exhibit 10(b)(vii)(a) to the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2003.
Capital Accumulation Plan Participation Agreement, entered into as of November 12, 2003,
between the Registrant and Robert J. Thompson, is incorporated by reference to
Exhibit 10(b)(vii)(b) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Employment Agreement, made as of July 13, 2005, between the Registrant and Frank
Mergenthaler is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on July 19, 2005.
Executive Severance Agreement, made as of July 13, 2005, between the Registrant and Frank
Mergenthaler is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on July 19, 2005.
Employment Agreement, made as of July 6, 2004, by and between the Registrant and Timothy
Sompolski, is incorporated by reference to Exhibit 10(iii)(A)(11) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2004.
Executive Severance Agreement, made as of July 6, 2004, by and between the Registrant and
Timothy Sompolski, is incorporated by reference to Exhibit 10(iii)(A)(12) to the Registrant’s
Report on Form 10-Q for the quarter ended March 31, 2004.
256
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Table of Contents
Exhibit No.
10(iii)(A)(46)
(xii) John J. Dooner, Jr.
10(iii)(A)(47)
10(iii)(A)(48)
10(iii)(A)(49)
10(iii)(A)(50)
10(iii)(A)(51)
10(iii)(A)(52)
10(iii)(A)(53)
10(iii)(A)(54)
10(iii)(A)(55)
10(iii)(A)(56)
10(iii)(A)(57)
10(iii)(A)(58)
10(iii)(A)(59)
The Interpublic Capital Accumulation Plan Participation Agreement, effective July 6, 2004, by
and between the Registrant and Timothy Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(13) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2004.
Description
Executive Special Benefit Agreement, dated as of July 1, 1986, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(e) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Executive Severance Agreement, dated as of August 10, 1987, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(h) to the Registrant’s Report on Form 10-K
for the year ended December 31, 1995.
Supplemental Agreement, dated as of May 23, 1990, to an Executive Special Benefit Agreement,
dated as of July 1, 1986, between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(l) to the Registrant’s Report on Form 10-K for the year ended
December 31, 1995.
Executive Special Benefit Agreement, dated as of, July 1, 1992, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(q) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of August 10, 1992, to an Executive Severance Agreement,
dated as of August 10, 1987, between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(p) to the Registrant’s Report on Form 10-K for the year ended
December 31, 1995.
Employment Agreement, dated as of January 1, 1994, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(r) to the Registrant’s Report on Form 10-K
for the year ended December 31, 1995.
Executive Special Benefit Agreement, dated as of June 1, 1994, between the Registrant and John
J. Dooner, Jr., is incorporated by reference to Exhibit 10(s) to the Registrant’s Report on
Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of July 1, 1995, to an Employment Agreement between the
Registrant and John J. Dooner, Jr., dated as of January 1, 1994, is incorporated by reference to
Exhibit 10(B) to the Registrant’s Report on Form 10-Q for the quarter ended September 30, 1995.
Supplemental Agreement, dated as of July 1, 1995, to an Employment Agreement, dated as of
January 1, 1994, between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(t) to the Registrant’s Report on Form 10-K for the year ended December 31, 1995.
Supplemental Agreement, dated as of September 1, 1997, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(k) to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 1997.
Executive Severance Agreement, dated January 1, 1998, between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(b) to the Registrant’s Report on Form 10-Q
for the quarter ended March 31, 1998.
Supplemental Agreement, dated as of January 1, 1999, to an Employment Agreement dated as of
January 1, 1994, between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(e) to the Registrant’s Report on Form 10-Q for the quarter ended March 31, 1999.
Supplemental Agreement, dated as of April 1, 2000, to an Employment Agreement between the
Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b) to the
Registrant’s Report on Form 10-Q for the quarter ended March 31, 2000.
257
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Table of Contents
Exhibit No.
10(iii)(A)(60)
10(iii)(A)(61)
10(iii)(A)(62)
10(iii)(A)(63)
10(iii)(A)(64)
10(iii)(A)(65)
10(iii)(A)(66)
10(iii)(A)(67)
(xiii) Jill Considine
10(iii)(A)(68)
(xiv) Richard A. Goldstein
10(iii)(A)(69)
(xv) Christopher J. Coughlin
10(iii)(A)(70)
10(iii)(A)(71)
Description
Executive Special Benefit Agreement, dated as of May 20, 2002, between the Registrant and John
J. Dooner, Jr., signed as of November 11, 2002, is incorporated by reference to
Exhibit 10(b)(xv)(c) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, dated as of November 7, 2002, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b)(xv)(a) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, dated as of November 7, 2002, to an Executive Special Benefit
Agreement between the Registrant and John J. Dooner, Jr., is incorporated by reference to
Exhibit 10(b)(xv)(b) to the Registrant’s Report on Form 10-K for the year ended December 31,
2002.
Supplemental Agreement, made as of January 1, 2003 and executed as of June 17, 2003, to an
Executive Severance Agreement, made as of January 1, 1998, by and between the Registrant and
John J. Dooner, Jr., is incorporated by reference to Exhibit 10(iii)(A)(iv)(b) to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2003.
Supplemental Agreement, made as of March 31, 2003, to an Employment Agreement made as of
January 1, 1994, as amended between the Registrant and John J. Dooner, Jr., is incorporated by
reference to Exhibit 10(iii)(A)(v) to the Registrant’s Report on Form 10-Q for the quarter ended
March 31, 2003.
Supplemental Agreement, made as of March 31, 2003 and executed as of April 15, 2003, to an
Employment Agreement, made as of January 1, 1994, by and between the Registrant and John J.
Dooner, Jr., is incorporated by reference to Exhibit 10(iii)(A)(iv)(a) to the Registrant’s Report on
Form 10-Q for the quarter ended June 30, 2003.
Letter Agreement, dated May 8, 2003, between the Registrant and John J. Dooner, Jr., providing
for cancellation of certain Stock Options, is incorporated by reference to Exhibit 10(iii)(A)(iv)(c)
to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2003.
Supplemental Agreement dated as of November 12, 2003, to an Employment Agreement between
the Registrant and John J. Dooner, Jr., is incorporated by reference to Exhibit 10(b)(viii)(u) to the
Registrant’s Report on Form 10-K for the year ended December 31, 2003.
Deferred Compensation Agreement, dated as of April 1, 2002, between the Registrant and Jill
Considine, is incorporated by reference to Exhibit 10(c) to the Registrant’s Report on Form 10-Q
for the quarter ended June 30, 2002.
Richard A Goldstein Deferred Compensation Agreement, dated as of June 1, 2001, between the
Registrant and Richard A. Goldstein, is incorporated by reference to Exhibit 10(c) to Registrant’s
Report on Form 10-Q for the quarter ended June 30, 2001.
Employment Agreement, made as of May 6, 2003, by and between the Registrant and Christopher
J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(ii) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Executive Special Benefit Agreement, made as of June 16, 2003, by and between the Registrant
and Christopher J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(iii) to the
Registrant’s Report on Form 10-Q for the quarter ended March 31, 2003.
258
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Table of Contents
Exhibit No.
10(iii)(A)(72)
10(iii)(A)(73)
(xvi) Brian Brooks
10(iii)(A)(74)
10(iii)(A)(75)
10(iii)(A)(76)
10(iii)(A)(77)
10(iii)(A)(78)
10(iii)(A)(79)
10(iii)(A)(80)
10(iii)(A)(81)
10(iii)(A)(82)
(xvii) Gunnar Wilmot
10(iii)(A)(83)
10(iii)(A)(84)
10(iii)(A)(85)
Description
Executive Severance Agreement, made as of June 16, 2003, by and between the Registrant and
Christopher J. Coughlin, is incorporated by reference to Exhibit 10(iii)(A)(iv) to the Registrant’s
Report on Form 10-Q for the quarter ended March 31, 2003.
Confidential Separation Agreement and General Release, between the Registrant and Christopher
J. Coughlin is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K, filed with the SEC on January 6, 2005.
Executive Severance Agreement, dated November 8, 2002, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(iii)(A)(ix) to the Registrant’s Report on
Form 10-Q for the quarter ended March 31, 2003.
Employment Agreement, dated as of November 18, 2002, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(b)(viii)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Supplemental Agreement, made as of April 7, 2003, to an Employment Agreement, dated as of
November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(iii)(A)(ii)(a) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
Supplemental Agreement, made as of May 20, 2003, to an Employment Agreement, dated as of
November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(iii)(A)(ii)(b) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
Supplemental Agreement, made as of June 16, 2003, to an Executive Severance Agreement, dated
as of November 14, 2002, between the Registrant and Brian Brooks, is incorporated by reference
to Exhibit 10(iii)(A)(ii)(c) to the Registrant’s Report on Form 10-Q for the quarter ended June 30,
2003.
Senior Executive Retirement Income Plan Participation Agreement, effective as of November 10,
2003, between the Registrant and Brian Brooks, is incorporated by reference to
Exhibit 10(b)(xi)(g) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Supplemental Agreement, made as of November 10, 2003, to an Employment Agreement, dated
as of November 18, 2002, between the Registrant and Brian Brooks, is incorporated by reference
to Exhibit 10(b)(xi)(h) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Confidential Separation Agreement and General Release, between the Registrant and Brian
Brooks, is incorporated by reference to Exhibit 10(b)(xi)(i) to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2003.
Supplemental Agreement, made as of January 31, 2005, to a Confidential Agreement and General
Release, made as of February 27, 2004, by and between the Registrant and Brian J. Brooks.
Executive Special Benefit Agreement, dated as of January 1, 1990, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(d) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
Supplemental Agreement, dated as of May 23, 1990, to an Executive Special Benefit Agreement,
dated as of January 1, 1990, between the Registrant and Gunnar Wilmot, is incorporated by
reference to Exhibit 10(b)(x)(c) to the Registrant’s Report on Form 10-K for the year ended
December 31, 2001.
Executive Special Benefit Agreement, dated as of October 1, 1996, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(b) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
259
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Table of Contents
Exhibit No.
10(iii)(A)(86)
10(iii)(A)(87)
10(iii)(A)(88)
10(iii)(A)(89)
10(iii)(A)(90)
10(iii)(A)(91)
10(iii)(A)(92)
10(iii)(A)(93)
10(iii)(A)(94)
10(iii)(A)(95)
10(iii)(A)(96)
10(iii)(A)(97)
10(iii)(A)(98)
10(iii)(A)(99)
10(iii)(A)(100)
10(iii)(A)(101)
10(iii)(A)(102)
Description
Executive Special Benefit Agreement, dated as of April 1, 1999, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2001.
Executive Special Benefit Agreement, dated as of January 1, 2002, between the Registrant and
Gunnar Wilmot, is incorporated by reference to Exhibit 10(b)(x)(a) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2002.
Letter Agreement, dated June 27, 2003, between the Registrant and Gunnar Wilmot providing for
the Cancellation of Certain Stock Options is incorporated by reference to Exhibit 10(iii)(A)(xi) to
the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2003.
Executive Special Benefit Agreement, dated as of May 16, 2003, and signed as of November 6,
2003, between the Registrant and Gunnar Wilmot, is incorporated by reference to
Exhibit 10(b)(xiii)(g) to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
Trust Agreement, dated as of June 1, 1990, between the Registrant, Lintas Campbell-Ewald
Company, McCann-Erickson USA, Inc., McCann-Erickson Marketing, Inc., Lintas, Inc. and
Chemical Bank, as Trustee, is incorporated by reference to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1990.
The Stock Option Plan (1988) and the Achievement Stock Award Plan of the Registrant are
incorporated by reference to Appendices C and D of the Prospectus, dated May 4, 1989, forming
part of its Registration Statement on Form S-8 (No. 33-28143).
The Management Incentive Compensation Plan of the Registrant is incorporated by reference to
the Registrant’s Report on Form 10-Q for the quarter ended June 30, 1995.
The 1986 Stock Incentive Plan of the Registrant is incorporated by reference to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 1993.
The 1986 United Kingdom Stock Option Plan of the Registrant is incorporated by reference to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992.
The Employee Stock Purchase Plan (1985) of the Registrant, as amended, is incorporated by
reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993.
The Long-Term Performance Incentive Plan of the Registrant is incorporated by reference to
Appendix A of the Prospectus dated December 12, 1988 forming part of its Registration
Statement on Form S-8 (No. 33-25555).
Resolution of the Board of Directors adopted on February 16, 1993, amending the Long-Term
Performance Incentive Plan is incorporated by reference to the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1992.
Resolution of the Board of Directors adopted on May 16, 1989 amending the Long-Term
Performance Incentive Plan is incorporated by reference to the Registrant’s Report on Form 10-K
for the year ended December 31, 1989.
The 1996 Stock Incentive Plan of the Registrant is incorporated by reference to the Registrant’s
Report on Form 10-Q for the quarter ended June 30, 1996.
The 1997 Performance Incentive Plan of the Registrant is incorporated by reference to the
Registrant’s Report on Form 10-Q for the quarter ended June 30, 1997.
True North Communications Inc. Stock Option Plan is incorporated by reference to Exhibit 4.5 of
Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on Form S-4
(Registration No. 333-59254).
Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock Option Plan is incorporated by reference to
Exhibit 4.5 of Post-Effective Amendment No. 1 on Form S-8 to Registration Statement on
Form S-4 (Registration No. 333-59254).
260
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
10(iii)(A)(103)
10(iii)(A)(104)
10(iii)(A)(105)
10(iii)(A)(106)
10(iii)(A)(107)
10(iii)(A)(108)
10(iii)(A)(109)
10(iii)(A)(110)
10(iii)(A)(111)
10(iii)(A)(112)
10(iii)(A)(113)
10(iii)(A)(114)
10(iii)(A)(115)
10(iii)(A)(116)
10(iii)(A)(117)
10(iii)(A)(118)
(21)
(24)
Description
True North Communications Inc. Deferred Compensation Plan is incorporated by reference to
Exhibit (c)(xiv) of the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2002.
Resolution of the Board of Directors of True North Communications Inc. adopted on March 1,
2002 amending the Deferred Compensation Plan is incorporated by reference to Exhibit (c)(xv) of
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.
The 2002 Performance Incentive Plan of the Registrant is incorporated by reference to Appendix
A to the Registrant’s Proxy Statement on Schedule 14A, filed April 17, 2002.
The Interpublic Senior Executive Retirement Income Plan is incorporated by reference to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 2003.
The Interpublic Capital Accumulation Plan is incorporated by reference to the Registrant’s Report
on Form 10-Q for the quarter ended September 30, 2003.
The Interpublic Outside Directors Stock Incentive Plan of Interpublic, as amended through
August 1, 2003, is incorporated by reference to the Registrant’s Report on Form 10-Q for the
quarter ended September 30, 2003.
2004 Performance Incentive Plan of the Registrant is incorporated by reference to Appendix B to
the Registrant’s Proxy Statement on Schedule 14A, filed with the SEC on April 23, 2004.
The Interpublic Non-Management Directors’ Stock Incentive Plan is incorporated by reference to
Appendix C to the Registrant’s Proxy Statement on Schedule 14A, filed with the SEC on
April 23, 2004.
The Interpublic Senior Executive Retirement Income Plan — Form of Participation Agreement is
incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K, filed
with the SEC on October 27, 2004.
The Interpublic Capital Accumulation Plan — Form of Participation Agreement is incorporated
by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K, filed with the SEC
on October 27, 2004.
The Interpublic Group of Companies, Inc. 2004 Performance Incentive Plan (the “PIP”) — Form
of Instrument of Restricted Stock is incorporated by reference to Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K, filed with the SEC on October 27, 2004.
PIP — Form of Instrument of Restricted Stock Units is incorporated by reference to Exhibit 10.3
to the Registrant’s Current Report on Form 8-K, filed with the SEC on October 27, 2004.
PIP — Form of Option Certificate is incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K, filed with the SEC on October 27, 2004.
Interpublic’s Non-Management Directors’ Stock Incentive Plan (the “Non-Management
Directors’ Plan”) — Form of Instrument of Restricted Shares is incorporated by reference to
Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 27,
2004.
The Non-Management Directors’ Plan — Form of Instrument of Restricted Share Units is
incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K, filed
with the SEC on October 27, 2004.
The Non-Management Directors’ Plan — Form of Plan Option Certificate is incorporated by
reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K, filed with the SEC on
October 27, 2004.
Subsidiaries of the Registrant.
Power of Attorney to sign Form 10-K and resolution of Board of Directors re Power of Attorney.
261
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Table of Contents
Exhibit No.
(31.1)
(31.2)
(32)
Description
Certification dated as of September 30, 2005 and executed by Michael I. Roth, under Section 302
of the Sarbanes-Oxley Act of 2002 (“S-OX”).
Certification dated as of September 30, 2005 and executed by Frank Mergenthaler, under
Section 302 of S-OX.
Certification dated as of September 30, 2005 and executed by Michael I. Roth and Frank
Mergenthaler, furnished pursuant to Section 906 of S-OX.
262
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 10(i)(G)
U.S. $450,000,000
3-YEAR CREDIT AGREEMENT
Dated as of May 10, 2004
AMENDED AND RESTATED as of September 27, 2005
Among
THE INTERPUBLIC GROUP OF COMPANIES, INC.
as Company
THE INITIAL LENDERS, INITIAL ISSUING BANKS AND SWING LINE BANK NAMED HEREIN
as Initial Lenders, Initial Issuing Banks and Swing Line Bank
CITIBANK, N.A.
as Administrative Agent
JPMORGAN CHASE BANK
as Syndication Agent
HSBC BANK USA,
LLOYDS TSB BANK PLC
and
UBS AG, STAMFORD BRANCH
as Co-Documentation Agents
and
CITIGROUP GLOBAL MARKETS INC.
as Lead Arranger and Book Manager
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms
SECTION 1.02. Computation of Time Periods
SECTION 1.03. Accounting Terms
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT
SECTION 2.01. The Advances
SECTION 2.02. Making the Advances
SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit
SECTION 2.04. Fees
SECTION 2.05. Optional Termination or Reduction of the Commitments
SECTION 2.06. Repayment
SECTION 2.07. Interest on Advances
SECTION 2.08. Interest Rate Determination
SECTION 2.09. Optional Conversion of Revolving Credit Advances
SECTION 2.10. Prepayments of Advances
SECTION 2.11. Increased Costs
SECTION 2.12. Illegality
SECTION 2.13. Payments and Computations
SECTION 2.14. Taxes
SECTION 2.15. Sharing of Payments, Etc.
SECTION 2.16. Evidence of Debt
SECTION 2.17. Use of Proceeds
SECTION 2.18. Temporary Waiver of Remedies
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Amendment and Restatement
SECTION 3.02. Initial Advance to Each Designated Subsidiary
3-year Credit Agreement
1
1
12
12
12
12
13
15
16
17
17
18
18
19
20
21
21
22
22
24
24
24
25
25
25
26
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 3.03. Conditions Precedent to Each Borrowing and Issuance
SECTION 3.04. Determinations Under Sections 3.01 and 3.02
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Company
ARTICLE V COVENANTS OF THE COMPANY
SECTION 5.01. Affirmative Covenants
SECTION 5.02. Negative Covenants
SECTION 5.03. Financial Covenants
ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. Events of Default
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default
ARTICLE VII GUARANTY
SECTION 7.01. Guaranty
SECTION 7.02. Guaranty Absolute
SECTION 7.03. Waivers and Acknowledgments
SECTION 7.04. Subrogation
SECTION 7.05. Continuing Guaranty; Assignments
ARTICLE VIII THE AGENT
SECTION 8.01. Authorization and Action
SECTION 8.02. Agent’s Reliance, Etc.
SECTION 8.03. Citibank and Affiliates
SECTION 8.04. Lender Credit Decision
SECTION 8.05. Indemnification
SECTION 8.06. Successor Agent
SECTION 8.07. Sub-Agent
SECTION 8.08. Other Agents.
ARTICLE IX MISCELLANEOUS
SECTION 9.01. Amendments, Etc.
3-year Credit Agreement
ii
27
27
27
27
29
29
31
34
36
36
38
39
39
39
40
40
41
41
41
41
42
42
42
42
43
43
43
43
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 9.02. Notices, Etc.
SECTION 9.03. No Waiver; Remedies
SECTION 9.04. Costs and Expenses
SECTION 9.05. Right of Set-off
SECTION 9.06. Binding Effect
SECTION 9.07. Assignments and Participations
SECTION 9.08. Confidentiality
SECTION 9.09. Designated Subsidiaries
SECTION 9.10. Governing Law
SECTION 9.11. Execution in Counterparts
SECTION 9.12. Judgment
SECTION 9.13. Jurisdiction, Etc.
SECTION 9.14. Substitution of Currency
SECTION 9.15. No Liability Regarding Letters of Credit
SECTION 9.16. Patriot Act Notification
SECTION 9.17. Waiver of Jury Trial
3-year Credit Agreement
iii
43
44
44
45
45
46
48
48
49
49
49
49
50
50
50
51
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Schedules
Schedule I
Schedule 2.01(c)
Schedule 5.02(e)
Schedule 5.02(h)
Schedule 5.03(b)
Exhibits
Exhibit A
Exhibit B
Exhibit C
Exhibit D-1
Exhibit D-2
Exhibit E
- List of Applicable Lending Offices
- Existing Letters of Credit
- Acquisitions
- Subsidiary Debt
- Terms of Subordination
- Form of Note
- Form of Notice of Borrowing
- Form of Assignment and Acceptance
- Form of Opinion of Cleary, Gottlieb, Steen & Hamilton
- Form of Opinion of In-House Counsel for the Company
- Form of Designation Agreement
3-year Credit Agreement
iv
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
3-YEAR CREDIT AGREEMENT
Dated as of May 10, 2004
AMENDED AND RESTATED as of September 27, 2005
THE INTERPUBLIC GROUP OF COMPANIES, INC., a Delaware corporation (the “Company”), the banks, financial
institutions and other institutional lenders (the “Initial Lenders”) and initial issuing banks (the “Initial Issuing Banks”) and Swing Line
Banks (as hereinafter defined) listed on the signature pages hereof, JPMORGAN CHASE BANK, N,.A., as Syndication Agent, HSBC
BANK USA, LLOYDS TSB BANK PLC AND UBS AG, STAMFORD BRANCH, as co-documentation agents, CITIGROUP
GLOBAL MARKETS INC., as lead arranger and book manager, and CITIBANK, N.A. (“Citibank”), as administrative agent (the
“Agent”) for the Lenders (as hereinafter defined), agree as follows:
PRELIMINARY STATEMENT. The Company, the lenders parties thereto and Citibank, as agent, are parties to the 3-Year
Credit Agreement dated as of May 10, 2004, as amended as of September 29, 2004, March 31, 2005 and June 22, 2005 (the “Existing
Credit Agreement”). Subject to the satisfaction of the conditions set forth in Section 3.01, the Borrower, the parties hereto and
Citibank, as Agent, desire to amend and restate the Existing Credit Agreement as herein set forth.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of the terms defined):
“Advance” means a Revolving Credit Advance or a Swing Line Advance.
“Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person. For purposes of this definition, the term “control” (including the
terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the
power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of
such Person, whether through the ownership of Voting Stock, by contract or otherwise.
“Agent’s Account” means (a) in the case of Advances denominated in Dollars, the account of the Agent maintained by the
Agent at Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 36852248, Attention: Bank Loan
Syndications, (b) in the case of Advances denominated in any Committed Currency, the account of the Sub-Agent designated in
writing from time to time by the Agent to the Company and the Lenders for such purpose and (c) in any such case, such other
account of the Agent as is designated in writing from time to time by the Agent to the Company and the Lenders for such purpose.
“Applicable Lending Office” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base
Rate Advance and such Lender’s Eurocurrency Lending Office in the case of a Eurocurrency Rate Advance.
“Amendment and Restatement” has the meaning specified in Section 3.01.
3-year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Applicable Margin” means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect
on such date as set forth below:
Public Debt Rating
S&P/Moody's
Level 1
BB+ and Ba1 or above
Level 2
BB and Ba2
Level 3
Lower than Level 2
Applicable
Margin for
Base Rate
Advances
Applicable
Margin for
Eurocurrency
Rate Advances
0.150%
1.150%
0.550%
1.550%
0.750%
1.750%
“Applicable Percentage” means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in
effect on such date as set forth below:
Public Debt Rating
S&P/Moody's
Level 1
BB+ and Ba1 or above
Level 2
BB and Ba2
Level 3
Lower than Level 2
Applicable
Percentage
0.350%
0.450%
0.500%
“Applicable Utilization Fee” means, as of any date that the sum of the aggregate Advances plus the aggregate Available Amount
of Letters of Credit exceeds 50% of the aggregate Revolving Credit Commitments, a percentage per annum determined by
reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating
S&P/Moody's
Level 1
BB+ and Ba1 or above
Level 2
BB and Ba2
Level 3
Lower than Level 2
Applicable
Utilization Fee
0.250%
0.500%
0.500%
“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and
accepted by the Agent, in substantially the form of Exhibit C hereto.
“Available Amount” of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter
of Credit at such time (assuming compliance at such time with all conditions to drawing), converting all non-Dollar amounts into
the Dollar Equivalent thereof at such time.
“Base Rate” means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate;
3-year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1%
per annum, plus (ii) the rate obtained by dividing (A) the latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates of deposit of major United States money market banks, such
three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by
Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of
New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank
from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to
100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including
(among other liabilities) three-month U.S. dollar non-personal time deposits in the United States, plus (iii) the average during
such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment
payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring U.S. dollar deposits of Citibank
in the United States; and
(c) 1/2 of one percent per annum above the Federal Funds Rate.
“Base Rate Advance” means an Advance denominated in Dollars that bears interest as provided in Section 2.07(a)(i).
“Borrower Information” has the meaning specified in Section 9.08.
“Borrowers” means, collectively, the Company and the Designated Subsidiaries from time to time.
“Borrowing” means a Revolving Credit Borrowing or a Swing Line Borrowing.
“Business Day” means a day of the year on which banks are not required or authorized by law to close in New York City and, if
the applicable Business Day relates to any Eurocurrency Rate Advances, on which dealings are carried on in the London interbank
market and banks are open for business in London and in the country of issue of the currency of such Eurocurrency Rate Advance
(or, in the case of an Advance denominated in Euros, on which the Trans-European Automated Real-Time Gross Settlement
Express Transfer (TARGET) System is open).
“Commitment” means a Revolving Credit Commitment, Swing Line Commitment or a Letter of Credit Commitment.
“Committed Currencies” means lawful currency of the United Kingdom of Great Britain and Northern Ireland, lawful currency
of The Swiss Federation, lawful currency of Japan, Euro and any other currency requested by the applicable Borrower that can be
provided by all Lenders.
“Committed L/C Currencies” means lawful currency of the United Kingdom of Great Britain and Northern Ireland, lawful
currency of The Swiss Federation, lawful currency of Japan, lawful currency of Singapore, lawful currency of Canada, lawful
currency of Sweden, lawful currency of Denmark, lawful currency of Australia, Euro and any other currency requested by the
applicable Borrower that can be provided by all Issuing Banks.
“Consolidated” refers to the consolidation of accounts in accordance with GAAP.
3-year Credit Agreement
3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Consolidated Subsidiary” means at any date any Subsidiary or other entity the accounts of which would be consolidated with
those of the Company in its Consolidated financial statements as of such date.
“Convert”, “Conversion” and “Converted” each refers to a conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.08 or 2.09.
“Debt” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of
such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments,
(d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been
or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (f) all obligations, contingent
or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (g) all obligations of such
Person in respect of Hedge Agreements, (h) all Debt of others referred to in clauses (a) through (g) above or clause (i) below
guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through
an agreement (1) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (2) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Debt or to assure the holder of such Debt against loss, (3) to supply funds to or in any other manner invest
in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such
services are rendered) or (4) otherwise to assure a creditor against loss, and (i) all Debt referred to in clauses (a) through (h) above
secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt; provided, however, that the term “Debt” shall not include obligations
under agreements providing for indemnification, deferred purchase price payments or similar obligations incurred or assumed in
connection with the acquisition or disposition of assets or stock, whether by merger or otherwise.
“Debt for Borrowed Money” of the Company means, without duplication, Debt for money borrowed (including unreimbursed
drawings under letters of credit) or any capitalized lease obligation, any obligation under a purchase money mortgage, conditional
sale or other title retention agreement or any obligation under notes payable or drafts accepted representing extensions of credit, but
shall not include any Debt in respect of Hedge Agreements.
“Default” means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
“Designated Subsidiary” means any direct or indirect wholly-owned Subsidiary of the Company designated for borrowing
privileges under this Agreement pursuant to Section 9.09.
“Designation Agreement” means, with respect to any Designated Subsidiary, an agreement in the form of Exhibit E hereto
signed by such Designated Subsidiary and the Company.
“Dollars” and the “$” sign each means lawful currency of the United States of America.
“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending
Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such
other office of such Lender as such Lender may from time to time specify to the Company and the Agent.
3-year Credit Agreement
4
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“EBITDA” means, for any period, net income (or net loss) plus the sum of (a) Interest Expense, (b) income tax expense,
(c) depreciation expense, (d) amortization expense, (e) non-cash, non-recurring charges in an amount not to exceed $50,000,000
taken with respect to the impairment of the remaining book value of Cab (No. 1) Limited (formerly known as Brands Hatch Leisure
Limited), Octagon Worldwide Limited and Octagon Worldwide Inc. and their respective Subsidiaries, (f) all impairment charges
taken with respect to capital expenditures made on or after January 1, 2003 on behalf of Cab (No. 1) Limited, Octagon Worldwide
Limited and Octagon Worldwide Inc. and their respective Subsidiaries, (g) payments made by the Company not to exceed
$185,000,000 (up to $90,000,000 of which may be in cash) relating to the settlement of certain litigation or regulatory matters,
(h) from and after such time as the Company adopts the fair value based method of accounting for stock-based employee
compensation in accordance with Statement of Financial Accounting Standards No. 123 and Statement of Financial Accounting
Standards No. 148, non-cash charges related to such adoption, (i) cash payments made by the Company relating to the cash
consideration paid by the Company not exceeding $160,000,000 in connection with the liabilities and obligations of Cab (No. 1)
Limited, Octagon Worldwide Limited and Octagon Worldwide Inc. and their respective Subsidiaries, (j) non-cash, non-recurring
long-lived asset investment impairment charges in an amount not to exceed $500,000,000 taken in the fiscal periods ending
September 30, 2004, December 31, 2004, March 31, 2005 and June 30, 2005, (k) non-cash charges related to the retirement of
indebtedness and (l) non-cash investment impairment charges not to exceed $25,000,000, in each case determined in accordance
with GAAP for such period.
“Effective Date” means May 10, 2004.
“Eligible Assignee” means (i) a Lender; (ii) an Affiliate of a Lender; and (iii) any other Person approved by the Agent, each
Issuing Bank and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance
with Section 9.07, the Company, each such approval not to be unreasonably withheld or delayed; provided, however, that neither
the Company nor an Affiliate of the Company shall qualify as an Eligible Assignee.
“Equivalent” in Dollars of any Committed Currency or Committed L/C Currency on any date means the equivalent in Dollars of
such currency determined by using the quoted spot rate at which the Sub-Agent’s principal office in London offers to exchange
Dollars for such currency in London at approximately 4:00 P.M. (London time) (unless otherwise indicated by the terms of this
Agreement) on such date as is required pursuant to the terms of this Agreement, and the “Equivalent” in any Committed Currency
or Committed L/C Currency of Dollars means the equivalent in such currency of Dollars determined by using the quoted spot rate
at which the Sub-Agent’s principal office in London offers to exchange such currency for Dollars in London at approximately 4:00
P.M. (London time) (unless otherwise indicated by the terms of this Agreement) on such date as is required pursuant to the terms of
this Agreement.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
“ERISA Affiliate” means any Person that for purposes of Title IV of ERISA is a member of the Company’s controlled group, or
under common control with the Company, within the meaning of Section 414 of the Internal Revenue Code.
“ERISA Event” means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the application for a
minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate
such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Company or any ERISA Affiliate in the circumstances
described in Section 4062(e) of ERISA; (e) the withdrawal by the Company or any ERISA Affiliate from a Multiple Employer Plan
during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for the
imposition of a lien under
3-year Credit Agreement
5
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a
Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan.
“EURIBO Rate” means, for any Interest Period, the rate per annum appearing on Moneyline Telerate Markets Page 248 (or on
any successor or substitute page, or any successor to or substitute for Moneyline Telerate Markets, providing rate quotations
comparable to those currently provided on such page of Moneyline Telerate Markets, as determined by the Agent from time to time
for purposes of providing quotations of interest rates applicable to deposits in Euro by reference to the Banking Federation of the
European Union Settlement Rates for deposits in Euro) at approximately 10:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for deposits in Euro with a maturity comparable to such Interest Period or, if for
any reason such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such
average is not such a multiple) of the respective rates per annum at which deposits in Euros are offered by the principal office of
each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two
Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank’s Eurocurrency
Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such
Interest Period (subject, however, to the provisions of Section 2.08).
“Euro” means the lawful currency of the European Union as constituted by the Treaty of Rome which established the European
Community, as such treaty may be amended from time to time and as referred to in the EMU legislation.
“Eurocurrency Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurocurrency
Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender
(or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time
to time specify to the Company and the Agent.
“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
“Eurocurrency Rate” means, for any Interest Period for each Eurocurrency Rate Advance comprising part of the same
Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a)(i) in the case of any Borrowing
denominated in Dollars or any Committed Currency other than Euro, the rate per annum (rounded upward to the nearest whole
multiple of 1/16 of 1% per annum) appearing on Moneyline Telerate Markets Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars or the applicable Committed Currency at approximately 11:00 A.M. (London time)
two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period or, if for any reason
such rate is not available, the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is
not such a multiple) of the respective rates per annum at which deposits in Dollars or the applicable Committed Currency are
offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market
at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to
such Reference Bank’s Eurocurrency Rate Advance comprising part of such Borrowing to be outstanding during such Interest
Period and for a period equal to such Interest Period (subject, however, to the provisions of Section 2.08) or (ii) in the case of any
Borrowing denominated in Euro, the EURIBO Rate by (b) a percentage equal to 100% minus the Eurocurrency Rate Reserve
Percentage for such Interest Period.
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Eurocurrency Rate Advance” means an Advance denominated in Dollars or a Committed Currency that bears interest as
provided in Section 2.07(a)(ii).
“Eurocurrency Rate Reserve Percentage” for any Interest Period for all Eurocurrency Rate Advances comprising part of the
same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to
which the interest rate on Eurocurrency Rate Advances is determined) having a term equal to such Interest Period.
“Events of Default” has the meaning specified in Section 6.01.
“Existing Credit Agreement” has the meaning specified in the Preliminary Statement.
“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing
selected by it.
“GAAP” has the meaning specified in Section 1.03.
“Guaranteed Obligations” has the meaning specified in Section 7.01.
“Hedge Agreements” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar agreements.
“Interest Expense” means, for any period, without duplication, (i) interest expense (including the interest component on
obligations under capitalized leases), whether paid or accrued, on all Debt of the Company and its Consolidated Subsidiaries and
(ii) only for purposes of Section 5.03(a)(ii), cash dividends, whether paid or accrued, on any preferred stock of the Company that is
convertible into common stock of the Company within 48 months following the issuance thereof, in each case for such period.
“Interest Period” means, for each Eurocurrency Rate Advance comprising part of the same Borrowing, the period commencing
on the date of such Eurocurrency Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurocurrency
Rate Advance and ending on the last day of the period selected by the Borrower requesting such Borrowing pursuant to the
provisions below and, thereafter, with respect to Eurocurrency Rate Advances, each subsequent period commencing on the last day
of the immediately preceding Interest Period and ending on the last day of the period selected by such Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be one, two, three or six months, or nine or twelve months if
available to all Lenders, as such Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time)
on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:
(i) such Borrower may not select any Interest Period that ends after the Termination Date;
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(ii) Interest Periods commencing on the same date for Eurocurrency Rate Advances comprising part of the same Borrowing
shall be of the same duration;
(iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension
would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no
numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to
the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding
calendar month.
“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
“Issuing Bank” means an Initial Issuing Bank or any Eligible Assignee to which a portion of the Letter of Credit Commitment
hereunder has been assigned pursuant to Section 9.07 so long as such Eligible Assignee expressly agrees to perform in accordance
with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as an Issuing Bank and
notifies the Agent of its Applicable Lending Office (which information shall be recorded by the Agent in the Register), for so long
as the Initial Issuing Bank or Eligible Assignee, as the case may be, shall have a Letter of Credit Commitment.
“L/C Cash Deposit Account” means an interest bearing cash deposit account to be established and maintained by the Agent, over
which the Agent shall have sole dominion and control, upon terms as may be satisfactory to the Agent.
“L/C Related Documents” has the meaning specified in Section 2.06(c)(i).
“Lenders” means the Initial Lenders, each Swing Line Bank, each Issuing Bank and each Person that shall become a party hereto
pursuant to Section 9.07.
“Letter of Credit” has the meaning specified in Section 2.01(c).
“Letter of Credit Agreement” has the meaning specified in Section 2.03(a).
“Letter of Credit Commitment” means, with respect to each Issuing Bank, the obligation of such Issuing Bank to issue Letters of
Credit to any Borrower in (a) the amount set forth opposite the Issuing Bank’s name on the signature pages hereto under the caption
“Letter of Credit Commitment” or (b) if such Issuing Bank has entered into one or more Assignment and Acceptances, the amount
set forth for such Issuing Bank in the Register maintained by the Agent pursuant to Section 9.07(d) as such Issuing Bank’s “Letter
of Credit Commitment”, in each case as such amount may be reduced prior to such time pursuant to Section 2.05.
“Letter of Credit Facility” means, at any time, an amount equal to the least of (a) the aggregate amount of the Issuing Banks’
Letter of Credit Commitments at such time, (b) $200,000,000 and (c) the aggregate amount of the Revolving Credit Commitments,
as such amount may be reduced at or prior to such time pursuant to Section 2.05.
3-year Credit Agreement
8
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained security title of a conditional vendor and the assignment of the right
to receive income.
“Loan Document” means this Agreement, the Notes, if any, and the other L/C Related Documents.
“Material Adverse Change” means any material adverse change in the business, financial condition or results of operations of
the Company and its Consolidated Subsidiaries taken as a whole.
“Material Adverse Effect” means a material adverse effect on (a) the business, financial condition or results of operations of the
Company and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or any Lender under this
Agreement or any other Loan Document or (c) the ability of the Company to perform its obligations under this Agreement or any
other Loan Document.
“Material Subsidiary” means each Consolidated Subsidiary of the Company organized in the United States or any political
subdivision thereof that had, as of the end of the most recently ended fiscal year, aggregate revenues for such fiscal year equal to at
least $25,000,000.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Company or any
ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
“Multiple Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, subject to Title IV of
ERISA that (a) is maintained for employees of the Company or any ERISA Affiliate and at least one Person other than the
Company and the ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could
have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.
“Net Cash Proceeds” means, with respect to any sale, lease, transfer or other disposition of any asset, business or entity by the
Company or any of its Subsidiaries, the aggregate amount of cash received by the Company and its Subsidiaries in connection with
such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder’s fees and other similar fees and commissions, (b) the amount of estimated taxes
payable as a direct result of such transaction (for the avoidance of doubt, taxes in respect of the operations of such asset, business or
entity need not be deducted) and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or
instrument governing such Debt, is required to be repaid by the Company or such Subsidiary upon such disposition, in each case to
the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a
Person that is not an Affiliate of the Company and are properly attributable to such transaction or to the asset, business or entity that
is the subject thereof, as determined by an appropriate officer of the Company.
“Note” means a promissory note of any Borrower payable to the order of any Lender, delivered pursuant to a request made
under Section 2.16 in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of such Borrower to such
Lender resulting from the Advances made by such Lender to such Borrower.
“Notice of Issuance” has the meaning specified in Section 2.03(a).
“Notice of Revolving Credit Borrowing” has the meaning specified in Section 2.02(a).
“Notice of Swing Line Borrowing” has the meaning specified in Section 2.02(b).
3-year Credit Agreement
9
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Payment Office” means, for any Committed Currency or Committed L/C Currency, such office of Citibank as shall be from
time to time selected by the Agent and notified by the Agent to the Company and the Lenders.
“PBGC” means the Pension Benefit Guaranty Corporation (or any successor).
“Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.
“Plan” means a Single Employer Plan or a Multiple Employer Plan.
“Public Debt Rating” means, as of any date, the lowest rating that has been most recently announced by either S&P or Moody’s,
as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Company. For purposes of
the foregoing, (a) if only one of S&P and Moody’s shall have in effect a Public Debt Rating, the Applicable Margin, the Applicable
Percentage and the Applicable Utilization Fee shall be determined by reference to the available Public Debt Rating announced by
either S&P or Moody’s; (b) if neither S&P nor Moody’s shall have in effect a Public Debt Rating, the Applicable Margin, the
Applicable Percentage and the Applicable Utilization Fee will be set in accordance with Level 3 under the definition of “Applicable
Margin”, “Applicable Percentage” or “Applicable Utilization Fee”, as the case may be; (c) if any such rating established by S&P or
Moody’s shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the
rating agency making such change; and (d) if S&P or Moody’s shall change the basis on which ratings are established, each
reference to the Public Debt Rating announced by S&P or Moody’s, as the case may be, shall refer to the then equivalent rating by
S&P or Moody’s, as the case may be.
“Ratable Share” of any amount means, with respect to any Lender at any time, the product of (a) a fraction the numerator of
which is the amount of such Lender’s Revolving Credit Commitment at such time and the denominator of which is the aggregate
Revolving Credit Commitments at such time and (b) such amount.
“Reference Banks” means Citibank, HSBC Bank USA and JPMorgan Chase Bank, N.A.
“Register” has the meaning specified in Section 9.07(d).
“Required Lenders” means at any time Lenders owed at least a majority in interest of the then aggregate outstanding principal
amount (based on the Equivalent in Dollars at such time) of the Revolving Credit Advances, or, if no such principal amount is then
outstanding, Lenders having at least a majority in amount of the Revolving Credit Commitments.
“Revolving Credit Advance” means an Advance by a Lender to any Borrower as part of a Revolving Credit Borrowing and
refers to a Base Rate Advance or a Eurocurrency Rate Advance (each of which shall be a “Type” of Revolving Credit Advance).
“Revolving Credit Borrowing” means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type
made by each of the Lenders pursuant to Sections 2.01(a) or 2.03(c).
“Restatement Date” has the meaning specified in Section 3.01.
“Revolving Credit Commitment” means as to any Lender the obligation of such Lender to make Revolving Credit Advances to
any Borrower in (a) the Dollar amount set forth opposite such Lender’s name on the signature pages hereof under the caption
“Revolving Credit Commitment” or (b) if such Lender has entered into any Assignment and Acceptance, the Dollar amount set
forth for such Lender in the Register
3-year Credit Agreement
10
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
maintained by the Agent pursuant to Section 9.07(d), as such amount may be reduced pursuant to Section 2.05.
“S&P” means Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
“Single Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, subject to Title IV of
ERISA that (a) is maintained for employees of the Company or any ERISA Affiliate and no Person other than the Company and the
ERISA Affiliates or (b) was so maintained and in respect of which the Company or any ERISA Affiliate could have liability under
Section 4069 of ERISA in the event such plan has been or were to be terminated.
“SPC” has the meaning specified in Section 9.07(f) hereto.
“Sub-Agent” means Citibank International plc.
“Subsidiary” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which
(or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the
Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of
such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of
such Person’s other Subsidiaries.
“Swing Line Advance” means an Advance in Dollars made by any Swing Line Bank to any Borrower as part of a Swing Line
Borrowing pursuant to Section 2.01(b) or by any Lender pursuant to Section 2.02(b).
“Swing Line Bank” means Citibank and any other Lender that expressly agrees in a writing delivered to the Company and the
Agent to perform in accordance with all of the obligations that, by the terms of this Agreement, are required to be performed by
such Lender as a Swing Line Bank.
“Swing Line Borrowing” means a borrowing consisting of a Swing Line Advance made by any Swing Line Bank.
“Swing Line Commitment” means with respect to any Swing Line Bank at any time the amount set forth opposite such Swing
Line Bank’s name on the signature pages hereof, as such amount may be increased, terminated or reduced, as the case may be, at or
prior to such time pursuant to Section 2.05.
“Swing Line Facility” has the meaning specified in Section 2.01(b).
“Termination Date” means the earlier of (a) May 9, 2007 and (b) the date of termination in whole of the Commitments pursuant
to Section 2.05 or 6.01.
“Unissued Letter of Credit Commitment” means, with respect to any Issuing Bank, the obligation of such Issuing Bank to issue
Letters of Credit to any Borrower in an amount (converting all non-Dollar amounts into the then Dollar Equivalent thereof) equal to
the excess of (a) the amount of its Letter of Credit Commitment over (b) the aggregate Available Amount of all Letters of Credit
issued by such Issuing Bank.
“Unused Commitment” means, with respect to each Lender at any time, (a) the amount of such Lender’s Revolving Credit
Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Revolving Credit Advances (based in
respect of any Revolving Credit Advances denominated in a Committed Currency or the Equivalent in Dollars at such time) made
by such Lender (in its capacity as a Lender) and outstanding at such time, plus (ii) such Lender’s Ratable Share of (A) the
3-year Credit Agreement
11
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
aggregate principal amount of all Swing Line Advances then outstanding and (B) the aggregate Available Amount of all the Letters of
Credit outstanding at such time.
“Voting Stock” means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of
such Person, even if the right so to vote has been suspended by the happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to
a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.
SECTION 1.03. Accounting Terms. . All accounting terms not specifically defined herein shall be construed in accordance with
generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in
Section 4.01(e), as amended by the Company’s adoption of the fair value based method of accounting for stock-based employee
compensation in accordance with Statement of Financial Accounting Standards No. 123 and Statement of Financial Accounting
Standards No. 148 (“GAAP”).
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES AND LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) Revolving Credit Advances. Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make Revolving Credit Advances to any Borrower from time to time on any Business Day during the period
from the Effective Date until the Termination Date in an aggregate amount (based in respect of any Revolving Credit Advances to be
denominated in a Committed Currency on the Equivalent in Dollars determined on the date of delivery of the applicable Notice of
Borrowing) for all Borrowers not to exceed such Lender’s Unused Commitment. Each Borrowing shall be in an aggregate amount of
$5,000,000 or an integral multiple of $100,000 in excess thereof in the case of Revolving Credit Advances denominated in Dollars and
the Equivalent of $5,000,000 or an integral multiple of $100,000 in excess thereof in the case of Revolving Credit Advances
denominated in any Committed Currency (determined on the date of the applicable Notice of Borrowing) and shall consist of
Revolving Credit Advances of the same Type made on the same day by the Lenders ratably according to their respective Revolving
Credit Commitments. Within the limits of each Lender’s Revolving Credit Commitment, any Borrower may borrow under this
Section 2.01(a), prepay pursuant to Section 2.10 and reborrow under this Section 2.01(a).
(b) Swing Line Advances. Each Swing Line Bank severally agrees, on the terms and conditions hereinafter set forth, to make
Swing Line Advances to any Borrower from time to time on any Business Day during the period from the Effective Date until the
Termination Date (i) in an aggregate amount of Swing Line Advances made by all Swing Line Banks to all Borrowers not to exceed at
any time outstanding $5,000,000 (the “Swing Line Facility”) and (ii) in an amount not to exceed the Unused Commitments of the
Lenders on such Business Day. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other
Swing Line Advance. Each Swing Line Borrowing shall be in an amount of $500,000 or an integral multiple of $10,000 in excess
thereof and shall consist of a Base Rate Advance. Within the limits of the Swing Line Facility and within the limits referred to in
clause (ii) above, any Borrower may borrow under this Section 2.01(b), prepay pursuant to Section 2.10 and reborrow under this
Section 2.01(b).
(c) Letters of Credit. Each Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (each,
a “Letter of Credit”) for the account of any Borrower from time to time on any Business Day during the period from the Effective
Date until 30 days before the Termination Date (i) in an aggregate Available Amount for all Letters of Credit issued by all Issuing
Banks not to exceed at any time the Letter of Credit Facility at such time, (ii) in an amount for each Issuing Bank (converting all
non-Dollar amounts into the then Dollar Equivalent thereof) not to exceed the amount of such Issuing Banks’ Letter of Credit
Commitment at such time and (iii) in an amount for each such Letter of Credit (converting all non-Dollar amounts into the then Dollar
Equivalent thereof) not to exceed an amount equal to the Unused Commitments of the Lenders
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
at such time. Each Letter of Credit shall be in an amount of $25,000 (or the Equivalent thereof in any Committed L/C Currency) or
any integral multiple of $1,000 in excess thereof. No Letter of Credit shall have an expiration date (including all rights of any
Borrower or the beneficiary to require renewal) later than the earlier of (x) 15 days prior to the Termination Date or (y) the date that is
one year after the issuance thereof; provided that any Letter of Credit which provides for automatic one-year extension(s) of such
expiration date shall be deemed to comply with the foregoing requirement if the Issuing Bank has the unconditional right to prevent
any such automatic extension from taking place. Within the limits referred to above, any Borrower may request the issuance of Letters
of Credit under this Section 2.01(c), repay any Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request
the issuance of additional Letters of Credit under this Section 2.01(c); provided that such Borrower shall only request Letters of Credit
to be issued by Citibank at any time hereunder. Each letter of credit listed on Schedule 2.01(b) shall be deemed to constitute a Letter
of Credit issued hereunder, and each Lender that is an issuer of such a Letter of Credit shall, for purposes of Section 2.03, be deemed
to be an Issuing Bank for each such letter of credit, provided that all such letters of credit shall be permitted to expire on their
respective expiration dates as in effect on the date of this Agreement (and the respective Issuing Banks are permitted to take such steps
under such letters of credit which have automatic renewal or extension provisions to prevent such automatic renewals or extensions
from occurring) and any replacement of any such letter of credit shall be issued by an Issuing Bank pursuant to the terms of this
Agreement. The terms “issue”, “issued”, “issuance” and all similar terms, when applied to a Letter of Credit, shall include any
renewal, extension or amendment thereof.
SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b) or Section 2.03(a) and except with
respect to Advances made pursuant to Section 2.03(c), each Revolving Credit Borrowing shall be made on notice, given not later than
(x) 10:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the
case of a Revolving Credit Borrowing consisting of Eurocurrency Rate Advances denominated in Dollars, (y) 4:00 P.M. (London
time) on the third Business Day prior to the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Eurocurrency Rate Advances denominated in any Committed Currency, or (z) 12:00 noon (New York City
time) on the date of the proposed Revolving Credit Borrowing in the case of a Revolving Credit Borrowing consisting of Base Rate
Advances, by any Borrower to the Agent (and, in the case of a Revolving Credit Borrowing consisting of Eurocurrency Rate
Advances, simultaneously to the Sub-Agent), which shall give to each Lender prompt notice thereof by facsimile. Each such notice of
a Revolving Credit Borrowing (a “Notice of Revolving Credit Borrowing”) shall be by telephone, confirmed immediately in writing,
or facsimile in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Revolving Credit
Borrowing, (ii) Type of Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of such Revolving Credit
Borrowing, and (iv) in the case of a Revolving Credit Borrowing consisting of Eurocurrency Rate Advances, initial Interest Period and
currency for each such Advance; provided, however, that if any such notice shall fail to specify a currency, Dollars shall be deemed to
have been specified. Each Lender shall, before 2:00 P.M. (New York City time) on the date of such Revolving Credit Borrowing, in
the case of a Revolving Credit Borrowing consisting of Revolving Credit Advances denominated in Dollars, and before 4:00 P.M.
(London time) on the date of such Revolving Credit Borrowing, in the case of a Revolving Credit Borrowing consisting of
Eurocurrency Rate Advances denominated in any Committed Currency, make available for the account of its Applicable Lending
Office to the Agent at the applicable Agent’s Account, in same day funds, such Lender’s ratable portion of such Revolving Credit
Borrowing. After the Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent
will make such funds available to the applicable Borrower requesting the Revolving Credit Borrowing at the Agent’s address referred
to in Section 9.02 or, in the case of a Revolving Credit Borrowing in a Committed Currency, at the applicable Payment Office, as the
case may be; provided, however, that the Agent shall first make a portion of such funds equal to the aggregate principal amount of any
Swing Line Advances made by the Swing Line Banks and outstanding on the date of such Revolving Credit Borrowing, plus interest
accrued and unpaid thereon to and as of such date, available to the Swing Line Banks for repayment of such Swing Line Advances.
(b) Each Swing Line Borrowing shall be made on notice, given not later than 3:00 P.M. (New York City time) on the date of the
proposed Swing Line Borrowing by the applicable Borrower to each Swing Line Bank and the Agent, of which the Agent shall give
prompt notice to the Lenders. Each such notice of a Swing Line Borrowing (a “Notice of Swing Line Borrowing”) shall be by
telephone, confirmed at once in writing, or facsimile, specifying therein the requested (i) date of such Borrowing, (ii) amount of such
Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later than the tenth Business Day after the requested date
of
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
such Borrowing. Each Swing Line Bank shall, before 5:00 P.M. (New York City time) on the date of such Swing Line Borrowing,
make such Swing Line Bank’s ratable portion of such Swing Line Borrowing available (based on the respective Swing Line
Commitments of the Swing Line Banks) to the Agent at the Agent’s Account, in same day funds in Dollars. After the Agent’s receipt
of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the
applicable Borrower at the Agent’s address referred to in Section 9.02. The principal amount of any Swing Line Borrowing made
pursuant to this Section 2.02(b) shall accrue interest at the Base Rate and shall be for the account of the Swing Line Bank from the
date such funds are made available to such Borrower to the date on which each other Lender purchases from such Swing Line Bank
and such Swing Line Bank sells and assigns to each such other Lender such other Lender’s Ratable Share of such outstanding Swing
Line Advance pursuant to the immediately following sentence of this Section 2.02(b). Upon written demand by any Swing Line Bank
with a Swing Line Advance, with a copy of such demand to the Agent, each other Lender will purchase from such Swing Line Bank,
and such Swing Line Bank shall sell and assign to each such other Lender, such other Lender’s Ratable Share of such outstanding
Swing Line Advance, by making available for the account of its Applicable Lending Office to the Agent for the account of such
Swing Line Bank, by deposit or transfer to the Agent’s Account, in same day funds, an amount equal to the portion of the outstanding
principal amount of such Swing Line Advance to be purchased by such Lender. Each Borrower hereby agrees to each such sale and
assignment. Each Lender agrees to purchase its Ratable Share of an outstanding Swing Line Advance on (i) the Business Day on
which demand therefor is made by the Swing Line Bank which made such Advance, provided that notice of such demand is given not
later than 11:00 A.M. (New York City time) on such Business Day or (ii) the first Business Day next succeeding such demand if
notice of such demand is given after such time. Upon any such assignment by a Swing Line Bank to any other Lender of a portion of a
Swing Line Advance, such Swing Line Bank represents and warrants to such other Lender that such Swing Line Bank is the legal and
beneficial owner of such interest being assigned by it, but makes no other representation or warranty and assumes no responsibility
with respect to such Swing Line Advance, this Agreement, any Notes or any Borrower. If and to the extent that any Lender shall not
have so made the amount of such Swing Line Advance available to the Agent, such Lender agrees to pay to the Agent forthwith on
demand such amount together with interest thereon, for each day from the date such Lender is required to have made such amount
available to the Agent until the date such amount is paid to the Agent, at the Federal Funds Rate. If such Lender shall pay to the Agent
such amount for the account of such Swing Line Bank on any Business Day, such amount so paid in respect of principal shall
constitute a Swing Line Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding
principal amount of the Swing Line Advance made by such Swing Line Bank shall be reduced by such amount on such Business Day.
(c) Anything in subsection (a) above to the contrary notwithstanding, (i) no Borrower may select Eurocurrency Rate Advances
for any Revolving Credit Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 (or the Equivalent thereof in a
Committed Currency) or if the obligation of the applicable Lenders to make Eurocurrency Rate Advances shall then be suspended
pursuant to Section 2.08 or 2.12 and (ii) the Eurocurrency Rate Advances may not be outstanding as part of more than twenty separate
Borrowings.
(d) Each Notice of Revolving Credit Borrowing and each Notice of Swing Line Borrowing of any Borrower shall be irrevocable
and binding on such Borrower. In the case of any Revolving Credit Borrowing that the related Notice of Revolving Credit Borrowing
specifies is to be comprised of Eurocurrency Rate Advances, the applicable Borrower requesting such Revolving Credit Borrowing
shall indemnify each applicable Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on
or before the date specified in such Notice of Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Revolving Credit Borrowing when such Advance, as a result of such failure, is not made on such
date.
(e) Unless the Agent shall have received notice from an applicable Lender prior to the time of any Revolving Credit Borrowing,
except with respect to Borrowings pursuant to Section 2.03(c), or any Swing Line Borrowing, as the case may be, that such Lender
will not make available to the Agent such Lender’s ratable portion of such Revolving Credit Borrowing or Swing Line Borrowing, as
the case may be, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Revolving
Credit Borrowing or Swing Line Borrowing, as the case may be, in accordance with subsection (a) or (b) of this Section 2.02 and the
3-year Credit Agreement
14
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Agent may, in reliance upon such assumption, make available to the applicable Borrower proposing the Borrowing on such date a
corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such
Lender and such Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the
Agent, at (i) in the case of such Borrower, the higher of (A) the interest rate applicable at the time to the Advances comprising such
Borrowing and (B) the cost of funds incurred by the Agent in respect of such amount and (ii) in the case of such Lender, (A) the
Federal Funds Rate in the case of Advances denominated in Dollars or (B) the cost of funds incurred by the Agent in respect of such
amount in the case of Advances denominated in Committed Currencies. If such Lender shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Lender’s Revolving Credit Advance as part of such Revolving Credit Borrowing
or the Swing Line Bank’s Swing Line Advance as part of such Swing Line Borrowing for purposes of this Agreement.
(f) The failure of any applicable Lender or Swing Line Bank to make the Revolving Credit Advance, except Advances made
pursuant to Section 2.03(c), or Swing Line Advance, as the case may be, to be made by it as part of any Borrowing shall not relieve
any other Lender or Swing Line Bank of its obligation, if any, hereunder to make its Revolving Credit Advance or Swing Line
Advance on the date of such Revolving Credit Borrowing or Swing Line Borrowing, as the case may be, but no Lender or Swing Line
Bank shall be responsible for the failure of any other Lender or Swing Line Bank to make the Revolving Credit Advance or Swing
Line Advance to be made by such other Lender or Swing Line Bank on the date of any Revolving Credit Borrowing or Swing Line
Borrowing, as the case may be.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. (a) Request for Issuance. Each Letter of
Credit shall be issued upon notice, given not later than 11:00 A.M. (New York City time) on the fifth Business Day prior to the date of
the proposed issuance of such Letter of Credit (or on such shorter notice as the applicable Issuing Bank may agree), by any Borrower
to any Issuing Bank, and such Issuing Bank shall give the Agent, prompt notice thereof by facsimile. Each such notice of issuance of a
Letter of Credit (a “Notice of Issuance”) shall be by telephone, confirmed immediately in writing, or facsimile, specifying therein the
requested (i) date of such issuance (which shall be a Business Day), (ii) Available Amount and currency of such Letter of Credit,
(iii) expiration date of such Letter of Credit (which shall not be later than the earlier of (x) 15 days prior to the Termination Date or
(y) the date that is one year after the issuance thereof; provided that any Letter of Credit which provides for automatic one-year
extension(s) of such expiration date shall be deemed to comply with the foregoing requirement if the Issuing Bank has the
unconditional right to prevent any such automatic extension from taking place and each Issuing Bank hereby agrees to exercise such
right to prevent any such automatic extension for each Letter of Credit outstanding after the Termination Date), (iv) name and address
of the beneficiary of such Letter of Credit and (v) form of such Letter of Credit, and shall be accompanied by such customary
application and agreement for letter of credit as such Issuing Bank may specify to the Borrower requesting such issuance for use in
connection with such requested Letter of Credit (a “Letter of Credit Agreement”). If the requested form of such Letter of Credit is
acceptable to such Issuing Bank in its sole discretion, such Issuing Bank will, upon fulfillment of the applicable conditions set forth in
Article III, make such Letter of Credit available to the Borrower requesting such issuance at its office referred to in Section 9.02 or as
otherwise agreed with such Borrower in connection with such issuance. In the event and to the extent that the provisions of any Letter
of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern.
(b) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof)
and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each
Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s
Ratable Share of the Available Amount of such Letter of Credit. Each Borrower hereby agrees to each such participation. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Agent, for
the account of such Issuing Bank, such Lender’s Ratable Share of each drawing made under a Letter of Credit funded by such Issuing
Bank and not reimbursed by the applicable Borrower on the date made, or of any reimbursement payment required to be refunded to
any Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this
paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever,
including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Revolving Credit Commitments, and
3-year Credit Agreement
15
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender further
acknowledges and agrees that its participation in each Letter of Credit will be automatically adjusted to reflect such Lender’s Ratable
Share of the Available Amount of such Letter of Credit at each time such Lender’s Revolving Credit Commitment is amended
pursuant to an assignment in accordance with Section 9.07 or otherwise pursuant to this Agreement.
(c) Drawing and Reimbursement. The payment by an Issuing Bank of a draft drawn under any Letter of Credit shall constitute
for all purposes of this Agreement the making by any such Issuing Bank of a Revolving Credit Advance (and shall be made whether
or not the conditions set forth in Section 3.03 have been satisfied; it being understood that no representations or warranties shall be
made or deemed made by any Borrower in connection with such drawing), which, in the case of a Letter of Credit denominated in
Dollars, shall be a Base Rate Advance, in the amount of such draft or, in the case of a Letter of Credit denominated in any currency
other than Dollars, shall be a Base Rate Advance in the Equivalent in Dollars on the date such draft is paid. Each Issuing Bank shall
give prompt notice (and such Issuing Bank will use its commercially reasonable efforts to deliver such notice within one Business
Day) of each drawing under any Letter of Credit issued by it to the Company, the applicable Borrower (if not the Company) and the
Agent. Upon written demand by such Issuing Bank, with a copy of such demand to the Agent and the Company, each Lender shall pay
to the Agent such Lender’s Ratable Share of such outstanding Advance, by making available for the account of its Applicable Lending
Office to the Agent for the account of such Issuing Bank, by deposit to the Agent’s Account, in same day funds, an amount equal to
the portion of the outstanding principal amount of such Advance to be funded by such Lender. Each Lender acknowledges and agrees
that its obligation to make Advances pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall
not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the
occurrence and continuance of a Default or reduction or termination of the Revolving Credit Commitments, and that each such
payment shall be made without any offset, abatement, withholding or reduction whatsoever. Promptly after receipt thereof, the Agent
shall transfer such funds to such Issuing Bank. Each Lender agrees to fund its Ratable Share of any such outstanding Advance on
(i) the Business Day on which demand therefor is made by such Issuing Bank, provided that notice of such demand is given not later
than 11:00 A.M. (New York City time) on such Business Day, or (ii) the first Business Day next succeeding such demand if notice of
such demand is given after such time. If and to the extent that any Lender shall not have so made the amount of such Advance
available to the Agent, such Lender agrees to pay to the Agent forthwith on demand such amount together with interest thereon, for
each day from the date of demand by any such Issuing Bank until the date such amount is paid to the Agent, at the Federal Funds Rate
for its account or the account of such Issuing Bank, as applicable. If such Lender shall pay to the Agent such amount for the account
of any such Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Revolving Credit
Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of such
Advance made by such Issuing Bank shall be reduced by such amount on such Business Day.
(d) Letter of Credit Reports. Each Issuing Bank shall furnish (A) to the Agent and each Lender on the first Business Day of each
month a written report summarizing issuance and expiration dates of Letters of Credit during the preceding month and drawings
during such month under all Letters of Credit and (B) to the Agent and each Lender (with a copy to the Company) on the first
Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the
preceding calendar quarter of all Letters of Credit.
(e) Failure to Make Advances. The failure of any Lender to make the Advance to be made by it on the date specified in
Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be made by such other Lender on such date.
SECTION 2.04. Fees. (a) Facility Fee. The Company agrees to pay to the Agent for the account of each Lender a facility fee on
the aggregate amount of such Lender’s Revolving Credit Commitment from the Effective Date in the case of each Initial Lender and
from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other
Lender until the Termination Date at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in
arrears quarterly on the last day of each March, June, September and December, commencing December 31, 2005, and on the
Termination Date.
3-year Credit Agreement
16
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(b) Letter of Credit Fees. (i) Each Borrower shall pay to the Agent for the account of each Lender a commission on such
Lender’s Ratable Share of the average daily aggregate Available Amount of all Letters of Credit issued at the request of such
Borrower and outstanding from time to time at a rate per annum equal to the Applicable Margin for Eurocurrency Rate Advances in
effect from time to time during such calendar quarter, payable in arrears quarterly on the third Business Day after the last day of each
March, June, September and December, commencing with the quarter ended December 31, 2005, and on the Termination Date
payable upon demand; provided that the Applicable Margin shall be 2% above the Applicable Margin in effect upon the occurrence
and during the continuation of an Event of Default if the Borrowers are required to pay default interest pursuant to Section 2.07(b).
(ii) Each Borrower shall pay to each Issuing Bank for its own account a fee on the aggregate Available Amount of all Letters of
Credit issued by such Issuing Bank at the request of such Borrower and outstanding from time to time during each calendar quarter
at a rate per annum equal to 0.125% payable in arrears quarterly on the third Business Day after the last day of each March, June,
September and December, commencing with the quarter ended December 31, 2005, and on the Termination Date payable upon
demand.
(c) Agent’s Fees. The Company shall pay to the Agent for its own account such fees as may from time to time be agreed
between the Company and the Agent.
SECTION 2.05. Optional Termination or Reduction of the Commitments. The Company shall have the right, upon at least three
Business Days’ notice to the Agent, to permanently terminate in whole or reduce ratably in part the unused portions of the respective
Commitments of the Lenders, provided that, in the case of Revolving Credit Commitments, each partial reduction shall be in the
aggregate amount of $5,000,000 or an integral multiple of $100,000 in excess thereof, and, in the case of Swing Line Commitments,
each partial reduction shall be in the aggregate amount of $500,000 or an integral multiple of $10,000 in excess thereof.
SECTION 2.06. Repayment. (a) Revolving Credit Advances. Each Borrower shall repay to the Agent for the ratable account of
the Lenders on the Termination Date the aggregate principal amount of the Revolving Credit Advances then outstanding to such
Borrower.
(b) Swing Line Advances. Each Borrower shall repay to the Agent for the account of the Swing Line Banks and each other
Lender which has made a Swing Line Advance the outstanding principal amount of each Swing Line Advance made by each of them
by no later than the earlier of (i) the tenth Business Day after the requested date of such Borrowing and (ii) the Termination Date.
(c) Letter of Credit Reimbursements. The obligation of any Borrower under this Agreement, any Letter of Credit Agreement and
any other agreement or instrument, in each case, to repay any Advance that results from payment of a drawing under a Letter of Credit
shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances
(it being understood that any such payment by a Borrower is without prejudice to, and does not constitute a waiver of, any rights such
Borrower might have or might acquire as a result of the payment by any Lender of any draft or the reimbursement by such Borrower
thereof):
(i) any lack of validity or enforceability of this Agreement, any Note, any Letter of Credit Agreement, any Letter of Credit or
any other agreement or instrument relating thereto (all of the foregoing being, collectively, the “L/C Related Documents”);
(ii) any change in the time, manner or place of payment of any Letter of Credit;
(iii) the existence of any claim, set-off, defense or other right that any Borrower may have at any time against any beneficiary or
any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any
Issuing Bank, the Agent, any Lender or any other
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17
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not substantially
comply with the terms of such Letter of Credit;
(vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure
from any guarantee, for all or any of the obligations of any Borrower in respect of the L/C Related Documents; or
(vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing that might, but for the
provisions of this Section, constitute a legal or equitable discharge of any Borrower’s obligations hereunder.
SECTION 2.07. Interest on Advances. (a) Scheduled Interest. Each Borrower shall pay interest on the unpaid principal amount
of each Revolving Credit Advance and Swing Line Advance made to it and owing to each Lender from the date of such Revolving
Credit Advance or Swing Line Advance, as the case may be, until such principal amount shall be paid in full, at the following rates per
annum:
(i) Base Rate Advances. During such periods as such Revolving Credit Advance is a Base Rate Advance and for each Swing
Line Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable
Margin in effect from time to time plus (z) the Applicable Utilization Fee, if any, in effect from time to time, payable in arrears
quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate
Advance shall be Converted or paid in full or Swing Line Advance is paid in full.
(ii) Eurocurrency Rate Advances. During such periods as such Advance is a Eurocurrency Rate Advance, a rate per annum equal
at all times during each Interest Period for such Advance to the sum of (x) the Eurocurrency Rate for such Interest Period for such
Advance plus (y) the Applicable Margin in effect from time to time plus (z) the Applicable Utilization Fee, if any, in effect from
time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three
months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the
date such Eurocurrency Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a), the
Borrowers shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates
referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to
be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any
interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount
shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above.
SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Agent timely information for the
purpose of determining each Eurocurrency Rate. If any one or more of the Reference Banks shall not furnish such timely information
to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks. The Agent shall give prompt notice to the Company and the Lenders of the
applicable interest rate determined by the Agent for purposes of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by each
Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii).
3-year Credit Agreement
18
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(b) If, with respect to any Eurocurrency Rate Advances, the Required Lenders notify the Agent that (i) they are unable to obtain
matching deposits in the London inter-bank market at or about 11:00 A.M. (London time) on the second Business Day before the
making of a Revolving Credit Borrowing in sufficient amounts to fund their respective Advances as a part of such Borrowing during
its Interest Period or (ii) the Eurocurrency Rate for any Interest Period for such Advances will not adequately reflect the cost to such
Required Lenders of making, funding or maintaining their respective Eurocurrency Rate Advances for such Interest Period, the Agent
shall forthwith so notify the Company and the Lenders, whereupon (A) the Borrower of such Eurocurrency Advances will, on the last
day of the then existing Interest Period therefor, (1) if such Eurocurrency Rate Advances are denominated in Dollars, either (x) prepay
such Advances or (y) Convert such Advances into Base Rate Advances and (2) if such Eurocurrency Rate Advances are denominated
in any Committed Currency, either (x) prepay such Advances or (y) redenominate such Advances into an Equivalent amount of
Dollars and Convert such Advances into Base Rate Advances and (B) the obligation of the Lenders to make, or to Convert Advances
into, Eurocurrency Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances
causing such suspension no longer exist.
(c) If any Borrower shall fail to select the duration of any Interest Period for any Eurocurrency Rate Advances in accordance
with the provisions contained in the definition of “Interest Period” in Section 1.01, the Agent will forthwith so notify such Borrower
and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, (i) if such
Eurocurrency Rate Advances are denominated in Dollars, Convert into Base Rate Advances and (ii) if such Eurocurrency Rate
Advances are denominated in a Committed Currency, be redenominated into an Equivalent amount of Dollars and be Converted into
Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of Eurocurrency Rate Advances comprising any Revolving
Credit Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $5,000,000 (or the Equivalent thereof in any
Committed Currency), such Advances shall automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of Default under Section 6.01(a), (i) each Eurocurrency Rate
Advance will automatically, on the last day of the then existing Interest Period therefor, (A) if such Eurocurrency Rate Advance is
denominated in Dollars, be Converted into a Base Rate Advance and (B) if such Eurocurrency Rate Advance is denominated in any
Committed Currency, be redenominated into an Equivalent amount of Dollars and be Converted into a Base Rate Advance and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurocurrency Rate Advances shall be suspended.
(f) If Moneyline Telerate Markets Page 3750 is unavailable and fewer than two Reference Banks furnish timely information to
the Agent for determining the Eurocurrency Rate for any Eurocurrency Rate Advances,
(i) the Agent shall forthwith notify the Company and the Lenders that the interest rate cannot be determined for such
Eurocurrency Rate Advances,
(ii) with respect to Eurocurrency Rate Advances, each such Advance will automatically, on the last day of the then existing
Interest Period therefor, (A) if such Eurocurrency Rate Advance is denominated in Dollars, be prepaid by the applicable Borrower
or be automatically Converted into a Base Rate Advance and (B) if such Eurocurrency Rate Advance is denominated in any
Committed Currency, be prepaid by the applicable Borrower or be automatically redenominated into an Equivalent amount of
Dollars and be Converted into a Base Rate Advance, and
(iii) the obligation of the Lenders to make Eurocurrency Rate Advances or to Convert Base Rate Advances into Eurocurrency
Rate Advances shall be suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such
suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances. The Borrower of any Revolving Credit Advance may on any
Business Day, upon notice given to the Agent not later than 11:00 A.M.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of
Sections 2.08 and 2.12, Convert all or any part of such Advances denominated in Dollars of one Type comprising the same Borrowing
into Advances denominated in Dollars of the other Type; provided, however, that any Conversion of Eurocurrency Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period for such Eurocurrency Rate Advances, any Conversion of
Base Rate Advances into Eurocurrency Rate Advances shall be in an amount not less than the minimum amount specified in
Section 2.02(c) and no Conversion of any such Advances shall result in more separate Borrowings than permitted under
Section 2.02(c). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such
Conversion, (ii) the Dollar denominated Revolving Credit Advances to be Converted, and (iii) if such Conversion is into Eurocurrency
Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and
binding on the Borrower giving such notice.
SECTION 2.10. Prepayments of Advances. (a) Optional. Each Borrower may, upon notice at least one Business Day prior to the
date of such prepayment, in the case of Eurocurrency Rate Advances, and not later than 11:00 A.M. (New York City time) on the date
of such prepayment, in the case of Base Rate Advances, to the Agent stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the outstanding principal amount of the Revolving Credit
Advances comprising part of the same Revolving Credit Borrowing or Swing Line Advances comprising part of the same Swing Line
Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of
$100,000 in excess thereof in the case of Revolving Credit Advances denominated in Dollars (or in an aggregate principal amount of
$500,000 or an integral multiple of $10,000 in excess thereof in the case of Swing Line Advances) and the Equivalent of $5,000,000
or an integral multiple of $100,000 in excess thereof in the case of Revolving Credit Advances denominated in any Committed
Currencies (determined on the date notice of prepayment is given) and (y) in the event of any such prepayment of a Eurocurrency Rate
Advance, such Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.04(c).
(b) Mandatory Prepayments. (i) If the Agent notifies the Company on the second Business Day prior to any interest payment
date that the sum of (A) the aggregate principal amount of all Advances denominated in Dollars then outstanding plus (B) the
Equivalent in Dollars (both (A) and (B) determined on the third Business Day prior to such interest payment date) of the aggregate
principal amount of all Advances denominated in Committed Currencies and Committed L/C Currencies then outstanding exceeds
103% of the aggregate Revolving Credit Commitments of the Lenders on such date, the Borrowers shall, within two Business Days
after receipt of such notice, prepay the outstanding principal amount of any Advances owing by the Borrowers in an aggregate amount
sufficient to reduce such sum after such payment to an amount not to exceed 100% of the aggregate Revolving Credit Commitments
of the Lenders. The Agent shall provide such notice to the Company at the request of any Lender.
(ii) Each prepayment made pursuant to this Section 2.10(b) shall be made together with any interest accrued to the date of such
prepayment on the principal amounts prepaid and, in the case of any prepayment of a Eurocurrency Rate Advance on a date other than
the last day of an Interest Period or at its maturity, any additional amounts which the Borrowers shall be obligated to reimburse to the
Lenders in respect thereof pursuant to Section 9.04(c). The Agent shall give prompt notice of any prepayment required under this
Section 2.10(b) to the Company and the Lenders.
(c) Letters of Credit. The Company shall, on the day that is 15 days prior to the Termination Date, pay to the Agent for deposit
in the L/C Cash Deposit Account an amount sufficient to cause the aggregate amount on deposit in the L/C Cash Deposit Account to
equal the sum of (a) 103% of the Dollar Equivalent of the aggregate Available Amount of all Letters of Credit then outstanding
denominated in any Committed L/C Currency and (b) 100% of the aggregate Available Amount of all Letters of Credit then
outstanding denominated in Dollars. Upon the drawing of any such Letter of Credit, to the extent funds are on deposit in the L/C Cash
Deposit Account, such funds shall be applied to reimburse the Issuing Banks to the extent permitted by applicable law, and if so
applied, then such reimbursement shall be deemed a repayment of the corresponding Advance in respect of such Letter of Credit.
After all such Letters of Credit shall have expired or been fully drawn upon and all other
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20
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
obligations of the Borrowers thereunder shall have been paid in full, the balance, if any, in such L/C Cash Deposit Account shall be
promptly returned to the Company.
SECTION 2.11. Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law
or regulation after the date hereof or (ii) the compliance with any guideline or request issued after the date hereof by any central bank
or other governmental authority including, without limitation, any agency of the European Union or similar monetary or multinational
authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making,
funding or maintaining Eurocurrency Rate Advances or agreeing to issue or of issuing or maintaining or participating in Letters of
Credit (excluding for purposes of this Section 2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to which
Section 2.14 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States
or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any
political subdivision thereof), then the Company shall from time to time, upon demand by such Lender (with a copy of such demand to
the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost, submitted to the Company and the Agent by such Lender, shall
constitute prima facie evidence of such amounts.
(b) If any Lender determines that due to the introduction of or any change in or in the interpretation of any law or regulation or
any guideline or request from any central bank or other governmental authority (whether or not having the force of law) after the date
hereof, taking into consideration the policies of such Lender and any corporation controlling such Lender with respect to capital
adequacy, increases or would increase the amount of capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such increase is based upon the existence of such Lender’s commitment to lend or to
issue or participate in Letters of Credit hereunder and other commitments of this type and the effect of such increase is to reduce the
rate of return on such Lender’s capital or on the capital of the corporation controlling such Lender, then, upon demand by such Lender
(with a copy of such demand to the Agent), the Company shall pay to the Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such
circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such
Lender’s commitment to lend or to issue or participate in Letters of Credit hereunder. A certificate as to such amounts submitted to the
Company and the Agent by such Lender shall constitute prima facie evidence of such amounts.
(c) If any governmental authority of the jurisdiction of any Committed Currency or Committed L/C Currency (or any other
jurisdiction in which the funding operations of any Lender shall be conducted with respect to such Committed Currency or Committed
L/C Currency) shall introduce or increase any reserve, liquid asset or similar requirement after the date hereof with respect to any
category of deposits or liabilities customarily used to fund loans in such Committed Currency or Committed L/C Currency, or by
reference to which interest rates applicable to loans in such Committed Currency or Committed L/C Currency are determined, and the
result of such requirement shall be to increase the cost to such Lender of making or maintaining any Advance denominated in a
Committed Currency, and such Lender shall deliver to the relevant Borrowers a notice requesting compensation under this paragraph,
then the relevant Borrowers will pay to such Lender on each date on which interest is paid pursuant to Section 2.07 with respect to
each affected Advance denominated in a Committed Currency, an amount that will compensate such Lender for such additional cost.
A certificate in reasonable detail as to the amount of such increased cost, submitted to the Company and the Agent by such Lender
shall constitute prima facie evidence of such amounts.
SECTION 2.12. Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the
introduction of or any change in or in the interpretation of any law or regulation after the date hereof makes it unlawful, or any central
bank or other governmental authority asserts after the date hereof that it is unlawful, for any Lender or its Eurocurrency Lending
Office to perform its obligations hereunder to make Eurocurrency Rate Advances in Dollars or any Committed Currency or to fund or
maintain Eurocurrency Rate Advances in Dollars or any Committed Currency hereunder, (a) each Eurocurrency Rate Advance will
automatically, upon such demand, (i) if such Eurocurrency Rate Advance is denominated in Dollars, be Converted into a Base Rate
Advance and (ii) if such Eurocurrency Rate Advance is denominated in any Committed Currency, be redenominated into an
Equivalent amount of Dollars and be Converted into a Base Rate Advance and (b) the
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
obligation of the Lenders to make Eurocurrency Rate Advances or to Convert Advances into Eurocurrency Rate Advances shall be
suspended until the Agent shall notify the Company and the Lenders that the circumstances causing such suspension no longer exist.
SECTION 2.13. Payments and Computations. (a) Each Borrower shall make each payment hereunder, except with respect to
principal of, interest on, and other amounts relating to, Advances denominated in a Committed Currency or Committed L/C Currency,
not later than 12:00 noon (New York City time) on the day when due in Dollars to the Agent at the applicable Agent’s Account in
same day funds and without deduction, set off or counterclaim. Each Borrower shall make each payment hereunder with respect to
principal of, interest on, and other amounts relating to, Advances denominated in a Committed Currency, not later than 11:00 A.M. (at
the Payment Office for such Committed Currency) on the day when due in such Committed Currency to the Agent, by deposit of such
funds to the applicable Agent’s Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest, fees or commissions ratably (other than amounts payable pursuant to
Section 2.04(b)(ii), 2.11, 2.14 or 9.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds
relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to Section 9.07(c), from and after the effective date specified in
such Assignment and Acceptance, the Agent shall make all payments hereunder and under any Notes in respect of the interest
assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as
the case may be, all computations of interest based on the Eurocurrency Rate or the Federal Funds Rate and of fees and Letter of
Credit commissions shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable.
Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under any Notes shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the
computation of payment of interest, fee or commission, as the case may be; provided, however, that, if such extension would cause
payment of interest on or principal of Eurocurrency Rate Advances to be made in the next following calendar month, such payment
shall be made on the next preceding Business Day.
(d) Unless the Agent shall have received notice from any Borrower prior to the date on which any payment is due to the Lenders
hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment
in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such
payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays
such amount to the Agent, at (i) the Federal Funds Rate in the case of Advances denominated in Dollars or (ii) the cost of funds
incurred by the Agent in respect of such amount in the case of Advances denominated in Committed Currencies.
SECTION 2.14. Taxes. (a) Any and all payments by each Borrower hereunder or under any Notes shall be made, in accordance
with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its
overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction under the laws of which such
Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes
imposed on its overall net income, and franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender’s
Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies,
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under any Notes being hereinafter
referred to as “Taxes”). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder
or under any Note to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as
the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under any Notes or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement or any Notes (hereinafter referred to as “Other Taxes”).
(c) Each Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of Taxes or Other
Taxes (including, without limitation, taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.14)
imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent
(as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, each Borrower shall furnish to the Agent, at its address referred to in
Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under any
Notes by or on behalf of such Borrower through an account or branch outside the United States or by or on behalf of such Borrower
by a payor that is not a United States person, if such Borrower determines that no Taxes are payable in respect thereof, such Borrower
shall furnish, or shall cause such payor to furnish, to the Agent, at such address, an opinion of counsel acceptable to the Agent stating
that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms “United States” and “United
States person” shall have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Initial Lender and on the date of the Assignment and Acceptance pursuant to which it
becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Company (but only
so long as such Lender remains lawfully able to do so), shall provide each of the Agent and the Company with two original Internal
Revenue Service forms W-8BEN or W-8ECI, as appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments
pursuant to this Agreement or any Notes. If the form provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided,
however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this
Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect
to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in
the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender
assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form
W-8BEN or W-8ECI, that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrowers
and shall not be obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to provide the Company with the appropriate form described in
Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was
required to be provided, or if such form otherwise is not
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
required under subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to
Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes
because of its failure to deliver a form required hereunder, the Company shall take such steps at such Lender’s expense as the Lender
shall reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurocurrency Lending Office
if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.
SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise) on account of the Revolving Credit Advances or Swing Line Advances owing to it (other
than pursuant to Section 2.11, 2.14 or 9.04(c)) in excess of its Ratable Share of payments on account of the Revolving Credit
Advances or Swing Line Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Revolving Credit Advances or Swing Line Advances owing to them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender
shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender’s
ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15
may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation.
SECTION 2.16. Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of each Borrower to such Lender resulting from each Advance owing to such Lender from time to time,
including the amounts of principal and interest payable and paid to such Lender from time to time hereunder in respect of Advances.
Each Borrower agrees that upon notice by any Lender to such Borrower (with a copy of such notice to the Agent) to the effect that a
Note is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the
Advances owing to, or to be made by, such Lender, such Borrower shall promptly execute and deliver to such Lender a Note payable
to the order of such Lender in a principal amount up to the Revolving Credit Commitment of such Lender.
(b) The Register maintained by the Agent pursuant to Section 9.07(d) shall include a control account, and a subsidiary account
for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the
Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each
Assignment and Acceptance delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become
due and payable from each Borrower to each Lender hereunder and (iv) the amount of any sum received by the Agent from such
Borrower hereunder and each Lender’s share thereof.
(c) Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account
or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or
to become due and payable from each Borrower to, in the case of the Register, each Lender and, in the case of such account or
accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to
make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect
the obligations of any Borrower under this Agreement.
SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be available (and each Borrower agrees that it shall use
such proceeds) solely for general corporate purposes of the Company and its Consolidated Subsidiaries, including commercial paper
backstop and acquisition financing.
3-year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 2.18. Temporary Waiver of Remedies. The Lenders agree not to pursue any remedies they may have in respect of the
Existing Credit Agreement (including the giving of notice under Section 6.01 thereof or the making of any demand under Section 6.02
thereof) until the end of the second Business Day following the earlier of September 30 and the delivery of the financial statements
referred to in Section 3.01(e).
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Amendment and Restatement. This amendment and restatement of the
Existing Credit Agreement (this “Amendment and Restatement”) shall become effective, with respect to Section 2.18, on
September 27, 2005 and, with respect to all other provisions, on the first date (the “Restatement Date”) on which the following
conditions have been satisfied:
(a) The Agent shall have received counterparts of this Amendment and Restatement executed by the Company and the Required
Lenders or, as to any of the Lenders, advice satisfactory to the Agent that such Lender has executed this Amendment and
Restatement.
(b) The Company shall have paid all accrued fees and expenses of the Agent and the Lenders (including the invoiced accrued
fees and expenses of counsel to the Agent).
(c) On the Restatement Date, the following statements shall be true and the Agent shall have received for the account of each
Lender a certificate signed by a duly authorized officer of the Company, dated the Restatement Date, stating that:
(i) The representations and warranties contained in Section 4.01 (other than the last sentence of Section 4.01(e)) are correct on
and as of the Restatement Date,
(ii) Since the Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 2004, and
except as disclosed in the Company’s reports filed with the SEC or as otherwise disclosed to the Lenders since such date and on
or prior to September 27, 2005, there has been no Material Adverse Change, and
(iii) No event has occurred and is continuing that constitutes a Default.
(d) The Agent shall have received on or before the Restatement Date the following, each dated the Restatement Date, in form
and substance satisfactory to the Agent and in sufficient copies for each Lender:
(i) Any Notes required by each Lender executed by the Company and made payable to the order of such Lender pursuant to
Section 2.16.
(ii) Certified copies of the resolutions of the Board of Directors or the Finance Committee of the Board of Directors of the
Company approving this Amendment and Restatement, and of all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to this Amendment and Restatement.
(iii) A certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the
officers of the Company authorized to sign this Amendment and Restatement and the other documents to be delivered by it
hereunder.
(iv) A favorable opinion of Nicholas J. Camera, General Counsel of the Company, and of Cleary, Gottlieb, Steen & Hamilton,
counsel for the Company, substantially in the form of Exhibits D-2 and D-1 hereto, respectively.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(v) A favorable opinion of Shearman & Sterling LLP, counsel for the Agent, in form and substance satisfactory to the Agent.
(e) The Lenders shall have received copies on or before September 30, 2005 of the Company’s reports filed with the Securities
and Exchange Commission on Form 10-K for the period ended December 31, 2004 and Form 10-Q for the periods ended March 31,
2005 and June 30, 2005 as filed with the Securities and Exchange Commission.
(f) Neither the Agent nor the Company shall have received notice from the Required Lenders within two Business Days after the
delivery of the financial statements referred to in clause (e) above to the Lenders that such financial statements and the financial
data contained in the footnotes thereto are not substantially similar to the preliminary financial statements provided to the Lenders
on September 27, 2005.
(g) The Company shall have terminated the commitments, and paid in full all Debt, interest, fees and other amounts outstanding,
under the 364-Day Credit Agreement dated as of May 10, 2004 as amended (the “Existing 364-Day Credit Agreement”), among the
Company, the lenders parties thereto and Citibank, as agent, and each of the Lenders that is a party to the Existing 364-Day Credit
Agreement hereby waives, upon execution of this Agreement, the three Business Days’ notice required by Section 2.05 of the
Existing 364-Day Credit Agreement relating to the termination of commitments thereunder.
SECTION 3.02. Initial Advance to Each Designated Subsidiary. The obligation of each Lender to make an initial Advance to
each Designated Subsidiary is subject to the receipt by the Agent on or before the date of such initial Advance of each of the
following, in form and substance reasonably satisfactory to the Agent and dated such date, and (except for any Notes) in sufficient
copies for each Lender:
(a) Any Notes required by each Lender executed by such Designated Subsidiary and made payable to the order of such Lender
pursuant to Section 2.16.
(b) Certified copies of the resolutions of the Board of Directors of such Designated Subsidiary (with a certified English
translation if the original thereof is not in English) approving this Agreement and any Notes to be delivered by it, and of all
documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement.
(c) A certificate of a proper officer of such Designated Subsidiary certifying the names and true signatures of the officers of such
Designated Subsidiary authorized to sign its Designation Agreement and any Notes to be delivered by it and the other documents to
be delivered by it hereunder.
(d) A certificate signed by a duly authorized officer of the Company, certifying that such Designated Subsidiary has obtained all
governmental and third party authorizations, consents, approvals (including exchange control approvals) and licenses required
under applicable laws and regulations necessary for such Designated Subsidiary to execute and deliver its Designation Agreement
and any Notes to be delivered by it and to perform its obligations hereunder and thereunder.
(e) A Designation Agreement duly executed by such Designated Subsidiary and the Company.
(f) Favorable opinions of counsel (which may be in-house counsel) to such Designated Subsidiary substantially in the forms of
Exhibits D-1 and D-2 hereto, respectively, and as to such other matters as any Lender through the Agent may request.
(g) Such other approvals, opinions or documents as any Lender, through the Agent may reasonably request.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 3.03. Conditions Precedent to Each Borrowing and Issuance. The obligation of each Lender to make an Advance
(other than a Swing Line Advance made by a Lender pursuant to Section 2.02(b) and an advance made by any Issuing Bank or any
Lender pursuant to Section 2.03(c)) on the occasion of each Borrowing, other than Borrowings made pursuant to Section 2.03(c), and
the obligations of each Issuing Bank to issue a Letter of Credit shall be subject to the conditions precedent that the Effective Date shall
have occurred and on the date of such Borrowing or such issuance (as the case may be) the following statements shall be true (and
each of the giving of the applicable Notice of Revolving Credit Borrowing, Notice of Swing Line Borrowing, Notice of Issuance and
the acceptance by any Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by such Borrower
that on the date of such Borrowing or the date of such issuance, as the case may be, such statements are true):
(a) the representations and warranties contained in Section 4.01 and, in the case of any Borrowing made to a Designated
Subsidiary, in the Designation Agreement for such Designated Subsidiary, are correct on and as of such date, before and after
giving effect to such Borrowing or such issuance (as the case may be) and to the application by the applicable Borrower of the
proceeds therefrom, as though made on and as of such date, and
(b) no event has occurred and is continuing, or would result from such Borrowing or such issuance (as the case may be) or from
the application by the applicable Borrower of the proceeds therefrom, that constitutes a Default.
SECTION 3.04. Determinations Under Sections 3.01 and 3.02. For purposes of determining compliance with the conditions
specified in Sections 3.01 and 3.02, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with
each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders
unless an officer of the Agent responsible for the transactions contemplated by this Agreement shall have received notice from such
Lender prior to the date that the Company, by notice to the Agent, designates as the proposed Effective Date or the date of the initial
Advance to the applicable Designated Subsidiary, as the case may be, specifying its objection thereto. The Agent shall promptly notify
the Lenders of the occurrence of the Effective Date and each date of initial Advance to a Designated Subsidiary, as applicable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Company. The Company represents and warrants as of the Restatement
Date, and thereafter as of each date an Advance (other than a Swing Line Advance made by a Lender pursuant to Section 2.02(b) or an
Advance made by an Issuing Bank or any Lender pursuant to Section 2.03(c)) is made or a Letter of Credit is issued, as follows:
(a) The Company is a corporation duly organized, incorporated, validly existing and in good standing under the laws of the State
of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required
to carry on its business.
(b) The execution, delivery and performance by the Company of this Agreement and the Notes to be delivered by it, if any, and
the consummation of the transactions contemplated hereby, are within the Company’s corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene, or constitute a default under, any provision of applicable law or regulation
or of the certificate of incorporation of the Company or of any judgment, injunction, order, decree, material agreement or other
instrument binding upon the Company or result in the creation or imposition of any Lien on any asset of the Company or any of its
Consolidated Subsidiaries.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory
body or any other third party is required for the due execution, delivery and performance by the Company of this Agreement or the
Notes to be delivered by it, if any.
(d) This Agreement has been, and each of the Notes to be delivered by it, if any, when delivered hereunder will have been, duly
executed and delivered by the Company. This Agreement is, and each of the Notes to be delivered by it when delivered hereunder
will be, the legal, valid and binding obligation of the Company enforceable against the Company in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting the rights of
creditors generally and subject to general principles of equity.
(e) The Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 2004, and the related
Consolidated statement of operations and cash flows of the Company and its Consolidated Subsidiaries for the fiscal year then
ended, accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance
sheet of the Company and its Consolidated Subsidiaries as at June 30, 2005, and the related Consolidated statements of operations
and cash flows of the Company and its Consolidated Subsidiaries for the six months then ended, duly certified by the chief financial
officer of the Company, copies of which have been furnished to each Lender, fairly present in all material respects, subject, in the
case of said balance sheet as at June 30, 2005, and said statements of operations and cash flows for the six months then ended, to
year-end audit adjustments, the Consolidated financial condition of the Company and its Consolidated Subsidiaries as at such dates
and the Consolidated results of the operations and cash flows of the Company and its Consolidated Subsidiaries for the periods
ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Since the Consolidated
balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 2004, and except as disclosed in the
Company’s reports filed with the SEC since such date and prior to the Restatement Date, there has been no Material Adverse
Change.
(f) There is no action, suit, investigation, litigation or proceeding pending against, or to the knowledge of the Company,
threatened against the Company or any of its Consolidated Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a significant probability of an adverse decision that (i) would have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions
contemplated hereby.
(g) Each of the Company and its ERISA Affiliates has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code except when the failure to comply would not have a Material Adverse Effect.
None of the Company or any of its ERISA Affiliates has incurred any unsatisfied material liability to the PBGC or a Plan under
Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.
(h) The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System). Following the application
of the proceeds of each Advance, not more than 25% of the value of the property and assets of the Company and its Consolidated
Subsidiaries taken as a whole, subject to the provisions of Section 5.02(a) or subject to any restriction contained in any agreement
or instrument between the Company and any Lender or any Affiliate of any Lender relating to Debt within the scope of Section
6.01(d) will be “margin stock” (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System).
(i) The Company is not (i) an “investment company”, or a company “controlled” by an “investment company”, within the
meaning of the Investment Company Act of 1940, as amended, or (ii) a
3-year Credit Agreement
28
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“holding company”, or a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(j) The Company and its Consolidated Subsidiaries have filed all United States Federal income tax returns and all other material
tax returns which are required to be filed by them and have paid all taxes due reported on such returns or pursuant to any
assessment received by the Company or any Consolidated Subsidiary, to the extent that such assessment has become due. The
charges, accruals and reserves on the books of the Company and its Consolidated Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Company, adequate except for those which are being contested in good faith by the
Company.
(k) Each of the Company’s Consolidated Subsidiaries is duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and has all powers and all material governmental licenses, authorizations, consents and approvals
required to carry on its business, all to the extent material to the Company and its Consolidated Subsidiaries taken as a whole.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any
Commitment hereunder, the Company will:
(a) Compliance with Laws, Etc. Comply, and cause each of its Consolidated Subsidiaries to comply, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and applicable environmental
laws, except where the necessity of compliance is being contested in good faith or where failure to comply would not have a
Material Adverse Effect, provided, however, that, in respect of its annual report on Form 10-K for the fiscal year ended
December 31, 2004 and its quarterly reports on Form 10-Q for the first three fiscal quarters of 2005, (1) the Company’s failure to
file the reports and attestations required by Item 308 of Regulation S-K and the certifications required by Rules 13a-14(a) and (b) of
the Exchange Act, as applicable, (2) the Company’s filing of an attestation report under Item 308(b) that is qualified or disclaimed
and (3) the Company’s filing of a certification under Rule 13a-14(b) of the Exchange Act that does not conform to the requirements
of such rule as a result of deficiencies relating to internal control over financial reporting will not be a violation of this
Section 5.01(a).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Consolidated Subsidiaries to pay and discharge, before the
same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property
and (ii) all lawful claims that, if unpaid, might solely by operation of law become a Lien upon its property; provided, however, that
neither the Company nor any of its Consolidated Subsidiaries shall be required to pay or discharge any such tax, assessment, levy,
charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves in accordance
with generally accepted accounting principles are being maintained, unless and until any Lien resulting therefrom attaches to its
property and becomes enforceable against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its Consolidated Subsidiaries to maintain, all to the extent material to
the Company and its Consolidated Subsidiaries taken as a whole, with responsible and reputable insurance companies or
associations, physical damage insurance on all real and personal property on an all risks basis, covering the repair and replacement
cost of all such property and consequential loss coverage for business interruption and extra expense, public liability insurance in an
amount not less than $25,000,000 and such other insurance covering such other risks as is customarily carried by companies of
established reputations engaged in similar businesses and owning similar properties in the same general areas in which the
Company or such Consolidated Subsidiary operates;
3-year Credit Agreement
29
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
provided, however, that the Company and its Consolidated Subsidiaries may self-insure to the same extent as other companies
engaged in similar businesses and owning similar properties in the same general areas in which the Company or such Consolidated
Subsidiary operates and to the extent consistent with prudent business practice.
(d) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Consolidated Subsidiaries to preserve and
maintain, its existence, rights (constituent document and statutory) and franchises necessary in the normal conduct of its business,
all to the extent material to the Company and its Consolidated Subsidiaries taken as a whole; provided, however, that the Company
and its Consolidated Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and provided
further that neither the Company nor any of its Consolidated Subsidiaries shall be required to preserve any right or franchise if the
Board of Directors of the Company or such Consolidated Subsidiary shall determine that the preservation thereof is no longer
desirable in the normal conduct of the business of the Company or such Consolidated Subsidiary, as the case may be, and that the
loss thereof is not material to the Company and its Consolidated Subsidiaries taken as a whole.
(e) Visitation Rights. At any reasonable time and from time to time, permit the Agent or any of the Lenders or any agents or
representatives thereof at their own expense, to examine and make copies of and abstracts from the records and books of account of,
and visit the properties of, the Company and any of its Consolidated Subsidiaries, and to discuss the affairs, finances and accounts
of the Company and any of its Consolidated Subsidiaries with any of their officers and with their independent certified public
accountants, all as often as may reasonably be necessary to ensure compliance by the Company with its obligations hereunder.
(f) Keeping of Books. Keep, and cause each of its Consolidated Subsidiaries to keep, proper books of record and account, in
which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each such
Consolidated Subsidiary in accordance with sound business practices and applicable statutory requirements so as to permit the
preparation of the Consolidated financial statements of the Company and its Consolidated Subsidiaries in accordance with generally
accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Consolidated Subsidiaries to maintain and
preserve, all of its properties that are used and useful in the conduct of its business in good working order and condition, ordinary
wear and tear excepted, except where the failure to do so would not have a Material Adverse Effect.
(h) Reporting Requirements. Furnish to the Lenders or notify the Lenders of the availability of:
(i) as soon as available and in any event within 50 days after the end of each of the first three quarters of each fiscal year of
the Company, the unaudited Consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such
quarter and unaudited Consolidated statement of operations and cash flows of the Company and its Consolidated Subsidiaries for
the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (except for
the absence of footnotes and subject to year-end audit adjustments) by the chief financial officer of the Company as having been
prepared in accordance with generally accepted accounting principles and a certificate of the chief financial officer, chief
accounting officer or treasurer of the Company, which certificate shall include a statement that such officer has no knowledge,
except as specifically stated, of any condition, event or act which constitutes a Default and setting forth in reasonable detail the
calculations necessary to demonstrate compliance with Section 5.03 on the date of such balance sheet, provided that in the event
that generally accepted accounting principles used in the preparation of such financial statements shall differ from GAAP, the
Company shall also provide, if necessary for the
3-year Credit Agreement
30
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP;
(ii) as soon as available and in any event within 95 days after the end of each fiscal year of the Company, a copy of the
audited financial statements for such year for the Company and its Consolidated Subsidiaries, containing the Consolidated
balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and Consolidated statement of
operations and cash flows of the Company and its Consolidated Subsidiaries for such fiscal year, in each case accompanied by
the report thereon of PricewaterhouseCoopers LLP or other independent public accountants of nationally recognized standing,
together with a certificate of the chief financial officer, chief accounting officer or treasurer of the Company, which certificate
shall include a statement that such officer has no knowledge, except as specifically stated, of any condition, event or act which
constitutes a Default and setting forth in reasonable detail the calculations necessary to demonstrate compliance with
Section 5.03 on the date of such financial statements, provided that in the event that generally accepted accounting principles
used in the preparation of such financial statements shall differ from GAAP, the Company shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of reconciliation conforming such financial statements to GAAP;
(iii) as soon as possible and in any event within ten days after the chief executive officer, chief operation officer, principal
financial officer or principal accounting officer of the Company knows or has reason to know of the occurrence of each Default
continuing on the date of such statement, a statement of such officer of the Company setting forth details of such Default and the
action that the Company has taken and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of all quarterly and annual reports and proxy solicitations that the
Company sends to any of its securityholders, and copies of all reports on Form 8-K and registration statements for the public
offering of securities (other than pursuant to employee Plans) that the Company or any Consolidated Subsidiary files with the
Securities and Exchange Commission;
(v) promptly after the commencement thereof, notice of all actions and proceedings before any court, governmental agency or
arbitrator affecting the Company or any of its Consolidated Subsidiaries of the type described in Section 4.01(f); and
(vi) such other information respecting the financial condition or business of the Company or any of its Consolidated
Subsidiaries as any Lender through the Agent may from time to time reasonably request.
The financial statements required to be delivered pursuant to clauses (i) and (ii) and the reports and other materials required to be
delivered pursuant to clause (iv) of this Section 5.01(h) shall be deemed to have been delivered on the date on which the Company
notifies the Agent, in the case of clauses (i) and (ii), that the reports on Form 10-K and Form 10-Q, respectively, containing such
financial statements and, in the case of clause (iv), that such reports and other materials have been posted on the SEC’s website at
www.sec.gov; provided that, notwithstanding the method of electronic delivery set forth in Section 9.02(b), the Company shall
deliver paper copies of the reports (without the exhibits thereto) referred to in clauses (i), (ii) and (iv) of this Section 5.01(h) to the
Agent or any Lender who requests the Company to deliver such paper copies until written notice to cease delivering paper copies
is given by the Agent or such Lender; and provided further that in every instance the Company shall provide paper copies of the
certificates required to be delivered in accordance with this Section 5.01(h) until such time as the Agent shall provide the
Company notice otherwise.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment
hereunder, the Company will not:
3-year Credit Agreement
31
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(a) Liens, Etc. Create or suffer to exist, or permit any of its Consolidated Subsidiaries to create or suffer to exist, any Lien on or
with respect to any of its assets, whether now owned or hereafter acquired, other than:
(i) Liens existing on the Restatement Date;
(ii) any Lien existing on any asset of any corporation at the time such corporation becomes a Consolidated Subsidiary and not
created in contemplation of such event;
(iii) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of
acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition
thereof;
(iv) any Lien on any asset of any corporation existing at the time such corporation is merged into or consolidated with the
Company or a Consolidated Subsidiary and not created in contemplation of such event;
(v) any Lien existing on any asset prior to the acquisition thereof by the Company or a Consolidated Subsidiary and not
created in contemplation of such acquisition;
(vi) any Lien created in connection with capitalized lease obligations, but only to the extent that such Lien encumbers
property financed by such capital lease obligation and the principal component of such capitalized lease obligation is not
increased;
(vii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate
materially impair the operation of the business of the Company and its Consolidated Subsidiaries, taken as a whole;
(viii) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by
any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets;
(ix) Liens securing taxes, assessments, fees or other governmental charges or levies, Liens securing the claims of
materialmen, mechanics, carriers, landlords, warehousemen and similar Persons, Liens incurred in the ordinary course of
business in connection with workmen’s compensation, unemployment insurance and other similar laws, Liens to secure surety,
appeal and performance bonds and other similar obligations not incurred in connection with the borrowing of money, and
attachment, judgment and other similar Liens arising in connection with court proceedings so long as the enforcement of such
Liens is effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings;
(x) any Liens on property arising in connection with a securities repurchase transaction;
(xi) any contractual right of set-off or any contractual right to charge or contractual security interest in or Lien on the accounts
of the Company or any of its Consolidated Subsidiaries to effect the payment of amounts to such depositary institution whether
or not due and payable in respect of any Debt or financing arrangement and any other Lien arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off or similar rights;
(xii) any Liens on assets of Subsidiaries organized outside of the United States in favor of lenders under short-term working
capital lines of credit entered into in the ordinary course of business;
3-year Credit Agreement
32
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(xiii) Liens arising in the ordinary course of banking transactions and securing Debt in an aggregate amount of not more than
$15,000,000 that matures not more than one year after the date on which it is originally incurred;
(xiv) any Lien arising out of the L/C Cash Deposit Account; and
(xv) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal amount at
any time outstanding not to exceed $10,000,000.
(b) Mergers, Etc. (i) Merge or consolidate with or into any Person (other than a Consolidated Subsidiary of the Company) except
that the Company may agree to merge or consolidate any Consolidated Subsidiary with any Person in connection with an
acquisition of such Person or (ii) sell, lease or otherwise transfer (whether in one transaction or a series of transactions) all or
substantially all of the Company’s business or assets (whether now owned or hereafter acquired) to any Person (other than a
Consolidated Subsidiary of the Company), or permit any Consolidated Subsidiary to merge or consolidate with or into or transfer
(whether in one transaction or a series of transactions) all or any substantial part of its assets (whether now owned or hereafter
acquired) to any Person except (x) the Company or another Consolidated Subsidiary of the Company or to any other Person if the
Board of Directors of the Company (or the finance committee or an officer of the Company duly authorized for such purpose)
determines in good faith that the Consolidated Subsidiary or the assets of such Consolidated Subsidiary, as the case may be, are not
material to the Company and its Consolidated Subsidiaries taken as a whole, and (y) any Consolidated Subsidiary may merge with
or consolidate into any Person in connection with an acquisition of such Person, provided, in each case, that no Default shall have
occurred and be continuing at the time of such proposed transaction or would result therefrom.
(c) Accounting Changes. Make or permit, or permit any of its Consolidated Subsidiaries to make or permit, any change in
accounting policies or reporting practices, except as required or permitted by generally accepted accounting principles or applicable
statutory requirements.
(d) Change in Nature of Business. Engage, or permit any Consolidated Subsidiary to engage, predominantly in any business
other than business of the same general type as conducted on the date hereof by the Company and its Consolidated Subsidiaries.
(e) Acquisitions. Except as set forth on Schedule 5.02(e) and except for required payments, or optional payments made in lieu of
required payments when in the best interest of the Company (as determined in good faith by the appropriate officers of the
Company), pursuant to agreements relating to such purchases and acquisitions entered into prior to March 1, 2005, purchase or
otherwise acquire all or substantially all of the assets, or a business unit or division, of any Person except to the extent that (i) the
consideration of such purchase or acquisition consists solely of capital stock of the Company or (ii) the cash consideration of all
such purchases and acquisitions shall not exceed (x) $50,000,000 in the aggregate for the period from the Restatement Date to the
first anniversary of the Restatement Date and (y) $50,000,000 in the aggregate for the period from the first anniversary of the
Restatement Date to the Termination Date; provided that the cash amount permitted in clause (ii) above shall be increased by the
amount of Net Cash Proceeds received from any disposition of assets or any business or entity during the applicable period.
(f) Restricted Payments. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any
shares of its common stock now or hereafter outstanding, return any capital to its stockholders as such, or make any distribution of
assets, equity interests, obligations or securities to its stockholders as such (any of the foregoing, a “Restricted Payment”), except
that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i), (ii), (iii) or
(iv) below or would result therefrom, the Company may (i) declare and pay dividends and distributions payable either only in
common stock of the Company or in a combination of common stock of the Company and cash to the extent permitted by clause
(iv) below, (ii) purchase, redeem, retire, defease or otherwise acquire
3-year Credit Agreement
33
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
shares of its capital stock (A) with the proceeds received contemporaneously from the issue of new shares of its capital stock with
equal or inferior voting powers, designations, preferences and rights or (B) in connection with the exercise of options by the
employees of the Company or its Subsidiaries, (iii) issue preferred stock (or the right to purchase preferred stock) of the Company in
connection with a stockholders’ rights plan or (iv) declare and pay cash dividends with respect to any convertible preferred stock,
convertible trust preferred instruments or similar securities of the Company outstanding on or after the Restatement Date.
(g) Capital Expenditures. Make, or permit any of its Consolidated Subsidiaries to make, any Capital Expenditures that would
cause the aggregate of all such Capital Expenditures made by the Company and its Consolidated Subsidiaries to exceed
$210,000,000 in any calendar year. For purposes of this subsection, “Capital Expenditures” means, for any period, the sum of,
without duplication, (x) all expenditures made, directly or indirectly, during such period for equipment, fixed assets, real property
or improvements, or for replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with
GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of a Person or have a useful life of
more than one year plus (y) the aggregate principal amount of all Debt (including obligations under capitalized leases) assumed or
incurred in connection with any such expenditures.
(h) Subsidiary Debt. Permit any of its Consolidated Subsidiaries to create or suffer to exist, any Debt other than (without
duplication):
(i) Debt owed to the Company or to a Consolidated Subsidiary of the Company,
(ii) Debt existing on the Effective Date and described on Schedule 5.02(h) hereto (the “Existing Debt”), and any Debt
extending the maturity of, or refunding or refinancing, in whole or in part, the Existing Debt, provided that the principal amount
of such Existing Debt shall not be increased above the principal amount thereof outstanding immediately prior to such extension,
refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with
such extension, refunding or refinancing,
(iii) Debt secured by Liens permitted by Section 5.02(a),
(iv) unsecured Debt incurred in the ordinary course of business of the Company’s Consolidated Subsidiaries organized
outside the United States,
(v) book overdraft amounts outstanding at any time, and
(vi) unsecured Debt incurred in the ordinary course of business of the Company’s Consolidated Subsidiaries organized in the
United States in an aggregate amount at any time outstanding of not more than $10,000,000.
SECTION 5.03. Financial Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment
hereunder, the Company will:
(a) Interest Coverage Ratio. Maintain, as of the end of the fiscal quarter ended September 30, 2005 and as of the end of each
fiscal quarter thereafter, a ratio of (i) Consolidated EBITDA of the Company and its Consolidated Subsidiaries for the period of
four fiscal quarters then ended to (ii) Interest Expense during such period by the Company and its Consolidated Subsidiaries, of not
less than the ratio set forth opposite such fiscal quarter below:
3-year Credit Agreement
34
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Ratio
2.15 to 1
1.75 to 1
1.85 to 1
1.45 to 1
1.75 to 1
2.15 to 1
2.50 to 1
(b) Debt to EBITDA Ratio. Maintain, as of the end of the fiscal quarter ended September 30, 2005 and as of the end of each
fiscal quarter thereafter, a ratio of (i) Debt for Borrowed Money as of the end of such fiscal quarter to (ii) Consolidated EBITDA of
the Company and its Consolidated Subsidiaries for the period of four fiscal quarters then ended, of not greater than the ratio set
forth opposite such fiscal quarter below, provided, that for the purposes of this Section 5.03(b), the term “Debt” shall not include
the indebtedness of the Company that, by its express terms, is subordinated in rights of payment to the obligations of the Company
under this Agreement on terms no less favorable to the Lenders than the terms set forth on Schedule 5.03(b) or on such other terms
as are satisfactory to the Required Lenders:
Fiscal Quarter Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
Ratio
5.20 to 1
6.30 to 1
5.65 to 1
6.65 to 1
5.15 to 1
4.15 to 1
3.90 to 1
(c) Minimum EBITDA. Maintain Consolidated EBITDA of the Company and its Consolidated Subsidiaries for the period of
four fiscal quarters ended September 30, 2005 and for each period of four fiscal quarters ended thereafter, commencing with the
fiscal quarter ended September 30, 2005, of not less than the amount set forth opposite the date that ends such period below:
Four Fiscal Quarters Ending
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
March 31, 2007
3-Year Credit Agreement
35
Amount
$435,000,000
$360,000,000
$400,000,000
$340,000,000
$440,000,000
$545,000,000
$585,000,000
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:
(a) The Company or any other Borrower shall fail to pay any principal of any Advance when the same becomes due and
payable; or the Company or any other Borrower shall fail to pay any interest on any Advance or make any other payment of fees or
other amounts payable under this Agreement or any Note within five Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by the Company or any Designated Subsidiary (or any of its officers) in any certificate,
financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material
respect when made; or
(c) (i) The Company shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) or (h), 5.02
(other than subsection (c) thereof) or 5.03; (ii) the Company or any other Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d) if such failure shall remain unremedied for 10 days after written notice thereof
shall have been given to the Company by the Agent or any Lender; or (iii) the Company or any other Borrower shall fail to perform
or observe any other term, covenant or agreement contained in this Agreement or any other Loan Document on its part to be
performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the
Company by the Agent or any Lender; or
(d) The Company or any of its Consolidated Subsidiaries shall fail to pay any principal of or premium or interest on any Debt
(but excluding Debt outstanding hereunder and Debt owed solely to the Company or to a Consolidated Subsidiary) of the Company
or such Consolidated Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument creating or evidencing such Debt; or the Company or any of its Consolidated Subsidiaries
shall fail to perform or observe any covenant or agreement to be performed or observed by it in any agreement or instrument
creating or evidencing any such Debt and such failure shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such failure is to accelerate, or to permit the acceleration of, the maturity of such Debt; or
any other event shall occur or condition shall exist under any agreement or instrument creating or evidencing any such Debt and
shall continue after the applicable grace period, if any, specified in such agreement or instrument (and remain uncured three
Business Days after the chief financial officer, chief operation officer, principal financial officer or principal accounting officer of
the Company becomes aware or should have become aware of such event or condition), if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated
maturity thereof; provided that the aggregate principal amount (or, in the case of any payment default, failure or other event in
respect of a Hedge Agreement, the net amount due and payable under such Hedge Agreement as of the date of such payment
default, failure or event) of all Debt as to which any such payment defaults (whether or not at stated maturity thereof), failures or
other events shall have occurred and be continuing exceeds $10,000,000; provided further that if any of the failures, actions,
conditions or events set forth above in this subsection (d) shall be taken in
3-Year Credit Agreement
36
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
respect of, or occur with respect to, a Consolidated Subsidiary, such failure, action, condition or event shall not be the basis for or
give rise to an Event of Default under this subsection (d) unless such failure, action, condition or event is not cured or such amount
has not been repaid within five Business Days after the chief executive officer, chief operation officer, principal financial officer or
principal accounting officer of the Company knows or has reason to know of the occurrence of such action or event; or
(e) The Company or any of its Consolidated Subsidiaries shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Company or any of its Consolidated Subsidiaries seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and,
in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an
order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part
of its property) shall occur; or the Company or any of its Consolidated Subsidiaries shall take any corporate action to authorize any
of the actions set forth above in this subsection (e); provided, that if any of the actions or events set forth above in this subsection
(e) shall be taken in respect of, or occur with respect to, a Consolidated Subsidiary, such action or event shall not be the basis for or
give rise to an Event of Default under this subsection (e) if (x) the assets or revenues of such Consolidated Subsidiary and its
Consolidated Subsidiaries, taken as a whole, comprise 5% or less of the assets or revenues, respectively, of the Company and its
Consolidated Subsidiaries, taken as a whole, and (y) the aggregate assets and revenues of all Consolidated Subsidiaries otherwise
subject to such actions or events set forth above do not comprise more than 15% of the assets or revenues, respectively, of the
Company and its Consolidated Subsidiaries taken as a whole; or
(f) Judgments or orders for the payment of money in excess of $10,000,000 in the aggregate shall be rendered against the
Company or any of its Consolidated Subsidiaries and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
(g) (i) Any Person or two or more Persons acting in concert (other than the Company or a Consolidated Subsidiary) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of Voting Stock of the Company (or other securities convertible into such Voting
Stock) representing 30% or more of the combined voting power of all Voting Stock of the Company; or (ii) during any period of up
to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such period were
directors of the Company shall cease for any reason to constitute a majority of the board of directors of the Company unless the
election or nomination for election by the Company’s stockholders of each new director was approved by the vote of at least
two-thirds of the directors then still in office who were directors at the beginning of such period; or
(h) The Company or any of its ERISA Affiliates shall incur liability, or in the case of clause (i) below, shall be reasonably likely
to incur liability, in excess of $10,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any
ERISA Event; (ii) the partial or complete withdrawal of the Company or any of its ERISA Affiliates from a Multiemployer Plan; or
(iii) the reorganization or termination of a Multiemployer Plan; or
(i) so long as any Consolidated Subsidiary of the Company is a Designated Subsidiary, any provision of Article VII shall for any
reason cease to be valid and binding on or enforceable against the Company, or the Company shall so state in writing;
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the
Company and the other Borrowers, declare the obligation of each Lender to make Advances (other than Swing Line Advances by any
Lender pursuant to Section 2.02(b) and Advances by an Issuing Bank or a Lender pursuant to Section 2.03(c)), and of the Issuing
Banks to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may
with the consent, of the Required Lenders, by notice to the Company and the other Borrowers, declare the Advances, all interest
thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon such Advances, all such
interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice
of any kind, all of which are hereby expressly waived by each Borrower; provided, however, that in the event of an actual or deemed
entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to
make Advances (other than Swing Line Advances by a Lender pursuant to Section 2.02(b) and Advances by an Issuing Bank or a
Lender pursuant to Section 2.03(c)), and of the Issuing Banks to issue Letters of Credit shall automatically be terminated and (B) such
Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by each Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be
continuing, the Agent may with the consent, or shall at the request, of the Required Lenders, irrespective of whether it is taking any of
the actions described in Section 6.01 or otherwise, make demand upon the Company to, and forthwith upon such demand the
Company will, (a) pay to the Agent on behalf of the Lenders in same day funds at the Agent’s office designated in such demand, for
deposit in the L/C Cash Deposit Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding
or (b) make such other reasonable arrangements in respect of the outstanding Letters of Credit as shall be acceptable to the Required
Lenders. If at any time the Agent reasonably determines that any funds held in the L/C Cash Deposit Account are subject to any right
or interest of any Person other than the Agent and the Lenders or that the total amount of such funds is less than the aggregate
Available Amount of all Letters of Credit, the Borrowers will, forthwith upon demand by the Agent, pay to the Agent, as additional
funds to be deposited and held in the L/C Cash Deposit Account, an amount equal to the excess of (x) such aggregate Available
Amount over (y) the total amount of funds, if any, then held in the L/C Cash Deposit Account that are free and clear of any such right
and interest. Upon the drawing of any Letter of Credit, to the extent funds are on deposit in the L/C Cash Deposit Account, such funds
shall be applied to reimburse the Issuing Banks to the extent permitted by applicable law, and if so applied, then such reimbursement
shall be deemed a repayment of the corresponding Advance in respect of such Letter of Credit. To the extent that any such Letter of
Credit expires or otherwise terminates, and to the extent the applicable Issuing Bank’s liability has ceased to exist under such Letter of
Credit, and funds are on deposit in the L/C Cash Deposit Account in respect of such Letter of Credit, an amount equal to the undrawn
amounts under such Letter of Credit shall be promptly returned from such L/C Cash Deposit Account to the Company. If any Event of
Default has been waived or otherwise cured and no other Event of Default has occurred and is continuing, the balance, if any, in the
L/C Cash Deposit Account shall be promptly returned to the Company. If, in accordance with this Section 6.02, the balance in the L/C
Cash Deposit Account has not been otherwise returned, then after all such Letters of Credit shall have expired or been fully drawn
upon and all other obligations of the Borrowers hereunder and under the Notes shall have been paid in full, the balance, if any, in such
L/C Cash Deposit Account shall be promptly returned to the Company.
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
ARTICLE VII
GUARANTY
SECTION 7.01. Guaranty. The Company hereby absolutely, unconditionally and irrevocably guarantees, as a guarantee of
payment and not of collection, the punctual payment when due, whether at scheduled maturity or on any date of a required
prepayment or by acceleration, demand or otherwise, of all obligations of each other Borrower now or hereafter existing under or in
respect of this Agreement and any Notes (including, without limitation, any extensions, modifications, substitutions, amendments or
renewals of any or all of the foregoing obligations), whether direct or indirect, absolute or contingent, and whether for principal,
interest, premiums, fees, indemnities, contract causes of action, costs, expenses or otherwise (such obligations being the “Guaranteed
Obligations”), and agrees to pay any and all expenses (including, without limitation, fees and expenses of counsel) incurred by the
Agent or any other Lender in enforcing any rights under this Article VII. Without limiting the generality of the foregoing, the
Company’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by any such
Borrower to the Agent or any Lender under or in respect of this Agreement or any Notes but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Borrower.
SECTION 7.02. Guaranty Absolute. The Company guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of this Agreement and the Notes, if any, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of any Lender with respect thereto. The obligations of the Company under
or in respect of this Article VII are independent of the Guaranteed Obligations or any other obligations of any other Borrower under or
in respect of this Agreement and any Notes, and a separate action or actions may be brought and prosecuted against the Company to
enforce this Article VII, irrespective of whether any action is brought against any Borrower or whether any Borrower is joined in any
such action or actions. The liability of the Company under this Article VII shall be irrevocable, absolute and unconditional irrespective
of, and the Company hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to, any or all of
the following:
(a) any lack of validity or enforceability of this Agreement (other than this Article VII), the Notes, if any, or any agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or
any other obligations of any Borrower under or in respect of this Agreement or the Notes, if any, or any other amendment or waiver
of or any consent to departure from this Agreement or the Notes, if any, including, without limitation, any increase in the
Guaranteed Obligations resulting from the extension of additional credit to any Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of, or
consent to departure from, any other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of
sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other obligations of any Borrower
under this Agreement or the Notes, if any, or any other assets of any Borrower or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or existence of any Borrower or any of its Subsidiaries;
(f) any failure of any Lender or the Agent to disclose to the Company any information relating to the business, condition
(financial or otherwise), operations, performance, properties or prospects of any Borrower now or hereafter known to such Lender
or the Agent (the Company waiving any duty on the part of the Lenders and the Agent to disclose such information); or
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(g) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any
representation by any Lender or the Agent that might otherwise constitute a defense available to, or a discharge of, any Borrower or
any other guarantor or surety.
This Article VII shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by any Lender or the Agent or any other Person upon the insolvency,
bankruptcy or reorganization of any Borrower or otherwise, all as though such payment had not been made.
SECTION 7.03. Waivers and Acknowledgments. (a) The Company hereby unconditionally and irrevocably waives promptness,
diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or
dishonor and any other notice with respect to any of the Guaranteed Obligations and this Article VII and any requirement that any
Lender or the Agent protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action
against any Borrower or any other Person or any collateral.
(b) The Company hereby unconditionally and irrevocably waives any right to revoke this Article VII and acknowledges that the
guaranty under this Article VII is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the
future.
(c) The Company hereby unconditionally and irrevocably waives (i) any defense arising by reason of any claim or defense
based upon an election of remedies by any Lender or the Agent that in any manner impairs, reduces, releases or otherwise adversely
affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of the Company or other rights of the
Company to proceed against any Borrower, any other guarantor or any other Person or any collateral and (ii) any defense based on any
right of set-off or counterclaim against or in respect of the obligations of the Company hereunder.
(d) The Company hereby unconditionally and irrevocably waives any duty on the part of any Lender or the Agent to disclose to
the Company any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties
or prospects of any Borrower or any of its Subsidiaries now or hereafter known by such Lender or the Agent.
(e) The Company acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements
contemplated by this Agreement and any Notes and that the waivers set forth in Section 7.02 and this Section 7.03 are knowingly
made in contemplation of such benefits.
SECTION 7.04. Subrogation. The Company hereby unconditionally and irrevocably agrees not to exercise any rights that it may
now have or hereafter acquire against any Borrower or any other insider guarantor that arise from the existence, payment, performance
or enforcement of the Company’s Obligations under or in respect of this Article VII, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any
Lender or the Agent against any Borrower or any other insider guarantor or any collateral, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Borrower
or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security
on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this
Article VII shall have been paid in full in cash and the Commitments shall have expired or been terminated. If any amount shall be
paid to the Company in violation of the immediately preceding sentence at any time prior to the later of (a) the payment in full in cash
of the Guaranteed Obligations and all other amounts payable under this Article VII and (b) the Termination Date, such amount shall
be received and held in trust for the benefit of the Lenders and the Agent, shall be segregated from other property and funds of the
Company and shall forthwith be paid or delivered to the Agent in the same form as so received (with any necessary endorsement or
assignment) to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Article VII, whether
matured or unmatured, in accordance with the terms of this Agreement, or to be held as collateral for any Guaranteed Obligations or
other amounts payable under this Article VII thereafter arising. If (i) the Company shall make payment to any Lender or the Agent of
all or any part of the
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Article VII shall have been
paid in full in cash and (iii) the Termination Date shall have occurred, the Lenders and the Agent will, at the Company’s request and
expense, execute and deliver to the Company appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to the Company of an interest in the Guaranteed Obligations resulting from such
payment made by the Company pursuant to this Article VII.
SECTION 7.05. Continuing Guaranty; Assignments. The guaranty under this Article VII is a continuing guaranty and shall
(a) remain in full force and effect until the later of (i) the payment in full in cash of the Guaranteed Obligations and all other amounts
payable under this Article VII and (ii) the Termination Date, (b) be binding upon the Company, its successors and assigns and
(c) inure to the benefit of and be enforceable by the Lenders and the Agent and their successors, transferees and assigns. Without
limiting the generality of clause (c) of the immediately preceding sentence, any Lender may assign or otherwise transfer all or any
portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Commitments, the
Advances owing to it and the Note or Notes held by it, if any) to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as and to the extent provided in
Section 9.07. The Company shall not have the right to assign its rights hereunder or any interest herein without the prior written
consent of the Lenders.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. Each Lender (in its capacities as a Lender and Issuing Bank, as applicable) hereby
appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this
Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of
any Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of any Notes; provided, however, that the Agent shall not be required to
take any action that exposes the Agent to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to
give to each Lender prompt notice of each notice given to it by the Company or any other Borrower pursuant to the terms of this
Agreement.
SECTION 8.02. Agent’s Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for
any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the Lender that made
any Advance as the holder of the Debt resulting therefrom until the Agent receives and accepts an Assignment and Acceptance entered
into by such Lender, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult with legal
counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the
Company or any other Borrower or to inspect the property (including the books and records) of the Company or any other Borrower;
(v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of,
or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this
Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this
Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by facsimile) believed by it to
be genuine and signed or sent by the proper party or parties.
3-Year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 8.03. Citibank and Affiliates. With respect to its Commitments, the Advances made by it and any Notes issued to it,
Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it
were not the Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Citibank in its individual
capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment
banking engagements from and generally engage in any kind of business with, the Company, any of its Subsidiaries and any Person
who may do business with or own securities of the Company or any such Subsidiary, all as if Citibank were not the Agent and without
any duty to account therefor to the Lenders.
SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the
Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges
that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.
SECTION 8.05. Indemnification. (a) Each Lender severally agrees to indemnify the Agent (to the extent not promptly
reimbursed by the Company) from and against such Lender’s Ratable Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the
Agent under this Agreement (collectively, the “Indemnified Costs”), provided that no Lender shall be liable for any portion of the
Indemnified Costs resulting from the Agent’s gross negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its Ratable Share of any out-of-pocket expenses (including
reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Company. In the case of
any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 8.05 applies whether any such
investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.
(b) Each Lender severally agrees to indemnify the Issuing Banks (to the extent not promptly reimbursed by the Company) from
and against such Lender’s Ratable Share of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any such
Issuing Bank in any way relating to or arising out of this Agreement or any action taken or omitted by such Issuing Bank hereunder or
in connection herewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Issuing Bank’s gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse any such Issuing Bank promptly upon
demand for its Ratable Share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the
Company under Section 9.04, to the extent that such Issuing Bank is not promptly reimbursed for such costs and expenses by the
Company.
(c) The failure of any Lender to reimburse the Agent or any Issuing Bank promptly upon demand for its Ratable Share of any
amount required to be paid by the Lenders to the Agent as provided herein shall not relieve any other Lender of its obligation
hereunder to reimburse the Agent or any Issuing Bank for its Ratable Share of such amount, but no Lender shall be responsible for the
failure of any other Lender to reimburse the Agent or any Issuing Bank for such other Lender’s Ratable Share of such amount.
Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender
contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and
under any Notes. Each of the Agent and each Issuing Bank agrees to return to the Lenders their respective Ratable Shares of any
amounts paid under this Section 8.05 that are subsequently reimbursed by the Company or any Borrower.
SECTION 8.06. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the
Company and may be removed at any time with or without cause by the Required
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the
United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any retiring Agent’s resignation or removal hereunder as
Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
SECTION 8.07. Sub-Agent. The Sub-Agent has been designated under this Agreement to carry out duties of the Agent. The
Sub-Agent shall be subject to each of the obligations in this Agreement to be performed by the Sub-Agent, and each of the Company,
each other Borrower and the Lenders agrees that the Sub-Agent shall be entitled to exercise each of the rights and shall be entitled to
each of the benefits of the Agent under this Agreement as relate to the performance of its obligations hereunder.
SECTION 8.08. Other Agents. Each Lender hereby acknowledges that neither the documentation agent nor any other Lender
designated as any “Agent” (other than the Agent) on the signature pages hereof has any liability hereunder other than in its capacity as
a Lender.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any Notes, nor consent to
any departure by the Company or any other Borrower therefrom, shall in any event be effective unless the same shall be in writing and
signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01 or Section 3.02, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the
Advances or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on,
the Advances or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any
action hereunder, (f) reduce or limit the obligations of the Company under Section 7.01 or release or otherwise limit the Company’s
liability with respect to its obligations under Article VII or (g) amend the definition of “Required Lenders” or this Section 9.01;
provided further that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders
required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note, (ii) no amendment,
waiver or consent of Section 9.07(f) shall, unless in writing and signed by each Lender that has granted a funding option to an SPC in
addition to the Lenders required above to take such action, affect the rights or duties of such Lender or SPC under this Agreement or
any Note; (iii) no amendment, waiver or consent shall, unless in writing and signed by each Swing Line Bank in addition to the
Lenders required above to take such action, adversely affect the rights or obligations of the Swing Line Banks in their capacities as
such under this Agreement; and (iv) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Banks in
addition to the Lenders required above to take such action, adversely affect the rights or obligations of the Issuing Banks in their
capacities as such under this Agreement.
SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be either (x) in writing
(including facsimile communication) and mailed, telecopied or delivered or (y) as and to the extent set forth in Section 9.02(b) and in
the proviso to this Section 9.02(a), if to the Company or any other Borrower, to (or in care of) the Company, at its address at 1114
Avenue of the Americas, New York, New York
3-Year Credit Agreement
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Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
10036, Attention: Senior Vice President and Treasurer (with a copy at the same address to the Senior Vice President and General
Counsel); if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other
Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to
the Agent, at its address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan Syndications Department; or, as to
the Company or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent, provided
that materials required to be delivered pursuant to Section 5.01(h)(i), (ii) or (iv) shall be delivered to the Agent as specified in
Section 9.02(b) or as otherwise specified to the applicable Borrower by the Agent. All such notices and communications shall, when
mailed, telecopied or e-mailed, be effective when deposited in the mails, telecopied or confirmed by e-mail, respectively, except that
notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Delivery
by facsimile of an executed counterpart of any amendment or waiver of any provision of this Agreement or any Notes or of any
Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof.
(b) So long as Citibank or any of its Affiliates is the Agent, materials required to be delivered pursuant to Sections 5.01(h)(i),
(ii) and (iv) may be delivered to the Agent in an electronic medium in a format acceptable to the Agent and the Lenders by e-mail at
oploanswebadmin@citigroup.com. Each Borrower agrees that the Agent may make such materials, as well as any other written
information, documents, instruments and other material relating to such Borrower, any of its Subsidiaries or any other materials or
matters relating to this Agreement, any Notes or any of the transactions contemplated hereby (collectively, the “Communications”)
available to the Lenders by posting such notices on Intralinks (the “Platform”). Each Borrower acknowledges that (i) the distribution
of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with
such distribution, (ii) the Platform is provided “as is” and “as available” and (iii) neither the Agent nor any of its Affiliates warrants
the accuracy, adequacy or completeness of the Communications or the Platform and each expressly disclaims liability for errors or
omissions in the Communications or the Platform. No warranty of any kind, express, implied or statutory, including, without
limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from
viruses or other code defects, is made by the Agent or any of its Affiliates in connection with the Platform.
(c) Each Lender agrees that notice to it (as provided in the next sentence) (a “Notice”) specifying that any Communications have
been posted to the Platform shall constitute effective delivery of such information, documents or other materials to such Lender for
purposes of this Agreement; provided that if requested by any Lender the Agent shall deliver a copy of the Communications to such
Lender by e-mail or telecopier. Each Lender agrees (i) to notify the Agent in writing of such Lender’s e-mail address or addresses to
which a Notice may be sent by electronic transmission (including by electronic communication) on or before the date such Lender
becomes a party to this Agreement (and from time to time thereafter to ensure that the Agent has on record an effective e-mail
address(es) for such Lender) and (ii) that any Notice may be sent to such e-mail address or addresses.
SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such
right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Company agrees to pay on demand all reasonable out-of-pocket expenses of the
Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, any
Notes and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the
reasonable fees and expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and
responsibilities under this Agreement. The Company further agrees to pay on demand all costs and expenses of the Agent and the
Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether
through negotiations, legal proceedings or otherwise) of this Agreement, any Notes
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and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this Section 9.04(a).
(b) The Company agrees to indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their
officers, directors, employees, agents and advisors (each, an “Indemnified Party”) from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation,
in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) any Notes, this
Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, except to the
extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction
to have resulted from such Indemnified Party’s gross negligence or willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by the Company, its directors, shareholders or creditors or an Indemnified Party or
any other Person or any Indemnified Party is otherwise a party thereto. The Company also agrees not to assert any claim for special,
indirect, consequential or punitive damages against the Agent, any Lender, any of their Affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, arising out of or otherwise relating to any Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances.
(c) If any payment of principal of, or Conversion of, any Eurocurrency Rate Advance is made by any Borrower to or for the
account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant
to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of any Notes pursuant to Section 6.01 or for any other reason, or by
an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 9.07 as a result of a demand by the Company pursuant to Section 9.07(a), such
Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such
Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a
result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such
Advance.
(d) Without prejudice to the survival of any other agreement of the Company and the other Borrowers hereunder, the
agreements and obligations of the Company and the other Borrowers contained in Sections 2.11, 2.14 and 9.04 shall survive the
payment in full of principal, interest and all other amounts payable hereunder and under any Notes.
SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the
making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Advances due and
payable pursuant to the provisions of Section 6.01, each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or
the account of the Company or any Borrower against any and all of the obligations of the Company or any Borrower now or hereafter
existing under this Agreement and any Note held by such Lender, whether or not such Lender shall have made any demand under this
Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the appropriate
Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Lender and its Affiliates may have.
SECTION 9.06. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company, the Agent and
each Lender and their respective successors and assigns, except that neither the Company nor any other Borrower shall have the right
to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.
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SECTION 9.07. Assignments and Participations. (a) Each Lender may and, so long as no Default shall have occurred and be
continuing, if demanded by the Company (following a demand by such Lender pursuant to Section 2.11 or 2.14) upon at least 5
Business Days’ notice to such Lender and the Agent, will assign to one or more Persons all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its Commitment, its Unissued Letter of Credit Commitment,
the Advances owing to it, its participations in Letters of Credit and any Note or Notes held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement related to the
Commitments or the Unissued Letter of Credit Commitment assigned thereby, (ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of all of a Lender’s rights and obligations under this Agreement,
the amount of (x) the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof and (y) the Unissued Letter of Credit Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall
in no event be less than $1,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) each such assignment shall be to an
Eligible Assignee, (iv) each such assignment made as a result of a demand by the Company pursuant to this Section 9.07(a) shall be
arranged by the Company after consultation with the Agent and shall be either an assignment of all of the rights and obligations of the
assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another
such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this
Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Company pursuant to this
Section 9.07(a) unless and until such Lender shall have received one or more payments from either the Company or one or more
Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such
Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and
recordation fee of $3,500 payable by the parties to each such assignment, provided, however, that in the case of each assignment made
as a result of a demand by the Company, such recordation fee shall be payable by the Company except that no such recordation fee
shall be payable in the case of an assignment made at the request of the Company to an Eligible Assignee that is an existing Lender,
and (vii) any Lender may, without the approval of the Company or the Agent, assign all or a portion of its rights to any of its Affiliates
or to another Lender unless on the date of such assignment the assignee would be entitled to make a demand pursuant to Section 2.11
or 2.14, in which case such assignment shall be permitted only if the assignee shall waive in a manner satisfactory to the Company in
form and substance its rights to make such a demand. Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Section 2.11, 2.14 and
9.04 to the extent any claim thereunder relates to an event arising prior such assignment) and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and
Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any other
Borrower or the performance or observance by the Company or any other Borrower of any of its obligations under this Agreement or
any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed
appropriate to make its own
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credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance
upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such
powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender.
(c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an
Eligible Assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice thereof to the Company.
(d) The Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal
amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Company, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the
Company or any Lender at any reasonable time and from time to time upon reasonable prior notice.
(e) Each Lender may sell participations to one or more banks or other entities (other than the Company or any of its Affiliates)
in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and any Note or Notes held by it); provided, however, that (i) such Lender’s obligations under
this Agreement (including, without limitation, its Commitment to the Borrowers hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the
holder of any such Note for all purposes of this Agreement, (iv) the Company, the other Borrowers, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this
Agreement and (v) no participant under any such participation shall have any rights as a Lender hereunder, including, without
limitation, any right to make any demand under Section 2.11 or 2.14 or right to approve any amendment or waiver of any provision of
this Agreement or any Note, or any consent to any departure by the Company or any other Borrower therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or interest on, any Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or
interest on, any Notes or any fees or other amounts payable hereunder or reduce or limit the obligations of the Company under
Section 7.01 or release or otherwise limit the Company’s liability with respect to its obligations under Article VII or amend this
Section 9.07(e) in any manner adverse to such participant, in each case to the extent subject to such participation.
(f) Each Lender may grant to a special purpose funding vehicle (an “SPC”) the option to fund all or any part of any Advance
that such Lender is obligated to fund under this Agreement (and upon the exercise by such SPC of such option to fund, such Lender’s
obligations with respect to such Advance shall be deemed satisfied to the extent of any amounts funded by such SPC); provided,
however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitment to the Borrowers
hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) each Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement, (iv) any such option granted to an SPC shall not constitute
a commitment by such SPC to fund any Advance, (v) neither the grant nor the exercise of such option to an SPC shall increase the
costs or expenses or otherwise increase or change the obligations of any Borrower under this Agreement (including, without
limitation, its obligations under Section 2.14) and (vi) no SPC shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by any Borrower therefrom, except to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, such Note or any fees or other amounts payable
hereunder,
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in each case to the extent subject to such grant of funding option, or postpone any date fixed for any payment of principal of, or
interest on, such Note or any fees or other amounts payable hereunder, in each case to the extent subject to such grant of funding
option. Each party to this Agreement hereby agrees that no SPC shall be liable for any indemnity or payment under this Agreement for
which a Lender would otherwise be liable. In furtherance of the foregoing, each party hereto hereby agrees (which agreements shall
survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in
instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the
United States or any State thereof.
(g) Any Lender may, in connection with any assignment, participation or grant of funding option or proposed assignment,
participation or grant of funding option pursuant to this Section 9.07, disclose to the assignee, participant or SPC or proposed assignee,
participant or SPC, any information relating to any Borrower furnished to such Lender by or on behalf of such Borrower; provided
that, prior to any such disclosure, the assignee, participant or SPC or proposed assignee, participant or SPC shall agree to preserve the
confidentiality of any Borrower Information relating to any Borrower received by it from such Lender.
(h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all
or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and any Note or Notes held
by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 9.08. Confidentiality. Neither the Agent nor any Lender may disclose to any Person any confidential, proprietary or
non-public information of the Company furnished to the Agent or the Lenders by the Company (such information being referred to
collectively herein as the “Borrower Information”), except that each of the Agent and each of the Lenders may disclose Borrower
Information (i) to its and its Affiliates’ employees, officers, directors, agents and advisors who need to know the Borrower
Information in connection with this Agreement (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Borrower Information and instructed to keep such Borrower Information confidential on
substantially the same terms as provided herein), (ii) to the extent requested by any applicable regulatory authority, (iii) to the extent
required by applicable laws or regulations or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) to
the extent necessary in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (vi) subject to an agreement for the benefit of the Company containing provisions
substantially the same as those of this Section 9.08, to any assignee, participant, SPC, or prospective assignee, participant or SPC,
(vii) to the extent such Borrower Information (A) is or becomes generally available to the public on a non-confidential basis other than
as a result of a breach of this Section 9.08 by the Agent or such Lender, or (B) is or becomes available to the Agent or such Lender on
a nonconfidential basis from a source other than the Company that, to the knowledge of the Agent or such Lender, is not in violation
of any confidentiality agreement with the Company and (viii) with the consent of the Company. Notwithstanding anything herein to
the contrary, the Agent and the Lenders may disclose to any and all Persons, without limitation of any kind, the U.S. tax treatment and
tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are
provided to the Agent or the Lenders relating to such U.S. tax treatment and tax structure.
SECTION 9.09. Designated Subsidiaries. (a) Designation. The Company may at any time, and from time to time, by delivery to
the Agent of a Designation Agreement duly executed by the Company and the respective Subsidiary and substantially in the form of
Exhibit E hereto, designate such Subsidiary as a “Designated Subsidiary” for purposes of this Agreement and such Subsidiary shall
thereupon become a “Designated Subsidiary” for purposes of this Agreement and, as such, shall have all of the rights and obligations
of a Borrower hereunder. The Agent shall promptly notify each Lender of each such designation by the Company and the identity of
the respective Subsidiary.
(b) Termination. Upon the payment and performance in full of all of the indebtedness, liabilities and obligations under this
Agreement of any Designated Subsidiary then, so long as at the time no Notice of Borrowing in respect of such Designated Subsidiary
is outstanding, such Subsidiary’s status as a “Designated Subsidiary” shall terminate upon notice to such effect from the Agent to the
Lenders (which notice the Agent shall
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give promptly, and only upon its receipt of a request therefor from the Company). Thereafter, the Lenders shall be under no further
obligation to make any Advance hereunder to such Designated Subsidiary.
SECTION 9.10. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the
laws of the State of New York.
SECTION 9.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by
facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.12. Judgment. (a) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due
hereunder in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase Dollars with such other
currency at Citibank’s principal office in London at 11:00 A.M. (London time) on the Business Day preceding that on which final
judgment is given.
(b) If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in a Committed
Currency or Committed L/C Currency into Dollars, the parties agree to the fullest extent that they may effectively do so, that the rate
of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase such Committed
Currency or Committed L/C Currency with Dollars at Citibank’s principal office in London at 11:00 A.M. (London time) on the
Business Day preceding that on which final judgment is given.
(c) The obligation of the Company and each other Borrower in respect of any sum due from it in any currency (the “Primary
Currency”) to any Lender or the Agent hereunder shall, notwithstanding any judgment in any other currency, be discharged only to the
extent that on the Business Day following receipt by such Lender or the Agent (as the case may be), of any sum adjudged to be so due
in such other currency, such Lender or the Agent (as the case may be) may in accordance with normal banking procedures purchase
the applicable Primary Currency with such other currency; if the amount of the applicable Primary Currency so purchased is less than
such sum due to such Lender or the Agent (as the case may be) in the applicable Primary Currency, the Company and each other
Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Agent (as the case
may be) against such loss, and if the amount of the applicable Primary Currency so purchased exceeds such sum due to any Lender or
the Agent (as the case may be) in the applicable Primary Currency, such Lender or the Agent (as the case may be) agrees to remit to
the Company or such other Borrower such excess.
SECTION 9.13. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the
Notes, if any, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York
State court or, to the extent permitted by law, in such federal court. The Company and each other Borrower hereby further irrevocably
consent to the service of process in any action or proceeding in such courts by the mailing thereof by any parties hereto by registered
or certified mail, postage prepaid, to the Company at its address specified pursuant to Section 9.02. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have
to bring any action or proceeding relating to this Agreement or any Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so,
any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this
Agreement or any Notes in any New York State or federal
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court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
SECTION 9.14. Substitution of Currency. If a change in any Committed Currency or Committed L/C Currency occurs pursuant
to any applicable law, rule or regulation of any governmental, monetary or multi-national authority, this Agreement (including,
without limitation, the definitions of Eurocurrency Rate) will be amended to the extent determined by the Agent (acting reasonably
and in consultation with the Company) to be necessary to reflect the change in currency and to put the Lenders and the Company in
the same position, so far as possible, that they would have been in if no change in such Committed Currency or Committed L/C
Currency had occurred.
SECTION 9.15. No Liability Regarding Letters of Credit. None of the Agent, the Lenders nor any Issuing Bank, nor any of their
Affiliates, or the respective directors, officers, employees, agents and advisors of such Person or such Affiliate, shall have any liability
or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make
any payment thereunder, or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond the control of the applicable Issuing Bank; provided
that the foregoing shall not be construed to excuse any Issuing Bank from liability to the applicable Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent
permitted by applicable law) suffered by such Borrower that are caused by such Issuing Bank’s failure to exercise care when
determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof or any failure to
honor a Letter of Credit where such Issuing Bank is, under applicable law, required to honor it. The parties hereto expressly agree that,
as long as the Issuing Bank has not acted with gross negligence or willful misconduct, such Issuing Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree
that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of
Credit, an Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for
further investigation or refuse to accept and make payment upon such documents if such documents are not in strict compliance with
the terms of such Letter of Credit.
SECTION 9.16. Patriot Act Notification. Each Lender and the Agent (for itself and not on behalf of any Lender) hereby notifies
the Company and each other Borrower that pursuant to the requirements of Section 326 of the USA Patriot Act (Title III of Pub.L.
107-56 (signed into law October 26, 2001)) and the promulgated regulations thereto (the “Patriot Act”), it is required to obtain, verify
and record information that identifies each Borrower, which information includes the name and address of each Borrower and other
information that will allow such Lender or the Agent, as applicable, to identify each Borrower in accordance with the Patriot Act.
Each Borrower shall, and shall cause each of their Subsidiaries to, provide, to the extent commercially reasonable, such information
and take such actions as are reasonably requested by the Agent or any Lenders in order to assist the Agent and the Lenders in
maintaining compliance with the Patriot Act.
3-Year Credit Agreement
50
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SECTION 9.17. Waiver of Jury Trial. Each of the Company, each other Borrower, the Agent and the Lenders hereby
irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or any Notes or the actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
By:
Title: Senior Vice President and Treasurer
Swing Line Commitment
$5,000,000
$5,000,000 Total of the Swing Line Commitments
Letter of Credit Commitment
$200,000,000
CITIBANK, N.A.,
as Agent
By:
Title:
Swing Line Bank
CITIBANK, N.A.
By:
Title:
Initial Issuing Banks
CITIBANK, N.A.
By:
Title:
JPMORGAN CHASE BANK, N.A. (solely with respect
to Letters of Credit listed on Schedule 2.01(c))
By:
Title:
KEYBANK NATIONAL ASSOCIATION
(solely with respect to Letters of Credit listed on
Schedule 2.01(c))
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
By:
Title:
3-Year Credit Agreement
51
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
$200,000,000 Total of the Letter of Credit Commitments
Revolving Credit Commitment
$80,357,143
Initial Lenders
CITIBANK, N.A.
By:
Title:
$73,928,571
JPMORGAN CHASE BANK, N.A.
By:
Title:
$25,714,286
KEYBANK NATIONAL ASSOCIATION
$56,250,000
LLOYDS TSB BANK PLC
By:
Title:
By:
Title:
By:
Title:
$70,714,286
HSBC BANK USA, NATIONAL ASSOCIATION
By:
Title:
3-Year Credit Agreement
52
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
$16,071,429
ING BANK
By:
Title:
$9,642,857
ROYAL BANK OF CANADA
By:
Title:
$61,071,429
UBS LOAN FINANCE LLC
$40,178,571
By:
Title:
By:
Title:
SUNTRUST BANK
By:
Title:
$16,071,429
CALYON NEW YORK BRANCH
By:
Title:
By:
Title:
$450,000,000 Total of the Revolving Credit Commitments
3-Year Credit Agreement
53
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Name of Initial Lender
Domestic Lending Office
Eurocurrency Lending Office
SCHEDULE I
LIST OF APPLICABLE LENDING OFFICES
Citibank, N.A.
JPMorgan Chase Bank, N.A.
KeyBank National Association
Lloyds TSB Bank plc
HSBC Bank USA, National
Association
ING Bank
Royal Bank of Canada
Two Penns Way, Suite 200
New Castle, DE 19720
Attn: Heather Puchalski
T: 302 894-6021
F: 212 994-0961
1411 Broadway, 5 th Floor
New York, NY 10018
Attn: Chris Bisram
T: 212 391-6083
F: 212 391-6091
127 Public Square
Cleveland, OH 94111
Attn: Francis Lutz
T: 216 689-9968
F: 216689-0511
Lloyds TSB Bank plc
1251 Avenue of the Americas
39th Floor
New York, NY 10020
Attn: Patricia Kilian
T: 212 930-8914
F: 212 930-5098
1 HSBC Center
Buffalo, NY 14203
Attn: Nancy Lomas/Donna Riley
T: 716 841-7179/4178
F: 716 841-0269
1325 Avenue of the Americas
10th Floor
New York, NY 10019
Attn: Eileen DiLorenzo
T: 646 424-8232
F: 646 424-8256
Royal Bank of Canada
One Liberty Plaza, 4th Floor
New York, NY 10006-1404
Attn: Manager, Loans Administration
T: 212 428-6369
F: 212 428-2372
With a copy to:
Attn: Nigel Delph/Barton Lund
T: 212 428-6249/6509
F: 212 428-2319
3-Year Credit Agreement
Two Penns Way, Suite 200
New Castle, DE 19720
Attn: Heather Puchalski
T: 302 894-6021
F: 212 994-0961
1411 Broadway, 5 th Floor
New York, NY 10018
Attn: Chris Bisram
T: 212 391-6083
F: 212 391-6091
127 Public Square
Cleveland, OH 94111
Attn: Francis Lutz
T: 216 689-9968
F: 216689-0511
Lloyds TSB Bank plc
1251 Avenue of the Americas
39th Floor
New York, NY 10020
Attn: Patricia Kilian
T: 212 930-8914
F: 212 930-5098
1 HSBC Center
Buffalo, NY 14203
Attn: Nancy Lomas/Donna Riley
T: 716 841-7179/4178
F: 716 841-0269
1325 Avenue of the Americas
10th Floor
New York, NY 10019
Attn: Eileen DiLorenzo
T: 646 424-8232
F: 646 424-8256
Royal Bank of Canada
One Liberty Plaza, 4th Floor
New York, NY 10006-1404
Attn: Manager, Loans Administration
T: 212 428-6369
F: 212 428-2372
With a copy to:
Attn: Nigel Delph/Barton Lund
T: 212 428-6249/6509
F: 212 428-2319
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Name of Initial Lender
Domestic Lending Office
Eurocurrency Lending Office
UBS Loan Finance LLC
SunTrust Bank
Calyon New York Branch
677 Washington Boulevard, 6 th Floor
Stamford, CT 06901
Attention: Denise Conzo
T: 203 719-3853
F: 203 719-3888
677 Washington Boulevard, 6 th Floor
Stamford, CT 06901
Attention: Denise Conzo
T: 203 719-3853
F: 203 719-3888
Mail Code 1928
303 Peachtree Street, 10th Floor
Atlanta, GA 30308
Attn: Heidi Khambatta
T: 404 827-6957
F: 404 658-4905
With a copy to:
LaWanda Griffeth
Mail Code 1928
303 Peachtree Street, 10th Floor
Atlanta, GA 30308
T: 404 230-5413
F: 404 575-2730
Mail Code 1928
303 Peachtree Street, 10th Floor
Atlanta, GA 30308
Attn: Heidi Khambatta
T: 404 827-6957
F: 404 658-4905
With a copy to:
LaWanda Griffeth
Mail Code 1928
303 Peachtree Street, 10th Floor
Atlanta, GA 30308
T: 404 230-5413
F: 404 575-2730
1301 Avenue of the Americas
New York, NY 10019
Attn: Marie-Lyrvold Bosse Doleyres
T: 212 261-7164
F: 212 261-7696
1301 Avenue of the Americas
New York, NY 10019
Attn: Marie-Lyrvold Bosse Doleyres
T: 212 261-7164
F: 212 261-7696
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Issuing Bank
Beneficiary
L/C Number
Expiration
Total Amount
SCHEDULE 2.01(C)
EXISTING LETTERS OF CREDIT
JPMorgan Chase Bank
TV Eye Limited, et al.
Atlantic Mutual
Companies
Atlantic Mutual
Companies
W9/ONS Real Estate
Limited Partnership
JPMorgan Chase Bank
JPMorgan Chase Bank
KeyBank National
Association
KeyBank National
Association
KeyBank National
Association
T-238779
T-222830
T-235678
S308483
6/26/04
2/28/05
2/28/05
3/31/05
£70,000,000
US$1,100,000
US$1,100,000
US$400,000
Frenkel Insurance Cos.
S308220
12/31/04
US$1,976,600
American Protection
Insurance
S308157
12/31/04
US$92,588
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SCHEDULE 5.02(e)
ACQUISITIONS
None.
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(US$ 000’s)
Payable to Banks
Capitalized Leases
Mortgage Payable
Letters of Credit (Undrawn)
Total
SCHEDULE 5.02(h)
SUBSIDIARY DEBT
$
572.4
398.7
73.7
11,088.7
$12,133.5
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
SCHEDULE 5.03(b)
TERMS OF SUBORDINATION
1. Agreement to Subordinate. The Company agrees, and each holder (a “Holder”) of the [Insert: Debt being subordinated]
(the “Notes”) by accepting a Note agrees, that the indebtedness evidenced by the Notes is subordinated in right of payment, to the
extent and in the manner provided herein, to the prior payment in full, in cash or cash equivalents of all Senior Indebtedness1 (as
defined below) and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. Only Senior
Indebtedness shall rank senior to the Notes in accordance with the provisions set forth herein. The Notes shall in all respects rank pari
passu with, or be senior to, all other Indebtedness of the Company.
2. Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution of the assets of the Company to creditors upon a
total or partial liquidation or dissolution of the Company, in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment by the Company for the benefit of its creditors or the marshaling of
the assets and liabilities of the Company:
(1) the holders of Senior Indebtedness shall be entitled to receive payment in full of all obligations due in respect of such
Senior Indebtedness before any Holder of the Notes shall be entitled to receive any payment of principal of, premium or interest
on the Notes; and
(2) until such Senior Indebtedness is paid in full in cash or cash equivalents, any distribution to which Holders would be
entitled but for the subordination provision contained herein shall be made to holders of such Senior Indebtedness as their interests
may appear;
except that Holders may receive (a) securities that are subordinated to the Senior Indebtedness on terms substantially similar to the
terms of subordination contained herein (the “Permitted Junior Securities”) and (b) payments and other distributions made from any
defeasance trust created pursuant to [Insert reference to relevant defeasance provisions.]
Section 3. Default on the Designated Senior Indebtedness of the Company. (a) The Company may not pay the principal of,
premium or interest on the Notes or make any deposit into any defeasance trust account and may not repurchase, redeem or otherwise
retire any Notes (collectively, “pay the Notes”), other than payments and other distributions in the form of Permitted Junior Securities
or from any defeasance trust created pursuant to this Indenture if:
(1) a payment default on the Designated Senior Indebtedness occurs and is continuing beyond any applicable grace period;
or
(2) any other default occurs and is continuing on such Designated Senior Indebtedness that permits the holders thereof to
accelerate its maturity and the [Insert name of Trustee under the indenture under which the Notes are issued] (the
1
Senior Indebtedness and Designated Senior Indebtedness will include all obligations of [the Company] now or hereafter existing
under or in respect of the 3-Year Credit Agreement, dated as of May 10, 2004, as amended and restated on September 27, 2005
among the Company, the Agent and the Lenders party thereto (including, without limitation, any extensions, modifications,
substitutions, replacements, refinancings, amendments or renewals of any or all of the foregoing obligations), whether direct or
indirect, absolute or contingent, and whether for principal, interest, premiums, fees, indemnities, contract causes of action, costs,
expenses or otherwise (including all interest and expenses accruing after the commencement of a proceeding under any
Bankruptcy Law, whether or not constituting an allowed claim in such proceeding). Senior Indebtedness will include, and
Designated Senior Indebtedness may include, all other existing indebtedness for money borrowed of the Company.
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Trustee”) receives a notice of that default (a “Payment Blockage Notice”) from the Company or [Insert representative
for holders of Designated Senior Indebtedness].
(b) Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which it is cured or waived; and
(2) in case of a Payment Blockage Notice relating to a nonpayment default, the earlier of the date on which it is cured or
waived or 179 days after the date on which such Payment Blockage Notice is received, unless the maturity of the relevant
Designated Senior Indebtedness has been accelerated.
(c) No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice; and
(2) all scheduled payments of principal of and interest on the Notes that have come due have been paid in full in cash.
(d) No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless that default shall have been cured or waived
for a period of not less than 180 days.
4. When Distribution Must Be Paid Over. If a distribution is made to Holders that because of these subordination provisions
should not have been made to them, the Holders who receive the distribution shall hold it in trust for holders of the Senior
Indebtedness and pay it over to them (or their representative) as their interests may appear.
5. Subrogation. After all Senior Indebtedness is paid in full in cash or cash equivalents and until the Notes are paid in full in
cash or cash equivalents, Holders shall be subrogated to the rights of holders of the Senior Indebtedness to receive distributions
applicable to the Senior Indebtedness. A distribution made under these subordination provisions to holders of such Senior
Indebtedness which otherwise would have been made to Holders is not, as between the Company and Holders, a payment by the
Company on such Senior Indebtedness.
6. Relative Rights. These subordination provisions define the relative rights of the Holders and holders of Senior Indebtedness.
Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the Company, which is absolute and unconditional, to
pay its obligations in respect of the Notes in accordance with their terms; or
(2) prevent the Trustee or any Holder from exercising its available remedies upon a Default, subject to the rights of holders
of Senior Indebtedness to receive distributions otherwise payable to Holders as provided herein.
7. Subordination May Not Be Impaired by the Company. No right of any holder of Senior Indebtedness of the Company to
enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or
by its failure to comply with this [Indenture].
8. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the
proceeds of U.S. Government Obligations held in trust under
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
[Insert reference to relevant defeasance provisions] by the Trustee for the payment of principal of and interest on the Notes shall
not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth herein, and none of the
Holders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness or any other creditor of
the Company.
9. Reliance by Holders of Senior Indebtedness on Subordination Provisions. Each Holder by accepting a Note acknowledges
and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of
any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Notes, to
acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be
deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold,
such Senior Indebtedness.
3-Year Credit Agreement
3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
U.S.$
EXHIBIT A - FORM OF
NOTE
Dated: , 200_
FOR VALUE RECEIVED, the undersigned, THE INTERPUBLIC GROUP OF COMPANIES, INC., a Delaware corporation
(the “Borrower”), HEREBY PROMISES TO PAY to the order of __________(the “Lender”) for the account of its Applicable
Lending Office on the Termination Date (each as defined in the Credit Agreement referred to below) the principal sum of
U.S.$[amount of the Lender’s Revolving Credit Commitment in figures] or, if less, the aggregate principal amount of the Revolving
Credit Advances and Swing Line Advances made by the Lender to the Borrower pursuant to the 3-Year Credit Agreement dated as of
May 10, 2004, amended and restated as of September 27, 2005, among the Borrower, the Lender and certain other lenders parties
thereto, JPMorgan Chase Bank, N.A., as syndication agent, HSBC Bank USA, Lloyds TSB Bank plc and UBS AG, Stamford Branch,
as co-documentation agents, Citigroup Global Markets Inc., as lead arranger and book manager, and Citibank, N.A. as Agent for the
Lender and such other lenders (as amended or modified from time to time, the “Credit Agreement”; the terms defined therein being
used herein as therein defined) outstanding on such date.
The Borrower promises to pay interest on the unpaid principal amount of each Revolving Credit Advance and each Swing Line
Advance from the date of such Revolving Credit Advance or such Swing Line Advance, as the case may be, until such principal
amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest in respect of each Advance (i) in Dollars are payable in lawful money of the United States of
America to the Agent at its account maintained at 399 Park Avenue, New York, New York 10043, in same day funds and (ii) in any
Committed Currency are payable in such currency at the applicable Payment Office in same day funds. Each Advance owing to the
Lender by the Borrower pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded
by the Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of Revolving Credit Advances and Swing Line Advances by the Lender to
the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Revolving Credit Advance and Swing Line Advance being
evidenced by this Promissory Note, (ii) contains provisions for determining the Dollar Equivalent of Advances denominated in
Committed Currencies and (iii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified.
This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York.
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
By
Title:
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
ADVANCES AND PAYMENTS OF PRINCIPAL
Date
Amount of
Advance
Amount of
Principal Paid
or Prepaid
Unpaid Principal
Balance
Notation
Made By
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
EXHIBIT B - FORM OF
NOTICE OF BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Way
New Castle, Delaware 19720
Attention: Bank Loan Syndications Department
Ladies and Gentlemen:
[Date]
The undersigned, [The Interpublic Group of Companies, Inc.][Name of Designated Subsidiary], refers to the 3- Year Credit
Agreement dated as of May 10, 2004, amended and restated as of September 27, 2005 (as amended or modified from time to time, the
“Credit Agreement”, the terms defined therein being used herein as therein defined), among The Interpublic Group of Companies,
Inc., certain Lenders parties thereto, JPMorgan Chase Bank, N.A., as syndication agent, HSBC Bank USA, Lloyds TSB Bank plc and
UBS AG, Stamford Branch, as co-documentation agents, Citigroup Global Markets Inc., as lead arranger and book manager, and
Citibank, N.A., as Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement
that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ______, 200_.
(ii) The Type of Advances comprising the Proposed Borrowing is [Base Rate Advances] [Eurocurrency Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is [$______][for a Revolving Credit Borrowing in a Committed
Currency, list currency and amount of Revolving Credit Borrowing].
(iv) [The initial Interest Period for each Eurocurrency Rate Advance made as part of the Proposed Borrowing is ___month[s].]
(v) The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the
Proposed Revolving Credit Borrowing:
(A) the representations and warranties contained in Section 4.01 of the Credit Agreement [and in the Designation Agreement of
the undersigned] are correct, before and after giving effect to the Proposed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date;
(B) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the
proceeds therefrom, that constitutes a Default, and
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(C) the proceeds of the Proposed Borrowing will be used to fund known cash requirements of the Company and its Consolidated
Subsidiaries in the ordinary course of their respective businesses.
Very truly yours,
[THE INTERPUBLIC GROUP OF
COMPANIES, INC.][DESIGNATED SUBSIDIARY]
By
Title:
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the 3-Year Credit Agreement dated as of May 10, 2004, amended and restated as of September 27, 2005
(as amended or modified from time to time, the “Credit Agreement”) among The Interpublic Group of Companies, Inc., a Delaware
corporation (the “Company”), the Lenders (as defined in the Credit Agreement), JPMorgan Chase Bank, N.A., as syndication agent,
HSBC Bank USA, Lloyds TSB Bank plc and UBS AG, Stamford Branch, as co-documentation agents, Citigroup Global Markets Inc.,
as lead arranger and book manager, and Citibank, N.A., as agent for the Lenders (the “Agent”). Terms defined in the Credit
Agreement and not defined herein are used herein with the same meaning.
The “Assignor” and the “Assignee” referred to on Schedule 1 hereto agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor’s rights and obligations under the Credit Agreement as of the date hereof equal to the percentage
interest specified on Schedule I hereto of all outstanding rights and obligations under the Credit Agreement together with
participations in Letters of Credit held by the Assignor on the date hereof. After giving effect to such sale and assignment, the amount
of the Assignee’s Revolving Credit Commitment, and Letter of Credit Commitment and the amount of the Advances owing to the
Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, the Credit Agreement or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the
Company or the performance or observance by the Company of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (iv) attaches the Note, if any, held by the Assignor [and requests that the
Agent exchange such Note for a new Note payable to the order of [the Assignee in an amount equal to the Revolving Credit
Commitment assumed by the Assignee pursuant hereto or new Notes payable to the order of the Assignee in an amount equal to the
Revolving Credit Commitment assumed by the Assignee pursuant hereto and] the Assignor in an amount equal to the Revolving
Credit Commitment retained by the Assignor under the Credit Agreement[, respectively,] as specified on Schedule 1 hereto].
3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial
statements referred to in Section 4.01(e) thereof and such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is
an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers and discretion as
are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms
of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service forms
required under Section 2.14 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by
the Agent. The effective date for this Assignment and Acceptance (the
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
“Assignment Effective Date”) shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Agent, as of the Assignment Effective Date, (i) the Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than its
rights under Sections 2.11, 2.14 and 9.04 of the Credit Agreement to the extent any claim thereunder relates to an event arising prior to
this Assignment and Acceptance) and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the Assignment Effective Date, the Agent shall make all
payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Assignment Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one
and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by facsimile shall be
effective as delivery of a manually executed counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be
executed by their officers thereunto duly authorized as of the date specified thereon.
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned:
Assignee’s Revolving Credit Commitment:
Assignee’s Letter of Credit Commitment:
Aggregate outstanding principal amount of Advances assigned:
Principal amount of Note payable to Assignee:
Principal amount of Note payable to Assignor:
Assignment Effective Date*:_______________, 200_
—%
$ —
$ —
$ —
$ —
$ —
[NAME OF ASSIGNOR], as Assignor
By
Title:
Dated: _______________, 200_
[NAME OF ASSIGNEE], as Assignee
By
Title:
Dated: _______________, 200_
Domestic Lending Office:
[Address]
Eurocurrency Lending Office:
[Address]
* This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent.
3-Year Credit Agreement
3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Accepted [and Approved]** this
___________________________ day of ___________________________, 200_
CITIBANK, N.A., as Agent
By___________________________
Title:
[Approved this___day
of ________________________, 200_
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By ________________________]*
** Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of “Eligible Assignee”.
* Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of “Eligible Assignee”.
3-Year Credit Agreement
4
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
EXHIBIT D-1 — FORM OF
OPINION OF CLEARY,
GOTTLIEB, STEEN &
HAMILTON
The parties named as Lenders in
the below-referenced Credit Agreement
Ladies and Gentlemen:
[Restatement Date]
We have acted as special counsel to The Interpublic Group of Companies, Inc., a Delaware corporation (the “Company”), in
connection with that certain 3-Year Credit Agreement dated as of May 10, 2004, amended and restated as of September 27, 2005 (the
“Credit Agreement”), among the Company, the Lenders parties thereto, JPMorgan Chase Bank, N.A., as syndication agent, HSBC
Bank USA, Lloyds TSB Bank plc and UBS AG, Stamford Branch, as co-documentation agents, Citigroup Global Markets Inc., as lead
arranger and book manager, and Citibank, N.A., as Agent for said Lenders. This opinion is furnished to you pursuant to
Section 3.01(d)(iv) of the Credit Agreement.
In arriving at the opinions expressed below, we have reviewed the following documents:
(1) an executed copy of the Credit Agreement;
(2) executed copies of the Notes (as defined in the Credit Agreement), dated the date hereof, of the Company payable to the
Lenders named therein (the “Company Notes”); and
(3) the other documents furnished by the Company pursuant to Article III of the Credit Agreement.
In addition, we have reviewed the originals or copies certified or otherwise identified to our satisfaction of all such corporate records
of the Company and such other instruments and other certificates of public officials, officers and representatives of the Company and
such other persons, and we have made such investigations of law, as we have deemed necessary as a basis for the opinions expressed
below.
In rendering the opinions expressed below, we have assumed the authenticity of all documents submitted to us as originals and
the conformity to the originals of all documents submitted to us as copies. In addition, we have assumed and have not verified the
accuracy as to factual matters of each document we have reviewed (including, without limitation, the accuracy of the representations
and warranties of the Company in the Credit Agreement).
Based upon the foregoing and subject to the further assumptions and qualifications set forth below, it is our opinion that:
1. The Company has corporate power to enter into the Credit Agreement and the Company Notes and to perform its obligations
thereunder.
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
2. The execution and delivery by the Company of the Credit Agreement and the Company Notes have been duly authorized by
all necessary corporate action of the Company.
3. The performance by the Company of its obligations under the Credit Agreement and the Company Notes (a) does not require
any consent, approval, authorization, registration or qualification of or with any governmental authority of the United States, the
State of Delaware or the State of New York and (b) does not result in a violation of any applicable United States federal or New
York State law, rule or regulation or the Delaware General Corporation Law.
4. The Credit Agreement is a valid, binding and enforceable agreement of the Company.
5. The Company Notes, after giving effect to the initial borrowing by the Company under the Credit Agreement, will be valid,
binding and enforceable obligations of the Company.
Insofar as the foregoing opinions relate to the validity, binding effect or enforceability of any agreement or obligation of the
Company, (a) we have assumed that each party to such agreement or obligation has satisfied those legal requirements that are
applicable to it to the extent necessary to make such agreement or obligation enforceable against it (except that no such assumption is
made as to the Company regarding matters of the federal law of the United States of America, the law of the State of New York or the
General Corporation Law of the State of Delaware that in our experience normally would be applicable to general business entities
with respect to such agreement or obligation) and (b) such opinions are subject to applicable bankruptcy, insolvency and similar laws
affecting creditors’ rights generally and to general principles of equity.
We express no opinion as to the applicability or effect of the laws of any jurisdiction other than the State of New York wherein
any Lender may be located or wherein enforcement of the Credit Agreement or the Notes may be sought that may limit the rates of
interest which may be charged or collected.
We express no opinion as to (a) Section 2.15 of the Credit Agreement insofar as it provides that any Lender purchasing a
participation from another Lender pursuant thereto may exercise set-off or similar rights with respect to such participation or
(b) Section 9.12 of the Credit Agreement.
We have assumed that any assignments made by or among the Lenders of their rights and obligations under the Credit
Agreement will not contravene New York Judiciary Law Section 489 (which makes it a criminal offense to take an assignment of a
debt obligation with the intent of and for the purpose of bringing an action or proceeding thereon).
We note that the designations in Section 9.13(a) of the Credit Agreement are (notwithstanding the waiver in Section 9.13(b) of
the Credit Agreement) subject to the power of such federal court to transfer actions pursuant to 28 U.S.C. §1404(a) or to dismiss such
actions or proceedings on the grounds that such a federal court is an inconvenient forum for such action or proceeding.
With respect to the first sentence of Section 9.13(a) of the Credit Agreement, we express no opinion as to the subject matter
jurisdiction of any United States federal court to adjudicate any action relating to the Credit Agreement where jurisdiction based on
diversity of citizenship under 28 U.S.C. §1332 does not exist.
The opinion expressed in paragraph 3 above relates only to those laws, rules and regulations that, in our experience, are
normally applicable to general business entities with respect to performance of transactions of the type referred to in the Credit
Agreement.
The foregoing opinions are limited to the law of the State of New York, the General Corporation Law of the State of Delaware
and the federal law of the United States, but we express no opinion as to any state securities or Blue Sky laws or United States federal
securities laws.
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
We are furnishing this opinion letter to you solely for your benefit in connection with the Credit Agreement. This opinion letter
is not to be relied on or furnished to any other person or used, circulated, quoted or otherwise referred to for any other purpose.
Notwithstanding the foregoing, a copy of this opinion letter may be furnished to, and relied upon by, your successors and a permitted
transferee who becomes a party to the Credit Agreement as a Lender thereunder, and you or any such successor or transferee may
show this opinion to any governmental authority pursuant to requirements of applicable law or regulations. The opinions expressed
herein are rendered on and as of the date hereof, and we assume no obligation to advise you or any such transferee or governmental
authority or any other person, or to make any investigations, as to any legal developments or factual matters arising subsequent to the
date hereof that might affect the opinions expressed herein.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By:
Andrea G. Podolsky, a Partner
3-Year Credit Agreement
3
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
EXHIBIT D-2 — FORM OF
OPINION OF IN-HOUSE
COUNSEL OF THE COMPANY
[Restatement Date]
To each of the Lenders parties
to the 3-Year Credit Agreement dated as of May 10, 2004,
amended and restated as of September 27, 2005,
among The Interpublic Group of Companies, Inc.,
said Lenders and Citibank, N.A.,
as Agent for said Lenders, and
to Citibank, N.A., as Agent
Ladies and Gentlemen:
3-Year Credit Agreement
This opinion is furnished to you pursuant to Section 3.01(d)(iv) of the 3-Year Credit Agreement dated as of May 10, 2004,
amended and restated as of September 27, 2005 (the “Credit Agreement”), among The Interpublic Group of Companies, Inc. (the
“Company”), the Lenders parties thereto, JPMorgan Chase Bank, N.A., as syndication agent, HSBC Bank USA, Lloyds TSB Bank plc
and UBS AG, Stamford Branch, as co-documentation agents, Citigroup Global Markets Inc., as lead arranger and book manager, and
Citibank, N.A., as Agent for said Lenders. Terms defined in the Credit Agreement are used herein as therein defined.
I have acted as General Counsel for the Company in connection with the preparation, execution and delivery of the Credit
Agreement.
In arriving at the opinions expressed below, I have examined the following documents:
(1) An executed copy of the Credit Agreement.
(2) The documents furnished by the Company pursuant to Article III of the Credit Agreement.
(3) A copy of the Restated Certificate of Incorporation of the Company and all amendments thereto (the “Charter”).
(4) A copy of the by-laws of the Company and all amendments thereto (the “By-laws”).
(5) A certificate of the Secretary of State of Delaware, dated ___, 2005, attesting to the continued corporate existence and good
standing of the Company in that State.
In addition, I have examined the originals, or copies certified or otherwise identified to my satisfaction, of such other corporate
records of the Company, certificates of public officials and of officers of the Company and such other persons as I have deemed
necessary as a basis for the opinions expressed below.
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
In rendering the opinions expressed below, I have assumed the authenticity of all documents submitted to me as originals and
the conformity to the originals of all documents submitted to me as copies. In addition, I have assumed and have not verified the
accuracy as to factual matters of each document I have reviewed (including, without limitation, the accuracy of the representations and
warranties of the Company in the Credit Agreement).
Based upon the foregoing and subject to the further assumptions and qualifications set forth below, it is my opinion that:
1. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware.
2. The execution, delivery and performance by the Company of the Credit Agreement and the Notes to be delivered by it, and
the consummation of the transactions contemplated thereby, are within the Company’s corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene (i) the Charter or the By-laws or (ii) any material contractual or legal
restriction known to me contained in any material document to which the Company is a party or by which it is bound. The Credit
Agreement and the Notes have been duly executed and delivered on behalf of the Company.
3. To the best of my knowledge, no authorization, approval or other action by, and no notice to or filing with, any third party is
required for the execution, delivery and performance by the Company of the Credit Agreement and the Notes.
4. To the best of my knowledge, there are no pending or overtly threatened actions or proceedings against the Company or any
of its Consolidated Subsidiaries before any court, governmental agency or arbitrator that purport to affect the validity, binding
effect or enforceability of the Credit Agreement or any of the Notes or the consummation of the transactions contemplated thereby
or, except as disclosed in the Company’s reports filed with the Securities and Exchange Commission prior to the Restatement Date,
that are likely to have a materially adverse effect upon the financial condition or operations of the Company and its Consolidated
Subsidiaries taken as a whole.
With regard to clause (ii) of paragraph 2 above, I express no opinion as to whether the deposit of cash into the L/C Cash Deposit
Account would be permissible under the applicable lien covenants (all of which permit the Company to create liens in an amount
based on its consolidated net worth) at the time such cash is provided.
The foregoing opinions are limited to the law of the State of New York, the General Corporation Law of the State of Delaware
and the Federal law of the United States.
I am furnishing this opinion letter to you solely for your benefit in connection with the Credit Agreement. This opinion letter is
not to be used, circulated, quoted or otherwise referred to for any other purpose. Notwithstanding the foregoing, a copy of this opinion
letter may be furnished to, and relied upon by, your successors and a permitted transferee who becomes a party to the Credit
Agreement as a Lender thereunder, and you or any such successor or transferee may show this opinion to any governmental authority
pursuant to requirements of applicable law or regulations. The opinions expressed herein are, however, rendered on and as of the date
hereof, and I assume no obligation to advise you or any such transferee or governmental authority or any other person, or to make any
investigations, as to any legal developments or factual matters arising subsequent to the date hereof that might affect the opinions
expressed herein.
Very truly yours,
Nicholas J. Camera, General Counsel
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
EXHIBIT E — FORM OF
DESIGNATION AGREEMENT
[DATE]
To each of the Lenders
parties to the Credit Agreement
(as defined below) and to Citibank, N.A.
as Agent for such Lenders
Ladies and Gentlemen:
Reference is made to the 3-Year Credit Agreement dated as of May 10, 2004, amended and restated as of September 27, 2005,
among The Interpublic Group of Companies, Inc. (the “Company”), certain other borrowers parties thereto, the Lenders parties
thereto, JPMorgan Chase Bank, N.A., as syndication agent, HSBC Bank USA, Lloyds TSB Bank plc and UBS AG, Stamford Branch,
as co-documentation agents, Citigroup Global Markets Inc., as lead arranger and book manager, and Citibank, N.A., as Agent for said
Lenders (the “Credit Agreement”). Terms used herein and defined in the Credit Agreement shall have the respective meanings
ascribed to such terms in the Credit Agreement.
Please be advised that the Company hereby designates its undersigned Subsidiary, ____________ (“Designated Subsidiary”), as
a “Designated Subsidiary” under and for all purposes of the Credit Agreement.
The Designated Subsidiary, in consideration of each Lender’s agreement to extend credit to it under and on the terms and
conditions set forth in the Credit Agreement, does hereby assume each of the obligations imposed upon a “Designated Subsidiary” and
a “Borrower” under the Credit Agreement and agrees to be bound by the terms and conditions of the Credit Agreement. In furtherance
of the foregoing, the Designated Subsidiary hereby represents and warrants to each Lender as follows:
(a) The Designated Subsidiary is a corporation duly organized, validly existing and in good standing under the laws
of ____________.
(b) The execution, delivery and performance by the Designated Subsidiary of this Designation Agreement, the Credit Agreement
and the Notes to be delivered by it are within the Designated Subsidiary’s corporate powers, have been duly authorized by all
necessary corporate action and do not contravene (i) the Designated Subsidiary’s charter or by-laws or (ii) any law, rule or
regulation applicable to the Designated Subsidiary or (iii) any material contractual or legal restriction binding on the Designated
Subsidiary. The Designation Agreement and the Notes delivered by it have been duly executed and delivered on behalf of the
Designated Subsidiary.
(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the Designated Subsidiary of this Designation Agreement, the
Credit Agreement or the Notes to be delivered by it.
(d) This Designation Agreement is, and the Notes to be delivered by the Designated Subsidiary when delivered will be, legal,
valid and binding obligations of the Designated Subsidiary enforceable against the Designated Subsidiary in accordance with their
respective terms.
3-Year Credit Agreement
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
(e) There is no pending or, to the knowledge of the Designated Subsidiary , threatened action or proceeding affecting the
Designated Subsidiary or any of its Subsidiaries before any court, governmental agency or arbitrator which purports to affect the
legality, validity or enforceability of this Designation Agreement, the Credit Agreement or any Note of the Designated Subsidiary.
This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
Very truly yours,
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By
Name:
Title:
[THE DESIGNATED SUBSIDIARY]
By
Name:
Title:
3-Year Credit Agreement
2
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 10(iii)(A)(82)
SUPPLEMENTAL AGREEMENT made as of January 31, 2005 between THE INTERPUBLIC GROUP OF COMPANIES,
INC., a Delaware corporation (“Interpublic”) and BRIAN J. BROOKS (“Executive”).
SUPPLEMENTAL AGREEMENT
W I T N E S S E T H:
WHEREAS, Interpublic and Executive are parties to a Confidential Separation Agreement and General Release made as of
February 27, 2004 (hereinafter referred to as the “Agreement”); and
WHEREAS, Interpublic and Executive desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein and in the Agreement set forth, the parties hereto, intending
to be legally bound, agree as follows:
1. Paragraph 3(d) of the Agreement is hereby amended, effective as of February 27, 2005 to read in its entirety as follows:
“During the Consulting Period (as defined in the Agreement), Executive shall provide certain executive recruiting services to
Interpublic and its subsidiaries.
(i) During the Consulting Period, Executive shall receive an annual fixed fee of Eight Hundred Twenty-Five Thousand
Dollars ($825,000), payable in equal monthly installments. Except as set forth below, there will be no calculation of or
reconciliation to commissions.
(ii) Executive will devote sixty percent (60%) of his working time to providing recruiting services to McCann Worldgroup
(“McCann”) and forty percent (40%) of his working time to providing recruiting and database
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
management services to Interpublic and its subsidiaries, other than McCann. It being understood that positions for which
Executive’s services will be requested will be not less than an annual base salary of Two Hundred Fifty Thousand Dollars
($250,000). As part of his services, Executive will develop and maintain a comprehensive worldwide recruitment data-base to
be owned and utilized by Interpublic. During the Consulting Period, Executive shall report to the Chief Human Resources
Officer of Interpublic and the Chief Executive Officer of McCann.
(iii) Interpublic will provide Executive with office space and the services of his three (3) current staff members.
Out-of-pocket expenses will be charged to and paid by the particular entity for which Executive is providing services.
(iv) In the event Executive provides recruiting services to Interpublic agencies (other than McCann) which result in a
successful placement, an amount equal to between ten percent (10%) and twenty percent (20%) of the first year’s total cash
compensation of such individual (“placement fee”) will be credited to a bonus pool on Executive’s behalf. (The agreed
amount will be re-charged by Interpublic to the agency for which the placement was made, it being understood that the
specific commission amount will be between ten percent (10%) and twenty percent (20%), and will be mutually agreed
between Executive and the applicable agency.) Within thirty (30) days of the end of the Consulting Period, Executive will be
paid the aggregate amount of placement fees credited to the pool.
(v) Not less than sixty (60) days prior to February 27, 2006, Executive
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
and Interpublic will agree (which agreement shall be set forth in a writing) on whether to continue their relationship beyond
such date.
(vi) Executive will be deemed to be a consultant to Interpublic and will be provided with an appropriate 1099 at the end of
each calendar year during which Executive is providing services.”
Except as hereinabove amended, the Agreement shall continue in full force and effect.
This Supplemental Agreement shall be governed by the laws of the State of New York, applicable to contracts made and fully to
be performed therein.
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
By:
/s/ Timothy Sompolski
Timothy Sompolski
Executive Vice President
Chief Human Resources Officer
McCANN WORLDGROUP
By:
/s/ Marcio Moreira
Marcio Moreira
Vice Chairman, Global Professional
Management
/s/ Brian J. Brooks
Brian J. Brooks
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Domestic:
The Interpublic Group of
Companies, Inc. (Registrant)
Bragman Nyman Cafarelli, Inc.
Bragman Nyman Cafarelli LLC
Campbell Mithun of California, Inc.
Casanova Pendrill Publicidad, Inc.
D&H Imagewerks, Inc.
Dailey & Associates, Inc.
Deutsch LA, Inc.
Goldberg, Moser, O’Neill LLC
Graphic Orb, Inc.
Initiative Media Worldwide, Inc.
International Business Services, Inc.
Kaleidoscope Films Group, LLC
Lowe Bozell McAdams, Inc.
Marketing Drive San Francisco, Inc.
North Light, Ltd.
Outdoor Advertising Group
PIC — TV, Inc.
PMK/HBH, Inc.
The FutureBrand Company, Inc.
WIM Traffic, Inc.
Momentum-NA, Inc.
ClinARC Co.
Adair Greene, Inc.
Advantage Int’l Holdings, Inc.
Ammirati Puris Ltd.
AMS Advanced Marketing Services, Inc.
Amster Yard, Inc.
Anderson & Lembke, Inc.
Asset Recovery Group, Inc.
Barbour Griffith & Rogers, Inc.
Berenter Greenhouse & Webster, Inc.
Bozell Group, Inc.
Bozell, Jacobs, Keyton & Eckhardt, Inc.
Bozell Kamstra Inc.
BSG Holding LLC
Business Science Research Corp.
Campbell-Ewald Company
Campbell Mithun, Inc.
Capita Technologies, Inc.
Caribiner Newco, Inc.
Conotour Marketing Services, Inc.
Decibel Marketing, Inc.
Draft, Inc.
FCB Japan Inc.
FCB Worldwide Inc.
Jurisdiction
Under Which
Organized
Delaware
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
California
Colorado
Connecticut
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 1
August 31, 2005
Percentage
Of
Voting
Securities
Owned
By
Immediate
Parent
(%)
Immediate Parent
Lowe & Partners/SMS Inc.
Initiative Media Worldwide, Inc.
Infoplan Int’l, Inc.
Interpublic KFI Ventures, Inc.
Lowe Group Holdings Inc.
— —
100 Registrant
100 Bragman Nyman Cafarelli, Inc.
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 DA Acquisition Corp.
100
100 Registrant
100 Registrant
100
51
100
100 Marketing Drive Worldwide, Inc.
100 Dailey & Assoc., Inc.
100 Registrant
100
100 Registrant
100 Registrant
100 Registrant
100 McCann-Erickson USA, Inc.
100 Registrant
100 McCann-Erickson USA, Inc.
100 Registrant
100
100
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Bozell Group, Inc.
100
100
100 Bozell Group, Inc.
100
Protech Holdings
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100
100 Registrant
100 Registrant
100 Registrant
100
100
Lowe & Partners Worldwide, Inc.
Shandwick Investments Ltd.
True North Communications, Inc.
True North Communications, Inc.
FCB Worldwide, L.L.C.
FCB Worldwide, L.L.C.
IPG Caribiner Acquisition Corp.
Exhibit 21
Name
Domestic:
Page 2
August 31, 2005
Percentage
Of
Voting
Securities
Owned
By
Immediate
Parent
(%)
Jurisdiction
Under Which
Organized
Immediate Parent
FCB Worldwide, LLC
GDI Holdings LLC
Global Event Marketing & Management (GEMM) Inc.
Gravity Games LLC
Healthcare Capital, Inc.
Hill, Holliday, Connors, Cosmopulos, Inc.
Howard, Merrell & Partners, Inc.
Hypermedia Solutions, L.L.C.
IBS Holding Corp.
ICN Acquisition Corp.
ID Media, Inc.
Infoplan International, Inc.
Interpublic Game Shows, Inc.
Interpublic KFI Ventures, Inc.
Interpublic Sports & Entertainment Group, Inc.
Interpublic SV Ventures, Inc.
IPG Caribiner Acquisition Corp.
IPG GIS US, Inc.
IPG Interactive Investment Corp.
IPG S&E, Inc.
IPG S&E Ventures, Inc.
Jack Morton Worldwide Inc.
Jack Tinker Advertising, Inc.
Jay Advertising, Inc.
JMP Holding Company, Inc.
Kaleidoscope Sports and Entertainment LLC
LFS, Inc.
LMMS-USA, Inc.
Lowe & Partners Worldwide, Inc.
Lowe Live New York, Inc.
Magna Global USA, Inc.
Marketing Communications Technologies, Inc.
Marketing Corporation of America
Marketing Drive USA, Inc.
Marketing Drive Worldwide, Inc.
McAvey & Grogan, Inc.
McCann-Erickson Corporation (Int’l)
McCann-Erickson Corporation (S.A.)
McCann-Erickson (Paraguay) Co.
McCann-Erickson USA, Inc.
McCann-Erickson Worldwide, Inc.
McCann Healthcare, Inc.
McCann Worldwide Marketing Communications Co.
Media Direct Partners, Inc.
Media Partnership Corporation
Momentum-NA, Inc.
MRM Gould, Inc.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
True North Communications, Inc.
Protech Holdings, Inc.
100
100
100 Registrant
50 Octagon, Inc.
100 McCann Healthcare, Inc.
100 Registrant
100 Bozell Group, Inc.
80
100 Registrant
100 Registrant
100
The Coleman Group, L.L.C.
Draft, Inc. (50); Initiative Media
Worldwide, Inc. (50)
Jack Morton Worldwide,Inc.
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 McCann-Erickson USA, Inc.
100 Registrant
100
100 Registrant
100 Registrant
100 Registrant
100 Marketing Drive Worldwide, Inc.
100
True North Communications, Inc.
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 McCann-Erickson USA, Inc.
100 Registrant
100 Media Partnership Corporation
100 Registrant
100 Registrant
100 Registrant
Lowe & Partners/SMS Inc.
Exhibit 21
Name
Domestic:
NAS Recruitment Communications, Inc.
New America Strategies Group LLC
Newspaper Services of America, Inc.
Octogan CSI, Inc.
Octagon Worldwide Inc.
Octagon Worldwide Brazil Inc.
Pedersen & Gesk, Inc.
Player LLC
Protech Holdings, Inc.
Regan, Campbell & Ward LLC
R/GA Media Group, Inc.
RX Media, Inc.
Skott, Inc.
Springpoint, Inc.
Stedman Graham & Partners LLC
The Botway Group, Ltd.
The Coleman Group, LLC
The Coleman Group Worldwide LLC
The Hacker Group, Inc.
The Iso Healthcare Group, Inc.
The Lowe Group, Inc.
The Murphy Pintak Gautier Hudome Agency, Inc.
The MWW Group, Inc.
The Publishing Agency, Inc.
The Publishing Agency Int’l, Inc.
The Works, LLC
TM Advertising LP
TM Holdings, Inc.
TN Media, Inc.
TN Technologies, Inc.
True North Communications Inc.
True North Holdings (Asia/Pacific), Inc.
True North Holdings (Europe), Inc.
True North Holdings (Latin America), Inc.
Wahlstrom Group LLC
Weller & Klein Research, Inc.
WPR Acquisition Corp.
XSR Corp.
Zentropy, Inc.
H&C Holdings Limited
Octagon Financial Services, Inc.
Octagon, Inc.
Rowan & Blewitt, Inc.
Jurisdiction
Under Which
Organized
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
District of
Colombia
District of
Colombia
District of
Colombia
District of
Colombia
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 3
August 31, 2005
Percentage
Of
Voting
Securities
Owned
By
Immediate
Parent
(%)
Immediate Parent
True North Communications Inc.
True North Communications, Inc.
Protech Holdings, Inc.
True North Communications, Inc.
100 McCann-Erickson USA. Inc.
100
100 Registrant
100 Octagon CSI Limited
100 Registrant
100 Octagon Worldwide Inc.
100 McCann-Eriuckson USA, Inc.
100 Registrant
100 Capita Technologies, Inc.
60
100
100 Registrant
100 Newspaper Services of America, Inc.
100 Registrant
77 New America Strategies Group, L.L.C.
100 Registrant
100 Registrant
100 Registrant
100
100 Registrant
100
100 Registrant
100 Registrant
100 Registrant
100 Registrant
100 Kaleidoscope Sports & Enter. LLC
99
100
100
100
100 Registrant
100
100
100
100
100 Registrant
100 McCann-Erickson USA, Inc.
100
100 Registrant
100
TM Holdings, Inc.
Temerlin McClain of Texas, Inc.
True North Communications, Inc.
True North Communications, Inc.
True North Communications Inc.
True North Communications Inc.
True North Communications, Inc.
True North Communications, Inc.
True North Communications Inc.
Lowe Worldwide Holdings B.V.
Advantage Int’l Holdings, Inc.
100
Advantage Int’l Holdings, Inc.
100
Advantage Int’l Holdings, Inc.
100
Registrant
Exhibit 21
Name
Domestic:
Ben Disposition, Inc.
Austin Kelley Advertising, Inc.
Fitzgerald & Company
Studio “A”, Inc.
Quest Futures Group, Inc.
Lowe Grob Health & Sciences, Inc.
MSP Group, Inc.
Mullen Advertising Inc.
C-E Communications, Inc.
Carmichael-Lynch, Inc.
The Zipatoni Company, Inc.
Complete Medical Communications,
Inc.
Global Healthcare Associates, Inc.
Integrated Communications Corp.
Interpublic, Inc.
Pace, Inc.
Target Research Associates, Inc.
Torre Lazur Healthcare Group, Inc.
Torre Lazur Specialty Services, Inc.
TransWorld Marketing Corp.
Botway Print Advert., Inc.
CMGRP, Inc.
DA Acquisition Corp.
DA Parent Acquisition Corp.
Deutsch Inc.
DeVries Public Relations, Ltd.
Diamond Art Studio Ltd.
Diamond Marketing Group, Inc.
Diamond Promotion Group, Inc.
Direct Approach Mktg. Services, Inc.
D.L. Blair, Inc.
DTSC Acquisition Corp.
GDL. Inc.
Jurisdiction
Under Which
Organized
Florida
Georgia
Georgia
Georgia
Kansas
Massachusetts
Massachusetts
Massachusetts
Michigan
Minnesota
Missouri
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New Jersey
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
Goldschmidt Dunst & Lawson Corp.
Initiative Trading LLC
LCF&L, Inc.
Lowe Group Holdings, Inc.
Lowe & Partners/SMS Inc.
New York
New York
New York
New York
New York
Ludgate Communications, Inc.
McCann-Erickson Marketing, Inc.
McCann Realtionship Marketing, Inc.
Media First International Inc.
Promotion & Merchandising, Inc.
New York
New York
New York
New York
New York
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
100
100
100
100
100
100
100
100
100
100
100
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
92.8
100
100
100
100
100
100
100
100
Page 4
August 31, 2005
Immediate Parent
LFS, Inc.
Registrant
Registrant
Registrant
Registrant
Lowe Group Holdings Inc.
Hill, Holiday, Connors, Cosmopulos, Inc.
Lowe Group Holdings Inc.
Registrant
Registrant
Lowe Group Holdings, Inc.
Complete Med. Comm. Int’l
Registrant
Registrant
Registrant
Registrant
McCann-Erickson Worldwide, Inc.
Registrant
Registrant
McCann-Erickson USA, Inc.
Registrant
True North Communications, Inc.
DA Parent Acquisition Corp.
Registrant
DA Acquisition Corp.
Registrant
Diamond Marketing Group, Inc.
The Lowe Group, Inc.
Diamond Marketing Group, Inc.
McCannErickson USA, Inc.
Registrant
Registrant
The Lowe Group, Inc. (100 of Common Stock)
and Goldschmidt Dunst Lawson Corp. (100
Pref. Stock)
The Lowe Group, Inc
Initiative Media Worldwide, Inc.
The Lowe Group, Inc. (99.9); and GDL, Inc. (.1)
Registrant
Lowe Int’l (16); Lowe Worldwide Holdings B.V.
(4); and Registrant (80)
Ludgate Group Limited
Registrant
Registrant
Registrant
D.L. Blair, Inc.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Domestic:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
The Gotham Group, Inc.
The Interpublic Partnership, Inc.
The Sloan Group
AW Sale Corp. of North Carolina
Long Haymes Carr, Inc.
F&S Disposition, Inc.
NAS Recruitment Communications
LLC
Diagnosis Healthcare Communications,
Inc.
Scientific Frontiers, Inc.
Tierney & Partners, Inc.
Custom Production Service, Inc.
TM Advertising of Texas, Inc.
Cabell Eanes, Inc.
Marketing Arts Corporation
The Martin Agency, Inc.
Weber McGinn, Inc.
Sedgwick Rd., Inc.
New York
New York
New York
North Carolina
North Carolina
Ohio
Ohio
Pennsylvania
Pennsylvania
Pennsylvania
Texas
Texas
Virginia
Virginia
Virginia
Virginia
Washington
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Page 5
August 31, 2005
Immediate Parent
Registrant
Registrant
Draft Inc.
Registrant
Registrant
Lowe & Partners Worldwide, Inc.
McCann-Erickson USA, Inc.
Registrant
Registrant
True North Communications, Inc.
True North Communications, Inc.
True North Communications, Inc.
The Martin Agency, Inc.
The Martin Agency, Inc.
Lowe & Partners/SMS Inc.
Registrant
Registrant
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 6
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Cesar Mansilla Asociados SA
FutureBrand S.A.
Grupo Nueva Comunicacion SA
Initiative Media S.A.
Interpublic S.A. de Publicidad
Nueva Communicacion SA
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Nueva Communicacion SA (Rosario)
Pragma FCB Publicidad S.A.
Promocionar S.A.
Servicio Integral de Comm. S.A.
Argentina
Argentina
Argentina
Argentina
XYZ Produciones
Advantage Holdings
Australian Safari Pty. Limited
Charcoal Nominees pty ltd
Directory Investments Pty Ltd.
Argentina
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Draft Australia Pty Ltd.
Fuoote Cone Belding Australia Pty.
Ltd.
Foote Cone Belding Melbourne Pty.
Limited
Foote Cone Belding Sydney Pty.
Limited
Future Motorsports Concepts Pty. Ltd. Australia
Australia
Futurebrand FHA Pty. Ltd.
Australia
Hammond & Thackeray Pty. Limited
Group
Harrison Advertising Pty Limited
Initiative Media Australia Pty. Ltd.
International Publications Relations
Pty. Ltd.
Interpublic Australia Proprietary Ltd.
Jack Morton Worldwide Pty. Ltd.
Kiteven Pty. Ltd.
Lowe Hunt (partnership)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Lowe Melbourne Pty Ltd
Lowe Sydney Pty Ltd.
McCann-Erickson Advertising
Proprietary Limited
Merchant and Partners Australia
Pproprietary Limited
Octagon Australia Pty. Ltd.
Octagon CSI Australia Pty Limited
Product Management Pty. Ltd.
Shandwick Holdings Pty. Ltd.
Targa Tasmania Australia Pty. Ltd.
The Lowe Group Oceania Pty Ltd
Universal Advertising Placement Pty.
Ltd.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
90
70
80
99.99
100
100
90
100
60
100
100
100
100
100
100
100
100
100
100
100
70
70
100
100
100
100
100
100
59.5
100
100
100
100
80
100
100
100
100
100
100
100
Group Nueva Communicacion S.A.
Registrant (70); Luis Rey (15); Gustavo Kniszczer
(15)
Registrant (80); Cesar Leonardo Mansilla (20)
Registrant
Registrant
Grupo Nuever Communications SA; Interpbublic
SA de Publicidad
Grupo Nuever Communications SA;
True North Holdings (Latin America), Inc.
Interpublic S.A. de Publicidad
Grupo Nueva Communications SA,
Interpublic SA de Publicidad
Pragma FCB Publicidad S.A
Advantage Int’l Holdings Inc.
Octagon Australia Pty. Limited
Octagon Australia Pty. Limited
Shandwick Holdings Pty. Ltd. (91); Weber
Shandwick W/Wide Pty. Ltd. (9)
Registrant
True North Holdings (Asia/Pacific), Inc.
FCB Australia Pty. Ltd.
FCB Australia Pty. Ltd.
Octagon Australia Pty. Limited
McCann-Erickson Advertising Pty Ltd.
True North Holdings (Asia/Pacific), Inc.
McCann-Erickson Advertising Pty Ltd.
Merchant and Partners Australia Pty. Limited
Shandwick Holdings Pty. Ltd.
Registrant
Registrant
McCann-Erickson Advertising Pty. Ltd.
Lowe Sydney Pty.(50); Lowe Hunt & Partners Pty
Ltd. (9.5)
Lowe Sydney Prop. Ltd.
Registrant
Registrant
Registrant
Advantage Holdings Pty Ltd.
Octagon CSI Limited
Weber Shandwick Worldwide Pty. Ltd.
AMS Investments Ltd.
Charcoal Nominees Limited
Lowe Sydney Pty. Ltd.
McCann-Erickson Advertising Pty Ltd.
Shandwick Holdings Pty. Ltd.
Weber Shandwick Worldwide Pty.
Ltd.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 7
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Austria
Austria
Austria
Austria
Australia
Australia
Austria
Austria
Weber Shandwick Worldwide
Superannuation Fund Pty. Ltd.
FCB Kobza Werbeagentur GmbH
FCB Interactive Consulting &
Werebeges GmbH
FCB Retail Consulting & Werbeges
M.B.H.
Initiative Group Werberholding
Gesmbh
Initiative Media Werbeagentur Ges
M.B.H.
Lowe GGK Wien Werbeagentur
GmbH
Lowe Lintas GGK
Beteiligungsverwaltungs AG
Austria
Lowe Lintas GGK Holding
McCann Erickson Advertising GmBH Austria
Austria
McCann-Erickson GmBH
Austria
Panmedia Holding AG
Austria
Panmedia Western Werbeplanung
GmbH
Austria
Universal McCann Werbeberatungs
Austria
You Two Media GmBH
Azerbaijan
Insight Media Ltd
Azerbaijan
McCann Azerbaijan
Bahamas
Global Public Relations Ltd.
Belgium
Advantage Belgium
Belgium
Charles Barker BSMG SA
Belgium
Direct Creations S.A.
Belgium
FCB Global Healthcare SA
Belgium
FCB Worldwide SA
Belgium
Feedback S.P.R.L.
Initiative Media S.A.
Belgium
Interpublic Belgium Holdings II SPRL Belgium
Belgium
Interpublic Belgium Holdings SA
Belgium
Karamba S.A.
Belgium
Lowe S.A.
Belgium
McCann-Erickson Company S.A.
Belgium
Momentum Brussels SA
Octagon CIS NV
Belgium
Octagon Worldwide Holdings BVBA Belgium
Belgium
Outdoor Services SA.
Belgium
Programming Media International PMI
S.A.
Promo Sapiens S.A.
Belgium
The Advanced Marketing Centre S.A.
Universal Media, S.A.
Weber Shandwick Belgium S.A.
Weber Shandwick Brussel C.R.L.
SAH Limited
Triad Assurance Limited
Bullet Promocoes Ltda.
Belgium
Belgium
Belgium
Belgium
Bermuda
Bermuda
Brazil
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
70
95
75
100
100
85
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
99
100
100
100
100
85
100
100
100
100
100
100
100
100
100
100
100
60
Weber Shandwick Worldwide Pty. Ltd.
True North Holdings (Netherlands) BV
FCB Kobza Werbeagentur GmbH
FCB Kobza Werbeagentur Gmbh
Registrant
Ammirati Puris Lintas Holdings GmbH
Lowe Lintas GGK Holding AG.
Lowe Worldwide Holdings B.V.
Lowe Lintas GGK Beteiligungsverwaltungs AG.
McCann-Erickson GmBH
Registrant
Lowe Worldwide Holdings BV
Panmedia Holding AG
MCann-Erickson GmBH
McCann-Erickson GmBH
McCann Azerbaijan
Registrant
Weber Shandwick WW Asia Pacific Ltd.
Octagon Worldwide Holdings BVBA
BSMG Worldwide B.V.
Lowe S.A.
True North Holdings (Netherlands) B.V.
True North Holdings (Europe), Inc.
Draft, Inc.
Lowe S.A. (96); Initiative Media Paris SA (4)
Interpublic Group Denmark Holdings APS
Interpublic Group Denmark Holdings APS
Draft Group Holdings Ltd.
Lowe Worldwide Holdings B.V.
Registrant
McCann-Erickson Company S.A.
Octagon Worldwide Holdings BVBA
Octagon Worldwide Holdings B.V.
Interpublic Belgium Holdings SA
Registrant
Draft Group Holding Ltd. (99.5); Draft WW Inc.
(.5)
Draft Group Holdings Ltd.
Registrant
AMS Investments Ltd.
Charles Barker BSMG SA
Lowe & Partners South America Holdings SA
Registrant
Interpublic Publicidade e Pesquisas
Sociedade Ltda
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 8
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Contemporanea Ltda.
Brazil
Datamidia Database Marketing Ltda.
Brazil
Brazil
DM Marketing Direto Ltda.
DM Marketing Direto Sao Paulo Ltda. Brazil
Brazil
Futurebrand BC&H Ltda
Brazil
Giovanni/FCB SA
Brazil
Harrison Comunicacoes Ltda
Interpublic Publicidade e Pesquisas
Sociedade Ltda.
Lowe Brazil Holding Ltda
Lowe Ltda.
McCann-Erickson Publicidade Ltda.
New Momentum Ltda
Brazil
Brazil
Brazil
Brazil
Brazil
Octagon do Brazil Participacoes S/C
Ltda.
Pap-Promotion, Advertising &
Production Ltda
Sight Momentum Ltda
Sun MRM Ltda.
Brazil
Brazil
Brazil
Brazil
Thunder House Communications Ltd
Brazil
TorreLazur-McCann Healthcare Ltda
Brazil
Universal Publicidade Ltda.
Brazil
McCann-Erickson Sofia
Universal McCann
Mcann-Erickson Cameroon
6048536 Canada Inc.
9086-8969 Quebec Inc.
Ammirati Puris Ltd.
Calimero Partenariat, Inc.
CMC Canada Ltd.
Bulgaria
Bulgaria
Cameroon
Canada
Canada
Canada
Canada
Canada
Canada
Continental Communications Inc.
Canada
Corporation BDDS Shandwick
Canada
Deutsch Inc.
Canada
Diefenbach Elkins Limited
Canada
Draft Modial Quebec Inc.
Canada
DraftWorldwide Canada, Inc.
Everest Commandities (G.E.C.M.) Inc. Canada
Canada
Everest Estrie Publicite (G.E.C.M.)
Inc.
Everest Publicite Promotions
(G.E.M.C.) Inc.
Everest Relations Publiques
(G.E.C.M.) Inc.
Everest Versant Quest Inc.
Foote Cone & Belding Worldwide
(Canada) Ltd.
HyperMedia Solutions (1998) Inc.
Canada
Canada
Canada
Canada
Canada
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
60
60
100
100
60
60
100
100
100
98.75
100
86.50
100
100
69.99
65
99.8
99.99
100
51
100
65
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
100
Interpublic Brazil (54); Intelan SA (Uruguay) (6)
Giovanni/FCB
Draft, Inc.
Draft, Inc.
Harrison Comunicacoes Ltda
TN Holdings (Latin America),Inc.
Interpublic Publicidade e Pesquisas
Sociedade Ltda
Int’l Business Services, Inc.
Lowe Group Holding
Registrant
Registrant
Interpublic Publicidade E Pesquisas Sociedade
Ltda
Octagon Worldwide, Inc.
Lowe & Partners South America Holdings SA
Intelan S.A.
Interpublic Publicidade e Pesquisas Sociedade
Ltda.
Interpublic Publicidade e Pesquisas
Sociedade Ltda
Interpublic Publicidade e Pesquisas Sociedade
Ltda.
Interpublic Publicidade E Pesquisas Sociedade
Ltda.
Registrant
McCann-Erickson Sofia
McCann-Erickson Ivory Coast
Draft Mondial Quebec Inc.
6048536 Canada Inc.
Ammirati Puris Lintas, Inc.
DraftWorldwide Canada, Inc.
Torre Lazur McCann Healthcare Worldwide
Specialty Services Ltd.
Shandwick Investments of Canada Ltd.
3707822 Canada Inc.
Registrant
FBI(US)
DraftWorldwide Canada
DraftWorldwide Inc.
Draft Modial Quebec Inc.
Draft Modial Quebec Inc.
6048536 Canada Inc.
Draft Modial Quebec Inc.
6048536 Canada Inc.
Interpublic Holdings (Canada) Ltd.
100
Hypermedia Solutions
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Canada
Interpublic Holdings (Canada) Ltd.
Canada
ISOGROUP Canada, Inc.
Canada
Kaleidovision Inc.
Canada
Kelly Management Group Inc.
Canada
Lambert Multimedia (G.E.C.M.) Inc.
Canada
MacLaren McCann Canada Inc.
Canada
Media Ida Vision Inc.
Canada
Media Vision WWP Inc.
Canada
Octagon Canada Inc.
Canada
P&T Communications, Inc.
Canada
Paul Martel Inc.
Canada
Pederson & Gesk (Canada) Ltd.
Sensas (GECM) Inc.
Canada
Shandwick Investment of Canada Ltd. Canada
Canada
Temerlin McClain Canada Inc.
Canada
The FutureBrand Company, Inc.
Canada
The Interpublic Group of Companies
Canada, Inc.
The Medicine Group Limited
Canada
Canada
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
3707822 Canada, Inc.
Canada
Trans World Marketing Canada Corp Canada
Canada
True North Communications (Canada)
Ltd.
Weber Shandwick Worldwide
(Canada) Inc.
Bozell Chile S.A.
Creactiva S.A.
Dittborn & Urzueta/MRM
DraftWorldwide Chile Ltda.
DraftWorldwide Latinoamerica Ltda.
Futurebrand SA
IDB/FCB SA
Initiative Media Servicios de Medios
Ltda.
Inmobiliaria Ammirati Puris Lintas
Chile S.A.
Chile
Lowe (Chile) Holdings SA
McCann-Erickson S.A. de Publicidad Chile
Chile
Servicious De Marketing Directo
Limitada
Guangzhou Shandwick PR Consultant China
China
Interpublic Marketing Services
Shanghai Ltd.
McCann-Erickson Guangming
Advertising Limited
Octagon Marketing Consulting Ltd.
Ammirati Puris Lintas S.A.
Artefilme Ltda.
Epoca Publicidad S.A.
FCB Worldwide Colombia S.A.
Initiative Media Colombia S.A.
China
Colombia
Colombia
Colombia
Colombia
Colombia
China
Chile
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 9
August 31, 2005
Immediate Parent
True North Holdings Asia Pacific Inc.
The ISO Healthcare Group, Inc.
Interpublic Holdings (Canada) Ltd.
Octagon Canada Inc.
Draft Modial Quebec Inc.
Registrant
6048536 Canada Inc.
6048536 Canada Inc.
Octagon Worldwide Inc.
DraftWorldwide Canada
9086-8969 Quebec Inc.
Registrant
Draft Modial Quebec Inc.
AMS Investments Ltd.
Temerlin McClain of Texas, Inc.
MacClaren Canada Inc.
Registrant
Torre Lazur McCann Healthcare Worldwide
Specialty Services Ltd. (45.92); Registrant
(27.62)
Registrant
McCann Erickson USA Inc
Interpublic Holdings (Canada) Ltd.
Golin/Harris International Inc. (50); Shandwick
Investment Of Canada Ltd. (50)
True North Holdings (Latin America), Inc.
DraftWorldwide Chile Limitada
McCann-Erickson S.A. de Publicidad
DraftWorldwide Latinoamerica Ltda.
Draft, Inc.
Futurebrand SA (Argentina)
TN Holdings (Latin America),Inc.
Inmobiliaria Ammirati Puris Lintas Chile S.A.
Lowe Worldwide Holdings B.V.
Lowe & Partners South America Holdings SA
Registrant
Dittborn & Unzueta/MRM
Weber Shandwick (Asia Pacific) Limited
IPG Hong Kong Ltd.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
73.54
100
100
100
100
100
60
60
100
100
99
70
99
100
100
100
99
100
100
51
McCann-Erickson Worldwide
100
100
100
60
100
100
Octagon Marketing Limited
International Business Services, Inc.
True North Holdings (Latin America), Inc.
Epoca McCann S.A. (Panama)
TN Holdings (Latin America),Inc.
Ammirati Puris Lintas Colombia
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Arte y Cinema S.A.
Atitlan
Costa Rica
Costa Rica
Costa Rica
Czech Rep.
Costa Rica
Costa Rica
Croatia
Czech Rep.
Czech Rep.
Czech Rep.
Czech Rep.
Czech Rep.
FCB De Costa Rica S.A.
McCann-Erickson Centroamericana
(Costa Rica) Ltda.
McCann Relationship Marketing
(MRM) SA
McCann-Erickson Zagreb
Draft Prague S.R.O.
Foote, Cone & Belding, S.R.O.
Initiative Media Prague S.R.O.
Lowe Lintas GGK spol. S.R.O.
McCann-Erickson Prague, Spol.
S.R.O.
Pan Media Western Praha S.R.O.
Ammirati Puris Lintas Denmark A/S Denmark
Denmark
Campbell-Ewald Aps
Denmark
Initiative Universal Media A/S
Denmark
Interpublic Group Denmark ApS
Denmark
Interpublic Group Denmark Holdings
ApS
IUM A/S
Lowe A/S
Lowe Holdings ApS
Magic Hat A/S
McCann-Erickson Holdings APS
McCann Momentum A/S
Octagon Holdings ApS
Parafilm A/S
Progaganda, Reuther, Lund
& Priesler Reklamebureau Aps
Scandinavian Design Group ApS
Signatur ApS
Signatur Internet ApS
ZP Group Denmark ApS
ZP Nordic A/S
ZP Nordic Holdings A/S
Foote Cone & Belding Dominican
Republic SA
Harrison Figuera Angencia De
Counicaciones Integradas, S.A.
McCann-Erickson Dominicana, S.A.
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Artefileme SA
Foote, Cone & Belding Ecuador
Horizon FCB Limited (Egypt)
FCB El Salvador Publicidad SA de CV
McCann-Erickson Centro Americana
(El Salvador) S.A.
AS Division McCann-Erickson
Dominican
Rep.
Dominican
Rep.
Dominican
Rep.
Ecuador
Ecuador
Egypt
El Salvador
El Salvador
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 10
August 31, 2005
Immediate Parent
TN Holdings (Latin America), Inc.
TN Holdings (Latin America), Inc.
TN Holdings (Latin America), Inc.
Registrant
McCann-Erickson Centroamericana (Costa Rica)
Ltda.
McCann-Erickson Int’l GmbH
Lowe Worldwide Holdings B.V.
Wilkens Group BV
Registrant
Lowe Lintas GGK Holdings AG
McCann-Erickson International GmbH
Lowe Lintas GGK Holdings AG (51);
Ammirati Puris Lintas Praha, s.r.o. (49) Lowe A/S
Registrant
Registrant
Interpublic Group (Luxembourg) S.A.R.L.
Interpublic Group Denmark ApS
Initiative Universal Media A/S
Lowe Worldwide Holdings BV
IPG Group Denmark Holdings ApS
M-E Holdings ApS
Interpublic Group Denmark Holdings ApS
McCann-Erickson Holdings APS
Interpublic Group Denmark Holdings ApS
APL Denmark A/S
Registrant
Scandanavian Design Group AS
Ammirati Puris Lintas Denmark A/S
Ammirati Puris Lintas Denmark A/S
ZEN
ZP Nordic Holdings AS
ZP Group Denmark ApS
True North Holdings (Latin America), Inc.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
91.66
75
100
100
100
100
100
100
70
McCann-Erick Dominicana, S.A.
100
100
100
100
100
100
Registrant
True North Holdings (Latin America), Inc.
MCI US
Horizon Holdings Limited
True North Holdings (Latin America), Inc.
Registrant
Estonia
75
Registrant (75); Urmas Lilleng (9); Rain Pikand
(9); Tonu Sikk (5); Andrus Lember (2)
Exhibit 21
Name
Foreign:
Page 11
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Ammirati Puris Lintas Oy
FCB ESPA OY
Hasan & Partners Oy
Hasan & Partners Finland Oy
Kauppamainos/FCB OY
uintas Service Oy
Lowe & Partners Oy
Lowe Drive OY
Lowe Forever Oy
Mainostoinisto Ami Hasan &
Company Oy
Mainostoinisto Womena - McCann Oy
McCann Helsinki Oy
MRM McCann Relationship
Marketing Oy
Neo Geo Graphic Design Oy
Pool Media International Oy
Sodapop Momentum Oy
Aastuce et Boules de Gommes SA
ACAM
Agence Virtuelle
Antennes SA
Astuce Archi Sarl
Astuce Interactiv’ Sarl
Astuce Pack Sarl
Astuce Way Sarl
Creative Marketing Service SAS
Dimension 4
Draft Paris
Empir Media S.A.
Fab + S.A.
Foote Cone & Belding S.A.
Formes et Facons SARL
France C.C.P.M. S.A.
FutureBrand Menu
Huy Oettgen Oettgen S.A.
Initiative Media Paris S.A.
Leuthe L-autre Agence
Lowe Alice S.A.
Lowe Zoa SRL
MACAO Communications S.A.
MacLaren Multimedia S.A.
MBR SAS
McCann Governance Agency
McCann-Erickson France SAS
McCann-Erickson Paris
McCann-Erickson Rhone Alpes S.A.
McCann Governance Agency
McCann Momentum
McCann Sante
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Finland
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
France
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
51
100
100
57
52.5
60
100
100
100
100
100
66
86
100
51
99.84
100
65
100
100
100
100
99.80
100
100
99.99
100
100
100
51
100
100
99.8
100
100
83.71
100
80
99.8
100
100
100
66
99.92
74
Lowe Worldwide Holdings BV
True North Holdings (Netherlands) B.V.
Fieldplan Ltd
Hasan & Parners Oy
True North Holdings (Netherlands) B.V.
Ammirati Puris Lintas Oy
Ammirati Puris Lintas Oy
Lowe & Partners Oy
Lowe & Partners Oy
Hasan & Partners, Inc.
Registrant
IPG
McCann Helsinki Oy
McCann-Erickson Europe Holding France SAS
APL Oy
McCann Helsinki Oy
MBR SAS
True North Holdings (France) SAS
Fieldplant Limited
Lowe Alica SA
MBR SAS
MBR SAS
MBR SAS
MBR SAS
France C.C.P.M.
20/80 Group
Draft Group Holdings Ltd.
True North Holdings (France) SAS
SP3 S.A.
True North Holdings (France) SAS
True North Holdings (France) SAS
Lowe Worldwide Holdings BV
FBC
DraftDirect Worldwide S.A.
France C.C.P.M.
McCann-Erickson France
France C.C.P.M. S.A.
Lowe Alice
McCann-Erickson France
France C.C.P.M.
20/80 (FCB Solutions)
McCann-Erickson France
Interpublic Group Denmark Holdings APS
McCann-Erickson France
SP3 S.A
McCann-Erickson France SAS
Macao Communications S.A.
McCann-Erickson France Holding Co.
Exhibit 21
Name
Foreign:
Page 12
August 31, 2005
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Jurisdiction
Under Which
Organized
Immediate Parent
France
France
France
France
France
France
France
France
France
France
France
France
France
France
MRM Partners
Octagon Sports Marketing S.A.
Promo Factory SA
SP3 S.A.
Strateus S.A
Thera McCann Healthcare
True North Holdings (France) SAS
20/80 (FCB Solution)
Universal Comcord
Universal Media S.A.
Valefi
Weber Shandwick France Sarl
Weber Shandwick Holding SA
Worldgroup Europe SARL
Acts & Artisits Entertainment GmbH Germany
Germany
Adplus Werbeagentur GmbH
Germany
Baader, Lang, Behnken Werbeagentur
GmbH
BCG Marketing Communications
GMBH
Change Communications GmbH
Creative Media Services GmbH
DCM Dialog-Creation-Munchen
Agentur
fur Dialogmarketing GmbH
Draft Agentur Fur Marketing M.K.
GmBH (Draftworldwide Agentur Fur
M.K.)
Draft Agentur Fur Marketing
Kommunikation GmBH
Draft Worldwide Stuttgart-Kretives
Direktmarketing GMBH
DraftDirect Worldwide Holdings
GmbH
Farewell Beteillgungages MBH & Co.
KG
Farewell GmbH
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
FCB Berlin Werbung GMBH
Germany
FCB Frankfurt GmbH
Germany
FCBi Deutschland GMBH
Germany
FCB/Wilkens GmbH
Germany
FutureBrand AG
Germany
FutureBrand Deutschland GMBH
Golin/Harris B&L GmBH
Germany
Heinrich Hoffman & Partner GmbH Germany
Germany
Initiativ Media GmbH, Kronberg
Initiative Group GmBH
Interpublic GmbH
Germany
Isogroup Europe Consultants GMBH Germany
Germany
Jack Morton Worldwide GMBH
Germany
Karrasch
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
99.70
100
99.88
100
73.73
81.92
100
80
100
100
55
100
100
100
100
100
100
100
100
100
80
100
100
100
100
100
100
100
91.9
100
100
100
100
100
100
100
100
100
100
50.20
MACAO Communications S.A.
Advantage Int’l Holdings Inc.
Macao Communications S.A.
McCann-Erickson France SAS
France C.C.P.M. SA
McCann Sante
True North Holdings (Netherlands) B.V.
Foote Cone & Belding S.A.
Registrant
McCann-Erickson France SAS
McCann-Erickson France SAS
Weber Shandwick Holdings SA
AMS Investments Ltd.
McCann-Erickson France SAS
Jack Morton Worldwide BV
McCann-Erickson Brand Comm Agency
Lowe Communication Group GmBH
Interpublic GMBH
Lowe Communication Group GmBH
Lowe Communication Group GmBH
M&V Agentur fur Dialogmarketing
und Verkaufsforderung GmbH
M&V Agentur fur Dialogmarketing
und Verkaufsforderung GmbH
M&V Agentur fur Dialogmarketing
und Verkaufsforderung GmbH
DraftDirect Worldwide Holdings GmbH Germany
Draft Group Holdings Limited
Farewell GmbH
Spring & Jacoby GmbH
Beteiligungsgesellschaft
FCB/Wilkens GMBH
True North Holdings (Germany) Gmbh
FCB/Wilkens GMBH
True North Holdings (Germany) Gmbh
FutureBrand AG
Interpublic GmBH
Interpublic GmBH
McCann Erickson Brand Comm Agency
Lowe Communications Group GmbH
Registrant
Isogroup Europe BV
JMC-Mack Morton Company
BSMG Worldwide Deutschland Gmbh
Exhibit 21
Name
Foreign:
Page 13
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Lintas Pension GMBH
Germany
Lowe and Partners GMBH, Dusseldorf Germany
Lowe Communication Group GmbH Germany
Germany
Lowe Deutschland Holding GmbH
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Lowe Hamburg GMBH
Lowe Hoffman Schnakenberg
Werbeagentur GMBH
M&V Agentur fur Dialog Marketing
und
Verkaufsforderung GmbH
Magna Global GmbH
Mailpool Adressen — Management
GmBH
Max W.A. Kamer GmbH
McCann-Erickson Brand
Communications
Agency GMBH
McCann-Erickson Communications
House Berlin GMBH
Germany
McCann-Erickson Deutschland GmbH Germany
McCann-Erickson Deutsch. GmbH &
Co.
Mgmt. Prop. KG (Partnership)
McCann-Erickson Hamburg GmbH
McCann-Erickson (International)
GmbH
McCann-Erickson Nurnberg GmbH
McCann-Erickson Thunderhouse
McCann-Erickson Werbeagentur
GMBH
Media Satel GMBH
Momentum IMC Gesellschaft Fur
Erlebins Marketing GmbH
MRM McCann Relationship
Marketing GMBH
Pro Concept Marketing Gesellschaft
Fur
Sale Comm.
PWS Promarket Werbeservice GMBH
&
Co. KG
Servicepro Agentur fur
Dialogmarketing
und Verkaufsforderung GmbH
Germany
Shandwick Europe Holdings GmBH Germany
Spectrum Communications GmbH
Germany
Springer & Jacoby
Beteiligungsgesellschaft mbH
Springer & Jacoby Design GMBH
Springer & Jacoby Dritte Werbeagentur
GMBH
Springer & Jacoby Dritte Werbeagentur
GmbH & Co. KG
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
51
100
100
100
Lowe Communications Group GmbH
Lowe Deutschland Holding GMBH
Registrant
Lowe Worldwide Holdings B.V. (75); Registrant
(25)
Lowe Communications Group GmbH
Lowe Deutschland Holding GMBH
DraftDirect Worldwide Holdings
GmbH
Initiative Media GmbH, Kronberg
DraftDirect Worldwide Holdings
GmbH
Lowe Communications Group GmbH
Interpublic GmBH
Interpublic GmBH
McCann-Erickson (Int’l) GmbH
Interpublic GmBH
Interpublic GmBH
Registrant
Interpublic GmBH
Interpublic GmBH
McCann-Erickson (International) GmBH
True North Holdings (Germany) Gmbh
Interpublic GmBH
Interpublic GmBH
Interpublic GmBH
Interpublic GmBH
M&V Agentur Fur Dialogmarketing
und Verkaufsforderung GmbH
AMS Investments Ltd.
Jack Morton Worldwide Inc.
True North Communications, Inc.
Spring & Jacoby Holding GMBH
Spring & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby E-fact GmbH & Co.
KG
Springer & Jacoby Erste Werbeagentur
GMBH
Springer & Jacoby Erste Werbeagentur
GmbH & Co. KG
Germany
Germany
Germany
100
100
100
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 14
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Springer & Jacoby Funfte
Werbeagentur GMBH
Springer & Jacoby Funfte
Werbeagentur GmbH & Co. KG
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH &
Co. KG
Springer & Jacoby International GmbH Germany
Germany
Springer & Jacoby Media GmbH &
Co. KG
Springr & Jacoby Planning GMBH
Springr & Jacoby Planning GMBH &
CO. KG
Springer & Jacoby Sechste
Werbeagentur GMBH
Springer & Jacoby Sechste
Werbeagentur
GMBH & CO, KG
npringer & Jacoby Siebte
Werbeagentur GMBH
upringer & Jacoby Siebte
Werbeagentur
GMBH & CO KG
Springer & Jacoby Vierte
Werbeagentur GMBH
Springer & Jacoby Vierte
Werbeagentur GmbH & Co. KG
Springer & Jacoby Werbung GMBH Germany
Germany
Springer & Jacoby Werbung GmbH &
Co. KG
Springer & Jacoby Zweite
Werbeagentur GMBH
Springer & Jacoby Zweite
Werbeagentur GmbH & Co. KG
Springer & Jacobyosterreich GMBH Germany
Germany
Team Consulting GmbH
Germany
Torre Lazur McCann GMBH
Germany
True North Holdings (Germany)
GmbH
Typo-Wenz Artwork GmbH
Universal McCann GMBH
Unterstuetzungskasse der H.K.
McCann Company GmbH
Verwaltung’s Chaft Springer & Jacoby
Digital GMBH
Weber Shandwick Deutschland GmBH Germany
Gilbraltar
Interpublic (Gibraltar) Limited
Ghana
Group Africa Ghana Limited
Greece
Ashley & Holmes S.A.
Greece
Brand Connection Advertising SCA
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Communication Channels Management
Services SCA
Initiative Media Advertising S.A.
Greece
Greece
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
87
100
100
100
100
100
100
100
100
51
51
100
100
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Farewell Beteillgungages MBH & Co. KG
Farewell Beteillgungages MBH & Co. KG
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH
Springer & Jacoby Holding GMBH & Co. KG.
Interpublic GmBH
Interpublic GMBH
True North Holdings (Netherlands) B.V.
Interpublic GmbH
Interpublic GmBH
McCann-Erickson (Int’l) GmbH
Springer & Jacoby Holding GMBH
FCB/Wilkens GmBH
Registrant
Asdia Limited
Registrant
Communication Channels Management
Services SCA
Fieldplant Limited (UK852C)
Fieldplant Limited
Le Spot Productions SA
Lowe Communications SA
McCann-Erickson Athens S.A.
MWG Alco SA
MWG Politics SA
Universal Media Hellas S.A.
Arte Filme SA
Greece
Greece
Greece
Greece
Greece
Greece
Guatemala
100
100
100
51
72
100
100
Ashley & Holmes S.A.
Fieldplant Ltd.
WorldGroup Europe SARL
McCann-Erickson Athens S.A.
McCann-Erickson Athens S.A.
McCann-Erickson (Int’l) GmbH
True North Holdings (Latin America), Inc.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
FCB Publicidad S.A.
Publicidad McCann-Erickson
Centroamericana (Guatemala), S.A.
FCB/Honduras
McCann-Erickson Centroamericana S.
de R.L.
AMF Productions Limited
Anderson & Lembke Asia Limited
Bozell Worldwide (China) Holdings
Ltd.
Dailey International Enterprises Ltd.
Dailey Investments Limited
DraftWorldwide Limited
FCB Asia (Holding) Ltd.
Foote Cone & Belding Ltd.
Foote Cone & Belsing (Taiwan) Ltd.
Futurebrand Hong Kong Limited
Golin/Harris International Limited
Initiative Media Ltd.
Interface Communications Limited
IPG Hong Kong Ltd
Jack Morton Worldwide Limited
Kart Mall
Lowe Digital HK Limited
Lowe Limited
Marketing Communications
Technologies A/P LTD.
McCann-Erickson, Guangming Ltd.
McCann-Erickson (HK) Limited
Octagon CSI SAM Pacific Ltd.
Octagon Greater China Limited
Octagon Marketing Limited
Orvieto Limited
Pope Kieman & Black Limited
Jurisdiction
Under Which
Organized
Guatemala
Guatemala
Honduras
Honduras
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Premium Surge (Hong Kong) LTD
Presko Limited
Scotchbrook/BSMG Worldwide Ltd.
(Hong Kong)
Springpoint Asia Limited
TN Media Limited
Weber Shandwick Worldwide (Asia
Pacific) Limited
Weber Shandwick Worldwide (H.K.)
Limited
CMS Brand Connection Hungary KFT Hungary
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Foote Cone & Belding KFT
GGK Direct Marketing Kft.
GJW Politikai es Kommunikacios
Tanacsado KFT
Initiative Media Hungary
Hungary
Hungary
Hungary
Hungary
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 15
August 31, 2005
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
100
100
100
100
100
100
100
100
100
100
100
99
100
100
100
100
100
100
100
100
100
100
100
51
100
100
70
99
100
100
100
100
100
100
100
100
100
100
70
80
100
100
True North Holdings (Latin America), Inc.
Registrant
True North Holdings (Latin America), Inc.
Registrant
FCB Hong Kong Limited
Registrant
True North Holdings (Asia Pacific), Inc.
Registrant (50), Lowe Lintas & Partners
LTD (50)
Registrant (50), Lowe Lintas & Partners
Ltd (50)
Draft, Inc.
True North Holdings (Asia/Pacific), Inc.
FCB Asia (Holding) Ltd.
True North Holdings (Asia/Pacific), Inc.
McCann-Erickson (HK) Limited
IPG
Pope Kiernan & Black Limited
Pope Kiernan & Black
The Interpublic Group of Companies, Inc.
Registrant
Karting Marketing & Management Corp.
Lowe Group Holdings, Inc.
Lowe Worldwide Holdings BV
McCann-Erickson (HK) Limited
Registrant
Registrant
Octagon CSI International Holdings S.A.
Octagon Sports Marketing Limited
Octagon Asia, Inc.
Asiatic Corp.
FCB HK Limited (80)
FCB Asia Holding Ltd (20)
PS
Shandwick Asia Pacific Limited
True North Holdings (Asia/Pacific), Inc.
Springpoint Limited.
True North Holdings (Asia/Pacific), Inc.
AMS Investments Limited
Weber Shandwick Asia Pacific Limited
Lowe Communication Group GmBH
Kommunicacios KFT
True North Holdings (Netherlands) B.V.
Lowe Lintas GGK Holdings AG
GJW Government Relations Ltd.
Lowe Communication Group GmBH
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 16
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
India
India
India
India
India
India
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Israel
Israel
Israel
Hungary
Lowe Lintas GGK Kft.
McCann-Erickson Budapest Ltd
Hungary
McCann Relationship Marketing KFT Hungary
Hungary
Momentum Hungary Pr & Advertising
Ltd.
Hungary
India
Panmedia Western Kft.
Associated Corporate Consultants
(India) Pvt. Ltd.
DraftWorldwide India PVT Ltd.
FCB Ulka Advertising Ltd.
Interface Communications Limited
McCann-Erickson (India) Ltd.
McCann-Erickson (NEPAL) Pvt. Ltd
Result Services Private Ltd.
Initiative Media Indonesia
Lowe Indonesia
P.T. Fajar Cahaya Buana
PT Impurema Konsultama
PT Intra Primustana Respati
Experimental Marketing Company
Limited
McCann-Erickson Dublin Limited
Spice Studios Limited
Sugar Films Limited
Universal Media Ireland Limited
Weber Shandwick/FCC Limited
Frontline Marketing Limited
Horizon FCB Limited
Horizon Holdings Limited
Pool Limited
A.T. M. Z Holding Company LTD
BTL Momentum LTD
Elazr Golan & Co. Advertising &
Marketing (1999) LTD
Elazr Golan & Company Advertising
Israel
&
Marketing Limited
FutureBrand Israel LTD
Intitiative Media Tel-Aviv Limited
McCann-Erickson Group’s
Momentum Israel
McCann/Kesher Barrel & Co.
MRM Israel LTD
Promoseven Ltd.
Universal McCann Israel LTD
Israel
Israel
Israel
Israel
Israel
Israel
Israel
80.95
100
100
100
70
99.60
74
51
100
100
100
99
53.85
53.2
65
100
100
100
100
100
100
100
100
100
100
51
100
75
100
100
100
Lowe Lintas GGK Holdings AG
McCann Worldwide
McCann-Erickson Budpaest Ltd.
McCann-Erickson Budpest Ltd. (97)
McCann Relationship Marketing KFT.(3)
Lowe Lintas GGK Holdings AG
McCann-Erickson (India) Private Ltd.
Draft, Inc.
Adcom
FCB Ulka Advertising Ltd.
McCann-Erickson Worldwide Inc.
McCann-Erickson (India) Private Limited
McCann-Erickson (India) Private Ltd.
Registrant
Registrant
FCB Singapore
ME Mauritious Holding
AMS Investment Ltd.
McCann-Erickson Dublin Limted
Registrant
McCann-Erickson Dublin Limited
McCann-Erickson Dublin Limted
McCann-Erickson Dublin Limted
Registrant
Horizon Holdings Limited
Horizon Holdings Limited
FCB Worldwide L.L.C.
Interpublic Group Denmark Holdings APS
Registrant
Registrant
McCann/Kesher Barrel & Co. Advertising
Limited
McCann/Kesher Barrel & Co. Advertising
Limited
70
McCann/Kesher Barrel & Co. Advertising
78
100
50
100
78
100
Limited
Registrant
McCann/Kesher Barrel & Co. Advertising
Limited
Registrant
McCann/Kesher Barrel & Co. Advertising
Limited
Registrant
McCann/Kesher Barrel & Co. Advertising
Limited
Weber Shandwick Rimon-Cohen LTD
Israel
60
McCann/Kesher Barrel & Co. Advertising
Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 17
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Buozell Marketing Services, Srl
Bridge Editore S.R.L.
Chorus Media Srl
Colnaghi & Manciani/Springer &
Jacoby S.R.L. Mailand
Compagnia del Marketing Diretto
Communicazione
Compagnia del Marketing Diretto
Systems SRL
Draft Direct Worldwide Srl.
Exel S.R.L
FCB Italia Srl
Futurebrand Gio’ Rossi Associati SPA
Idea Azione Spa
InfoPlan Italiana S.P.A
Initiative Media Milano S.R.L
Interpublic (IPG) Worldgroup Italia
S.R.L.
IT Interactive Touch S.R.L
Lowe Pirella S.P.A.
McCann-Erickson Roma S.P.A.
McCann-Erickson S.P.A
McCann-Erickson Worldgroup Italia
S.P.A.
Momentum Italia S.R.L.
MRM Dialogo S.R.L.
Pool Media International (P.M.I.) S.r.l.
RGB Torre Lazur McCann Healthcare
Universal Media S.R.L.
Weber Shandwick Italia Holding Srl
Weber Shandwick Italia S.P.A.
Weber Shandwick Massmedia S.P.A.
McCann-Erickson Cote D’Ivoiret
McCann-Erickson (Jamaica) Ltd
Ammirati Puris Lintas K.K.
Aoyama Graphic Design, Inc.
FCB Worldwide (Japan), KK
FutureBrand Inc.
Golin Harris International Co. Ltd.
Harrison McCann Inc.
Infoplan, Inc.
Initiative Media Tokyo Japan K.K.
International Management Consulting
Inc.
International PR Inc.
IPG Japan Inc.
ISD Japan Inc.
McCann-Erickson Inc.
Momentum MIK, Inc.
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Ivory Coast
Jamaica
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
42.5
100
100
100
99
100
71
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
98.80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
75
FCB Italia Srl
Weber Shandwick Italia Holding SRL
Lowe Pirella Gottsche SpA (49)
Initiative Media Milano SRL (51)
Springer & Jacoby International GmBH
FCB Italia Srl
Compagnia del Marketing Diretto
Communicazione
Draft, Inc.
Lowe Pirella S.P.A.
True North Holdings (Netherlands) B.V.
Consouteur BV
Draft Direct Worldwide SRL
Registrant
Lowe Pirella S.P.A
Worldgroup Europe SARL
McCann-Erickson WorldGroup Italia S.P.A
Lowe Worldwide Holdings BV
McCann Erickson Worldwide Italia S.P.A.
McCann-Erickson WorldGroup Italia S.P.A
Interpublic Group Holdings (Italy) SRL
McCann Erickson Worldwide Italia S.P.A.
McCann-Erickson Worldwide Italia SpA
Registrant (95) and Business; Science Research
Corp (5)
Interpublic (IPG) Worldgroup Italia S.R.L.
McCann-Erickson WorldGroup Italia SPA
AMS Investments Limited
Weber Shandwick Italia Holding Srl
Shandwick Investments Limited
McCann-Erickson France
Registrant
Ammirati Puris Lintas Nederland
BV (24); Registrant (76) McCann-Erickson Inc.
True North Holdings (Asia/Pacific), Inc.
McCann Erickson, Inc.
Weber Shandwick Worldwide
McCann-Erickson, Inc.
McCann-Erickson, Inc.
The Interpublic Group of Companies, Inc.
Weber Shandwick Worldwide, Inc.
Weber Shandwick Worldwide, Inc.
Registrant
McCann-Erickson, Inc.
Registrant
McCann-Erickson, Inc.
Exhibit 21
Name
Foreign:
Page 18
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Luxembourg
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Jersey
Kazakhstan
Kenya
Korea
Korea
Korea
Latvia
Latvia
Latvia
Lebanon
Luxembourg
MRM Inc.
McCann Healthcare Inc.
McCann-Erickson Management
Service Inc.
Octagon Japan, Inc.
PR Services Co. Ltd.
TLM Japan Inc.
Torre Lazur Communications, Inc.
Weber Shandwick Worldwide Inc.
Third Dimension (Holdings) Limited
McCann-Erickson Kazakhstan
McCann-Erickson (Kenya) Ltd.
FCB Hahnin Inc.
McCann-Erickson Inc. (Korea)
Universal McCann Inc.
Momentum Latvija Sia
Sabiedrisko Attiecibu Birojs SIA
SIA McCann-Erickson RIGA
Horizon FCB SARL
Communication Services International
Holdings SA
Interpublic Group of Companies
Holding (Luxembourg) SARL
Interpublic Group (Luxembourg)
SARL
API Sponsorship SDM.BHD
DraftWorldwide Sdn. Bhd.
Foote Cone & Belding Sdn. Bhd.
Initiative Media (M) Sdn. Bhd.
Interface Advertising Sdn. Bhd.
Lowe & Partners SDN, BHD
McCann-Erickson (Malaysia) Sdn.
Bhd.
Mutiara-McCann (Malaysia) Sdn. Bhd. Malaysia
Malaysia
Universal Communication Sdn. Bhd.
Malaysia
Weber Shandwick Worldwide
(Malaysia) Sdn. Bhd.
Advertisement and Communication
Services Ltd.
Lowe Mauritius Limited
M-E Mauritius Holdings Ltd.
Artest S.A. de C.V.
BSR/MRM de Mexico SA de CV
Corporacion Interpublic Mexicana,
S.A. de C.V.
Direct Digital Data Base S.A. de CV Mexico
Mexico
Diversified Advertising Services S.A.
de C.V
Foote Cone & Belding Worldwide S.A.
de C.V.
FutureBrand Mexico, SA de CV
Golin Harris Consulting SC
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Mauritius
Mauritius
Mexico
Mexico
Mexico
Mexico
Mexico
Luxembourg
Mauritius
Mexico
Golin Harris Services S.A. de C.V.
Mexico
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
100
100
100
100
100
100
100
73
61
100
100
75
75
75
100
100
100
100
100
100
100
100
80
71
100
100
100
100
100
100
100
100
60
100
100
100
100
100
96
99.8
McCann-Erickson, Inc.
Torre Lazur Communications Inc.
McCann-Erickson, Inc.
Octagon Worldwide Holdings B.V.
Weber Shandwick Worldwide, Inc.
Torre Lazur Communications Inc.
McCann Healthcare, Inc.
AMS Investments Limited
Interpublic Limited
McCann-Erickson Network (UK)
Registrant
True North Holdings Asia/Pacific), Inc.
McCann-Erickson Marketing, Inc.
McCann-Erickson Inc (Korea)
SIA McCann-Erickson RIGA
SIA McCann-Erickson RIGA
Registrant
Horizon Holdings Limited
Registrant
Registrant
Interpublic Group of Companies Holding
(Luxembourg) SARL
Octagon Sports Marketing Ltd.
Draft, Inc.
True North Holdings (Asia/Pacific), Inc.
Lowe Lintas & Partners (Malaysia) Sdn. Bhd.
FCB Malaysia
Registrant
Registrant
Registrant
McCann-Erickson (Malaysia) Sdn. Bhd.
AMS Investments Limited (92); Briefcope Limited
(8)
True North Holdings (Asia/Pacific), Inc.
Lowe Group Holdings Inc.
Interpublic Group Denmark Holdings
FCB Worldwide S.A. de C.V.
Interpublic Holding Co. SA de CV
Interpublic Holding Co. SA de CV
FCB Worldwide S.A. de C.V.
Lowe SA De CV
True North Holdings (Latin America), Inc.
Interpublic Holding Co. SA de CV
Interpublic Holding Co. SA de CV (48)
Inversionsta Asociados, S.A De CV (48)
Interpublic Holding Co. SA de CV
IM Initiative Media SA DE CV
Mexico
100
Interpublic Holding Company S.A. DE CV
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Interpublic Holding Company S.A. De
C.V.
Inversionistas Asociados, S.A. De
C.V.
Lowe SA DE CV
Marketing Division SA DE CV
McCann-Erickson de Mexico, S.A. de
cv
MRM Servicious S.A. de CV
Pedrote Momentum Services
Administravos S.A. de C.V.
Publicidad Nortena, S. De R.L. De
C.V.
TN Media SA DE CV
Weber Shandwick S.A. DE C.V.
Zimat Golin/Harris S.A. de C.V.
Octogan SAM
Anderson & Lembke Europe B.V.
Borus Groep B.V.
Bozell Advertising B.V.
Brand Connection B.V.
BSMG Worldwide, B.V.
Decision/Data Database Media
Marketing BV
Draftworldwide Nederland B.V.
FHP Print Consult B.V.
Future Brand B.V.
Future Brand Holdings B.V.
Initiative Group B.V.
Initiative Media B.V.
IPG Nederland B.V.
ISOGroup Europe BV
Jack Morton Worldwide BV
Lowe & Partners BV
Lowe Holland BV
Lowe Live BV
Lowe Worldwide Holdings BV
McCann-Erickson (Nederland) BV
McCann Recruitment BV
Momentum CF BV
Octagon CIS BV
Octagon CSI International BV
Octagon Maasstricht BV
Octagon Worldwide Holdings BV
Ozlo BV
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Monaco
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Pluspoint B.V.
Netherlands
Programming Media International BV Netherlands
Roomijsfabriek “De Hoop” BV
Netherlands
True North Holding (Netherlands) BV Netherlands
Netherlands
Universal Media BV
Netherlands
VDBJ Communicatiegroep BV
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
98
100
60
60
100
100
99.8
100
100
100
100
100
100
100
100
100
100
100
71
100
100
100
100
51.25
100
100
73.75
100
100
100
100
100
100
100
100
100
100
100
100
100
100
60
Page 19
August 31, 2005
Immediate Parent
Registrant
Corporacion Interpublic Mexicana
Interpublic Holding Co. SA de CV
FCB Worldwide S.A. de C.V.
Interpublic Holding Co. SA de CV
Interpublic Holding Co. SA de CV
Interpublic Holding Co. SA de CV
Corporation Interpublic Mexicana, SA de CV
FCB Worldwide S.A. de C.V.
Interpublic Holding Company S.A. DE C.V.
Interpublic Holding Company S.A. DE C.V.
Communication Services Int’l (Holdings) S.A.
Registrant
IPG Nederland BV
True North Holdings (Netherlands) B.V.
Overall Media Administration BV
True North Holdings (Netherlands) B.V.
VDBJ Communicatiegroep BV
Borus Groep B.V.
VDBJ Communicatiegroep BV
Future Brand Holding BV
IPG Nederland B.V.
IPG Nederland B.V.
Overall Media Administration B.V.
Registrant (37.57); Fieldplan Ltd. (62.43)
The ISO Healthcare Group, Inc.
IPG Nederland B.V.
Lowe Worldwide Holdings BV
Lowe Worldwide Holdings BV
Lowe & Partners BV
Interpublic Netherlands
IPG Nederland BV
VDBJ Communicatiegroep BV
McCann-Erickson (Nederland) BV
Advantage Belgium
Octagon CSI International NV
Advantage Int’l Holdings Inc.
Octagon Worldwide Inc.
Lowe & Partne BV (77.5); Lowe Direct B.V.
(22.5)
IPG Nederland B.V.
Registrant
Lowe Worldwide Holdings BV
True North Communications Inc.
IPG Nederland B.V.
IPG Nederland B.V.
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Walbouw Haerlem BV
Weber Shandwick BV
Weber Shandwick International BV
Weber Shandwick Netherlands BV
Western International Media Holdings
BV
Netherlands
Wilkens Group BV
Netherlands
Wilkens Group Netherlands BV
New Zealand
APL Digital LTD
Channel & Limited
New Zealand
Draftworldwide New Zealand Limited New Zealand
New Zealand
Foote Cone & Belding Ltd.
New Zealand
Lowe Limited
New Zealand
McCann-Erickson Limited
New Zealand
Octagon New Zealand PTY LTD
New Zealand
Pritchard Wood-Quadrant Ltd.
New Zealand
Shandwick New Zealand Limited
New Zealand
Universal McCann Limited
New Zealand
Universal Media Limited
Norway
Initiative Universal Media A/S
Norway
JBR McCann A/S
Norway
JBR McCann Production A/S
Norway
Lowe Forever A/S
Norway
Lowe Norway A/S Holding
Norway
McCann-Erickson A/S
Norway
McCann Informasjon A/S
Norway
Scandinavian Design Group AS
Panama
Epoca McCann S.A.
Panama
McCann-Erickson DE Panama, SA
Panama
McCann-Erickson Worldgroup
Panama
Universal Ideas, SA
Mayo/FCB Publicidad SA
McCann-Erickson Corporacion
Publicidad, S.A.
Park Advertising & Direct Marketing
S.A.
Fasttrack Intergrated Marketing
Communications, Inc.
Group Asia Face to Face, Inc.
Panama
Peru
Peru
Philippines
Philippines
Peru
Harrison Communications, Inc.
Lowe Inc.
Philippines
Philippines
McCann-Erickson (Philippines), Inc.
Philippines
McCann Group of Companies, Inc.
Paradgim Production & Design Inc
Ad Fabrika FCB Sp. z.o.o.
Brand Connection SP.Z.O.O
GGK Public Relations Sp. z.o.o.
Philippines
Philippines
Poland
Poland
Poland
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
100
100
100
100
100
100
100
100
100
100
100
100
99.9
100
100
100
100
99.9
100
100
100
100
100
100
100
100
100
100
100
100
60
100
60
100
100
100
100
58
100
100
100
100
90
Page 20
August 31, 2005
Immediate Parent
IPG Nederland BV
AMS Investments Limited
AMS Investments Limited
AMS Investments Limited
Lowe Group Holdings, Inc. (52), Ammirati Puris
Lintas (38), Western Media (10)
True North Holdings (Europe), Inc.
Wilkens Group BV
Lowe Limited
Lowe Limited
Lowe Limited
True North Holdings (Asia/Pacific), Inc.
Registrant
Registrant
Octagon Australia PTY Ltd
Registrant
AMS Investment LTD
McCann-Erickson Limited
McCann-Erickson Limited
McCann-Ericson AS (Norway)
McCann-Erickson A/S
McCann-Erickson A/S
Lowe Norway A/S Holding
Lowe Norway A/S Holding
McCann-Erickson Marketing
McCann-Erickson AS
McCann-Erickson AS
Registrant
Registrant
Epoca McCann S.A. (Panama)
McCann-Erickson Ideas, SA
True North Holdings (Latin America), Inc.
Registrant
True North Holdings (Latin America), Inc.
Lowe Inc.
McCann-Erickson(Philippines) Inc.(70) McCann
Group of Companies, Inc. (30)
McCann-Erickson (Philippines) Inc.
Treyna Holdings Inc. (70) Lowe Worldwide
Holdings BV (30)
Registrant (30), Business Science Research Corp.
(28)
Registrant
Lowe Inc.
Wilkens Group BV & (Netherlands)
Initiative Media Warszawa ZP ZOO
Lowe Lintas GGK Holding AG
Exhibit 21
Name
Foreign:
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Jurisdiction
Under Which
Organized
Initiative Media Warszawa SP Zoo
Lowe Brand Sp. z.o.o.
Lowe GGK Spolka Z.O.O
Magna Entertainment SP. Z.O.O.
Magna Global Polska
Poland
Poland
Poland
Poland
Poland
McCann-Erickson Polska SP. Z.O.O.
Poland
McCann Erickson Worldgroup Poland
SPO Z.O.O.
McCann Relationship Marketing Spo
aKa Z
Momentum Experimental Marketing
Spo aKa Z Orgazniczon
Panmedia Western Warszawa SP.
Z.O.O.
Prisma Communications Spo aKa Z
Orgazniczon
Universal McCann SP Z.O.O.
Brand Connection-Actividades
Publicitares, Ltda.
Experientia Marketing Experenciical
Ltda
FCB Publicidade Lda.
Iniciativas De Meios-Actividades
Publicitarias, Limitada
Interpublic SGPS/LDA
Lowe Lintas & Partners (Portugal)
McCann-Erickson Portugal
Publicidade Limitada
McCann-Erickson SGPS SA
McCann Relation Marketing MRM
Portugal Marketing Relacional
Universal McCann
Connections-Publicidade LDA
Universal Media Publicidade, Ltda.
FCB Worldwide (Puerto Rico), Inc.
Marketing Drive, Inc.
B.V. McCann-Erickson Advertising
SRL
McCann-Erickson Senegal
Ammirati Puris Lintas (S) Private Ltd.
DraftWorldwide Pte. Ltd.
FCB Singapore Pte. Ltd.
Futurebrand Singapore Pte. Ltd.
Golin/Harris International Pte Limited
Initiative Media Singapore Pte Ltd
Lowe & Partners Singapore Pte. Ltd.
McCann-Erickson (Singapore) Private
Limited
Octagon CSI Pte Limited
Scotchbrook/BSMG Worldwide
(Singapore Ltd.)
Poland
Poland
Poland
Poland
Poland
Poland
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Portugal
Puerto Rico
Puerto Rico
Romania
Senegal
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 21
August 31, 2005
Immediate Parent
Ammirati Puris Lintas Warsaw
Lowe Lintas GGK Holding AG
Lowe Lintas GGK Holding AG
Magna Global Polska
Pan Media Western Warszawa Sp Zoo (33.33),
Initiative Media Warszawa Spzoo (33.33),
Universal Media Publicidade, LTDA(33.33)
McCann-Erickson Int’l GmbH (50), Walbouw
Haerlem BV (50)
Registrant
McCann-Erickson Worldgroup Poland
McCann-Erickson Worldgroup Poland
100
100
100
100
100
100
100
100
100
90
Lowe Lintas GGK Holding AG
100
100
99.8
McCann-Erickson Worldgroup Poland
McCann-Erickson Polska
Interpublic SGPS/LDA
98
McCann-Erickson Portugal Pub. Ltda
80
99.87
95
100
99.84
100
98
100
98
100
100
75
100
100
100
100
100
100
100
100
100
100
100
True North Holdings (Netherlands), Inc.
Lowe Lintas & Partner (Portugal)
Registrant
Interpublic SGPS, LDA
Interpublic SGPS/LDA
Interpublic SGPS, LDA
McCann-Erickson Portugal Pub. Ltda
Interpublic SGPS, LDA
McCann-Erickson Portugal Pub. Ltda
TN Holdings (Latin America),Inc.
TN Holdings (Latin America),Inc.
Registrant
MCCann-Ericksonc Ivory Coast
Registrant
Draft, Inc.
FCB Asia (Holding) Ltd.
McCann-Erickson (Singapore) Private Ltd
Golin Harris International Limited
Registrant
Lowe Group Holdings Inc.
Registrant
Octagon CSI International Holdings SA
True North Holdings (Asia/Pacific), Inc.
Weber Shandwick Worldwide
(Singapore) Pte Ltd.
Lowe Lintas GGK, Sro
McCann-Erickson Bratislava
Panmedia Bratislava Spol s.r.o.
Singapore
Slovak Rep.
Slovak Rep.
Slovak Rep.
100
87
100
86
AMS Investment Ltd
Lowe Lintas GGK Holdings AG
McCann-Erickson Prague Spol. srl
Lowe Lintas GGK Holdings AG
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Adsearch (Proprietary) Limited
Advantage Sponsorship Pty Ltd.
Ammirati Puris Lintas (Proprietary)
Limited
Azaguys Advertising & Marketing
(Pty)
Black Ads Media Pty Ltd.
Court Road Properties (Pty.) Limited
Electric Ocean (Pty.) Limited
FCB Active (PTY) Ltd
FCB Africa (Pty) Limited
FCB Cape Town (Pty.) Limited
FCB Durban (Pty.) Limited
FCB Fuze (Pty.) Ltd.
FCB Global Media Pty. Ltd.
FCB Impact Pty. Ltd
FCB Johannesburg (Pty.) Limited
FCB Jonssons PTY Limited
FCB Plato Healthcare Promotions
(Pty.) Limted
FCB Shoptalk (Pty.) Limted
FCB South Africa (Pty.) Limted
FCB South Africa Holding (Pty)
Limited
FCB South Africa (Pty) Limited
FCB South Africa Properties (Pty) Ltd.
Finset (Pty) Limited
Foote Cone & Belding Holdings (SA)
Galaxy Media (Pty) Limited
Herdbuoys McCann-Erickson Holding
(Pty) Ltd.
Herdbuoys McCann-Erickson South
Africa (Pty) Ltd.
Herdbuoys Sales Promotions (Pty) Ltd.
Joe Public (Pty) Ltd.
Lexshell 262 Investment Holdings
(Pty) Limited
Lindsay Smithers Design Pty. Ltd.
Lindsay Smithers — FCB Cape Pty.
Ltd.
Lindsay Smithers FCB Distributors
(Pty) Limited
Lindsay Smithers Group Management
Service
Lindsay Smithers Staff Investments
(Pty) Ltd.
McCann-Erickson Promotions
(Proprietary) Ltd.
McCann-Erickson South Africa (Pty)
Ltd.
McCann International (Pty) Ltd.
McCann-Erickson Africa (Pty) Ltd.
McCann-Erickson Worldgroup Africa
Jurisdiction
Under Which
Organized
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 22
August 31, 2005
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Registrant
FCB South Africa Holdings (Pty.) Ltd.
Lowe Worldwide Holdings BV (76); Registrant
(24)
FCB Holdings (SA)
The Media Shop (Pty) Limited
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB Hold Pty. Ltd. (40.89); Hanks International
(18.89), Registrant (40.22)
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
True North Holdings (Asia/Pacific), Inc.
The Media Shop (Pty.) Ltd.
McCann-Erickson South Africa (Proprietary) Ltd.
Herdbuoys McCann-Erickson Holding (Pty)
Herdbuoys McCann-Erickson South
Africa (Pty)
FCB South Africa Holdings (Pty.) Ltd.
The Admark Trust
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
FCB South Africa Holdings (Pty.) Ltd.
McCann-Erickson South Africa (Proprietary) Ltd.
Registrant
McCann-Erickson South Africa (Proprietary) Ltd.
Registrant
The Interpublic Group of Companies, Inc.
Media Initiative (Proprietary) Limited
South Africa
100
Ammirati Puris Lintas (Prop.) Ltd.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
NU-Integrated Media Shop (Pty)
Limited
O2 Media Pty Ltd
Octagon Communication Services Int’l
(Pty) Ltd
Octagon Ikageng (Pty) Ltd
Octagon Marketing Pty Ltd.
Park Advertising Investment Holdings
(Pty) Ltd
Partnership in Advertising (Namibia)
PTY
Perceive Advertising Pty Ltd
Sprigg Abbott Eighty (Pty.) Limited
The Admark Trust
The Media Shop (Pty.) Ltd.
Torre Lazur McCann Africa (Pty) Ltd
Universal McCann (Pty.) Ltd.
Alpha Grupo de Comunicacion
Cientifica, S.L.
Cachagua S.L.
Cathedral The Creative Center
Centro De Investigaction Y Compra
De Medios, S.A.
Clouseau, S.L.
DraftWorldwide S.A.
FCB/Tapsa Barcelona S.A.
Foote Cone & Belding Direct, SA
Foote Cone & Belding Tapsa TFM,
SA
Foote Cone & Belding/Tapsa SA
Futurebrand, S.A.
Golin Harris International, Inc.
Sucursal en Espana
Iniciativas de Medios, S.A.
Lowe FMRG S.A
Lowe & Partners SA
Magna Global S.A.
Marketing y Communicacion Integral,
S.A.
McCann-Erickson Barcelona S.A.
McCann-Erickson S.A.
Momentum Communicacion
Barcelona SA
Momentum Madrid S.A.
Momentum Servicios Promocionales
SA
Momentum Task Force S.A.
MRM Cano & Martinez Direct, S.A.
MRM Common Sense, S.A.
Jurisdiction
Under Which
Organized
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
100
100
51
100
67
100
100
100
100
100
100
100
100
Page 23
August 31, 2005
Immediate Parent
The Media Shop (Pty) Limited
The Media Shop (Pty) Limited
Octagon Marketing PTY Ltd
Octagon Marketing PTY Ltd
Octagon Sports Marketing Limited
The Admark Trust
The Admark Trust
The Media Shop (Pty) Limited
FCB South Africa Properties (Pty.) Ltd.
Octagon Marketing
Park Adv. Inv. Hold. (Pty.) Ltd.
McCann-Erickson South Africa (Proprietary) Ltd.
Herbuoys McCann-Erickson South Africa (Pyt)
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Ltd.
60
Shandwick Iberica S.A.
100
94
100
80
100
100
64
51
100
100
100
100
81
100
100
The Interpublic Group of Companies de Espana
S.A.
McCann-Erickson S.A.
True North Holding Espana, S. L.
DraftWorldwide S.A.
Draft Group Holdings Limited
FCB Tapsa, SA
True North Holdings Espana SL
FCB Tapsa, SA
True North Bozell Espana SL
McCann-Erickson S.A.
Golin Harris International, Inc.
Lowe Lintas & Partners, S.A.
Lowe W.W. Holdings BV
Interpublic Group of Companies de Espana SA
The Interpublic Group of Companies de Espana
S.A.
89
McCann-Erickson S.A.
100
100
100
89
89
89
80
80
The Interpublic Group of Companies de Espana
S.A.
The Interpublic Group of Companies de Espana
S.A.
McCann-Erickson SA
McCann-Erickson S.A.
McCann-Erickson S.A.
McCann-Erickson S.A.
McCann-Erickson, S.A.
McCann-Erickson S.A.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
MRM Conten, S.L.
MRM Directing S.A.
MRM Infomark, S.A.
Spain
Spain
Spain
100
99.99
75
McCann-Erickson S.A.
McCann-Erickson S.A.
McCann-Erickson S.A.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Reporter, S.A.
Shandwick Iberica, S.A.
Springer & Jacoby Espana S.A.
The Design House 2000, S.A.
True North Holding Espana SL
Universal McCann S.A.
Valmorisco Communications, S.A
Western International Media SA
Aktiebolaget Grundstenen 89942
Anderson & Lembke AB
Draft Promotion AB
DraftWorldwide Sweden AB
DraftWorldwide Trampolin AB
Exp Creator Momentum AB
Fastbridge AB
FB Company AB
Inter P Group Sweden AB
Lowe Brindfors Annonsbyra AB
Lowe Forever AB
Lowe Nordic AB
Lowe People AB
McCann Annonsbyra I Malmoe AB
McCann MRM Sweden AB
McCann-Erickson AB
Message Plus Digital AB
PMI Initiative Universal Media AB
Ronnberg & McCann A.B.
Storakers Sverige AB
Trigger AB
Bosch & Butz AG Zollikon
FCB Leutengger Krull AG
Futurebrand AG
Get Neue Gestaltungstechnik AG
Initiative Media Western AG
Lowe AG Zurich
McCann-Erickson S.A.
MRM Worldwide S.A.
Octagon Switzerland AG
Octagon Worldwide Limited
True North Holdings (Switzerland) AG
Type Art AG, Wallisellen
Unimedia S.A.
Universal McCann SA
Weber Shandwick Switzerland S.a.r.l.
FCB Taiwan Ltd.
Jurisdiction
Under Which
Organized
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Spain
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Taiwan
Page 24
August 31, 2005
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
75
100
100
100
100
100
100
99.9
100
100
100
100
100
80
100
100
100
100
100
86
100
100
100
100
100
100
100
50
80
100
70
71
100
100
82
100
67.5
100
100
100
100
100
100
100
80
MRM Conten S.L.
AMS Investments Limited
Springer & Jacoby International GmBH
The Interpublic Group of Companies de Espana
S.A.
True North Holdings (Europe), Inc.
McCann-Erickson S.A.
Interpublic Group of Companies De Espana, S.L
Western Int’l Media Holdings BV
True North Holdings (Netherlands) BV
Anderson & Lembke (US)
DraftWorldwide Trampolin AB
DraftWorldwide Trampolin AB
Inter P Group Sweden AB
McCann-Erickson AB
Message Plus Media AB-50; PMI-50
McCann-Erickson AB
Interpublic Group Denmark Holdings APS
Lowe Nordic AB
Lowe Brindfors Annonsbyra AB
Lowe Worldwide Holdings BV
Lowe Worldwide Holdings BV
McCann-Erickson AB
McCann-Erickson AB
Registrant
Lowe Nordic AB
Lowe Lintas AB (50); McCann-Erickson AB (50)
McCann-Erickson AB
Ronnberg & McCann A.B.
McCann-Erickson AB
Lowe Worldwide Holdings BV
True North Holdings (Switzerland), Inc.
Coleman Group Worldwide LLC
Bosch & Butz Werbeagenter AG
Western Int’l Media Holdings BV
Lowe Worldwide Holdings BV
Registrant
McCann-Erickson
Octagon Holdings ApS
Octagon WW Inc.
True North Holdings (Netherlands) BV
FCB Leutenegger Krull AG
Registrant
McCann-Erickson S.A
Registrant
TN Holdings (Asia/Pacific)
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 25
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Taiwan
Taiwan
Taiwan
Taiwan
Thailand
Thailand
Thailand
Thailand
Thailand
Thailand
Thailand
Trinidad
Trinidad
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Interface Intergrated Ltd.
Lowe Taiwan
McCann-Erickson Communications
Group Co. Ltd.
Weber Shandwick Worldwide
(Taiwan) Ltd.
BTL (Thailand) Ltd.
Initiative Media Limited
Lowe Limited
Magnus Nankervis & Curl/FCN
Limited
McCann Worldgroup (Thailand) Ltd.
Shandwick Holdings Limited
Weber Shandwick (Thailand) Ltd.
Communications Insights Limited
McCann-Erickson (Trinidad) Limited
FCB Rekiam Hizmertieri, A.S.
Information Rekalmcilik Ltd. STI
IPG Tanitim VE Halkla Iliskiler AS
Link/McCann-Erickson Reklamcilik
AS
Lotus Medya Planlama VE Dagitim
AS
Lowe Tanitim Hizmetleri AS
McCann-Erickson Istanbul
Reklamcilik AS
Momentum Beyaz Reklam Tantitim
Hizmetleri AS
Momentum Iletisim Hizmetleri
Dansismanlik E Ticaret A.S
MRM Reklam VE Tanitama Servisleri
AS
PARS McCann-Erickson Reklamcilik
A.S.
Universal McCann Media Planlama
Ve Dagitim A.S.
Horizon FCB (LLC)
Linea 12 McCann-Erickson
10 Media Limited
021 Limited
10 Media Limited
1995 Ventures Limited
Acclaro International Limited
Addition Communications Limited
Addition Marketing Group Limited
Advantage Soccer Limited
Advantage Sponsorship Canada
Limited
Advantage Sports Media Limited
Advantage Television Limited
Ammirati Puris Lintas Limited
U.A.E.
Ukraine
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
80
100
100
100
100
99.9
99.9
100
100
100
100
100
100
69.99
100
100
100
100
86
100
100
100
100
100
100
100
51
50
100
100
100
100
100
100
100
100
100
100
100
True North Holdings (Asia Pacific), Inc.
Registrant
Registrant
Weber Shandwick Asia Pacific Limited
Weber Shandwick Thailand Ltd.
Registrant
Registrant
True North Holding Asia Pacific
Registrant
AMS Investments Limited
Shandwick Holdings Ltd. (51); Orvieto Ltd. (49)
Registrant
Registrant
True North Holdings (Netherlands) BV
Pars McCann-Erickson Reklamcilik AS
Registrant
Pars McCann-Erickson Reklamcilik AS
McCann-Erickson Istanbul Reklamcilik AS
Lowe Worldwide Holdings BV
PARS McCann-Erickson Reklamcilik A.S.
Reklamcilik A.S. (“PARS”)
PARS McCann-Erickson Reklamcilik A.S.
PARS McCann-Erickson Reklamcilik A.S.
Registrant
Registrant
Registrant
Horizon Holdings Limited
IPG
Genus Media Limited
1995 Ventures Limited
Genus Media Limited
True North Holdings (United Kingdom) Limited
Weber Shandwick Limited
APL Group Limited
APL Group Limited
Octagon Sports Marketing Limited
Octagon Sports Marketing Limited
Octagon Sports Marketing Limited
Octagon Sports Marketing Limited
APL Group Limited
Page 26
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
United Kingdom
100
Lowe & Partners Worldwide Limited
100
100
100
50
100
100
100
100
100
100
50
50
100
100
100
100
100
100
80
100
100
100
100
100
46.600
53.400
100
100
100
100
99.995
33.333
66.667
20
80
25
AMS Advanced Marketing Services Limited
Interpublic Limited
True North Holdings (United Kingdom) Limited
APL Group Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
1995 Ventures Limited
True North Holdings (United Kingdom) Limited
Genus Media Limited
Weber Shandwick Limited
Ammirati Puris Lintas Limited
APL Group Limited
Newtonvale Limited
The Brompton Group Limited
The Brompton Group Limited
Weber Shandwick Limited
Weber Shandwick Limited
Interpublic Limited
International Poster Manager Limited
The Interpublic Group of Companies, Inc.
McCann Medical Communications Limited
Charles Barker Limited
Charles Barker Limited
Weber Shandwick Limited
Charles Barker Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
McCann Medical Communications Limited
The Interpublic Group of Companies, Inc.
McCann Medical Communications Limited
The Interpublic Group of Companies, Inc.
75
McCann Medical Communications Limited
Exhibit 21
Name
Foreign:
Ammirati Puris Lintas Russia Limited
(In
liquidation)
AMS Advanced Marketing Services
Investments Limited
AMS Advanced Marketing Services
Limited
Analytic I Limited
APL Digital Limited
APL Group Limited
Bahbout and Stratton Limited
Blue Interactive Limited
Bozell UK Limited
Brand Connection Limited
Briefcope Limited
Brilliant Pictures Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Broadway Communications Group
(Holdings) Limited
Brompton Advertising Limited
Brompton Promotions Limited
BSMG Medical & Health
Communications Limited
BSMG Worldwide (Europe) Limited United Kingdom
United Kingdom
Bureau of Commercial Information
Limited
Business Geographics Limited
Cab (No.1) Limited
Cab (No.2) Limited
Cab (No.3) Limited
Cab (No.4) Limited
Cab (No.5) Limited
Caudex Medical (Abingdon) Ltd
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Charles Barker ESOP Trustee Limited United Kingdom
United Kingdom
Charles Barker Healthcare Limited
United Kingdom
Charles Barker Limited
Charles Barker Publishing Limited
United Kingdom
United Kingdom
CM: Lintas International Limited
Complete Congress Services Limited United Kingdom
Complete Exhibition Services Limited United Kingdom
Complete Healthcare Training
Limited
United Kingdom
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Complete HealthVizion Limited
Complete Market Research Limited
Complete Medical Communications
(UK) Limited
Complete Medical Group Limited
Creation Communications Design Limited
Creation Communications Limited
Cyclops Productions Limited
Davies Day Limited
Davies/Baron Limited
Delaney Fletcher Delaney Limited
Draft Group Holdings Limited
Draft London Limited
Engels (No.1) Limited
Engels (No.2) Limited
EPIC (Events & Programming International
Consultancy) Limited
Exp. Momentum Limited
Expert Media Limited
F.C.B. Management Services Limited
FBC (FutureBrand Consumer) Limited
FBC (FutureBrand Digital) Limited
FBC (FutureBrand) Limited
FCB Advertising Limited
FCB London Limited
FCBi London Limited
Fieldplan Limited
Jurisdiction
Under Which
Organized
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
Fleet Financial Communications Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 27
August 31, 2005
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
100
25
75
20
80
15
85
100
100
100
80
100
100
100
100
100
100
99
100
100
100
100
100
100
100
100
100
100
100
McCann Medical Communications Limited
The Interpublic Group of Companies, Inc.
McCann Medical Communications Limited
The Interpublic Group of Companies, Inc.
Complete Medical Group Limited
The Interpublic Group of Companies, Inc.
McCann Medical Communications Limited
Jack Morton Worldwide Limited
Jack Morton Worldwide Limited
True North Holdings (United Kingdom)
Limited
Octagon Sponsorship Consulting Limited
FBC (FutureBrand) Limited
True North Holdings (United Kingdom)
Limited
Interpublic Limited
Lowe International Limited
Interpublic Limited
Interpublic Limited
Interpublic Limited
Interpublic Limited
Genus Media Limited
Foote, Cone & Belding Europe Limited
FBC (FutureBrand) Limited
FBC (FutureBrand) Limited
Interpublic Limited
True North Holdings (United Kingdom)
Limited
True North Holdings (United Kingdom)
Limited
1995 Ventures Limited
Interpublic Limited
Square Mile Holdings Limited
Foote Cone & Belding International Limited
Foote, Cone & Belding Europe Limited
Genus Media Limited
GJW Europe Limited
GJW Government Relations Limited
GJW Holdings Limited
GJW International Limited
GJWS Limited
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
United
Kingdom
100
100
100
100
100
100
100
100
True North Holdings (United Kingdom)
Limited
True North Holdings (United Kingdom)
Limited
True North Holdings (United Kingdom)
Limited
GJW Holdings Limited
GJW Holdings Limited
BSMG Worldwide Europe Limited
GJW Holdings Limited
GJW Government Relations Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Globespan Marketing Services
Limited
Go Figure Limited
Golin/Harris International Limited
Gotham Limited
Grand Slam Millennium Television
Limited
Grand Slam Sports Limited
GSD (Scotland) Limited
GSD Momentum Limited
H.K. McCann Limited
Harrison Advertising (International)
Limited
Hopkins and Bailey Limited
Initiative Media Limited
Initiative Media London Limited
Interfocus Group Limited
Interfocus Network Limited
International Poster Management
Limited
Interpublic GIS (UK) Limited
Interpublic Limited
Interpublic Pension Fund Trustee
Company Limited
Jack Morton Europe Limited
Jack Morton UK Limited
Jack Morton Worldwide Limited
Joint Venture 36 Travel Limited
Jones Britton Breckon Company
Limited
United Kingdom
Junk Mail Limited
JV Knightsbridge Travel Limited
United Kingdom
Keith LIttlewood Associates Limited United Kingdom
United Kingdom
Lewis Gace Bozell Health Care
Worldwide Limited
LHSB Management Services Limited United Kingdom
United Kingdom
Lintas W A Limited
United Kingdom
Locksway Limited
United Kingdom
Lowe & Howard-Spink Media
Limited
United Kingdom
Lowe & Partners Financial Limited
United Kingdom
Lowe & Partners Limited
United Kingdom
Lowe & Partners UK Limited
Lowe & Partners Worldwide Limited United Kingdom
United Kingdom
Lowe Azure Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100
100
100
100
85
100
100
100
100
99.995
100
100
100
87.500
100
100
100
100
50
100
100
100
100
100
100
50
100
100
100
99.900
100
100
100
100
100
100
100
Page 28
August 31, 2005
Immediate Parent
Marketing Drive Group Limited
Initiative Media London Limited
Interpublic Limited
Interpublic Limited
Octagon Sports Marketing Limited
Octagon Sports Marketing Limited
Momentum Field Marketing Limited
Momentum Field Marketing Limited
McCann-Erickson Advertising Limited
Interpublic Limited
Radclyffe Communications Group Limited
APL Group Limited
Interpublic Limited
Lowe International Limited
Interfocus Group Limited
Interpublic Limited
True North Holdings (United Kingdom) Limited
The Interpublic Group of Companies, Inc.
Interpublic Limited
IPG Caribiner Corp, Inc.
Jack Morton Europe Limited
Jack Morton UK Limited
McCann-Erickson Advertising Limited
Genus Media Limited
FCBi London Limited
Lowe International Limited
True North Holdings (United Kingdom) Limited
True North Holdings (United Kingdom) Limited
Lowe International Limited
Interpublic Limited
Opus Holdings International Limited
Lowe International Limited
Lowe International Limited
Lowe International Limited
Lowe International Limited
Interpublic Limited
Lowe International Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 29
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Lowe Broadway Limited
United Kingdom
99.998
Broadway Communications Group (Holdings)
Lowe Consulting Limited
Lowe Digital Limited
Lowe Fusion Healthcare Limited
Lowe International Limited
Ludgate Communications Limited
Ludgate Design Limited
Ludgate Group Limited
Ludgate Laud Limited
Luxon Carra Limited
Magister Consulting Limited
Magna Global (UK) Limited
Mark Wallace Associates Limited
Marketing Communications
Technologies (EMEA) Limited
Marketing Communications
Technologies (Europe) Limited
Marketing Drive (Manchester)
Limited
Marketing Drive Group Limited
Marketing Drive International
Limited
Marketing Drive Limited
MBS Media Limited
McCann Communications Limited
McCann Direct Limited
McCann Managed Care Services
Limited
McCann Medical Communications
Limited
McCann Properties Limited
McCann Weber Public Relations
Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
McCann-Erickson (Windsor) Limited United Kingdom
McCann-Erickson Advertising
Limited
United Kingdom
McCann-Erickson Bristol Limited
United Kingdom
McCann-Erickson Central Limited
United Kingdom
0.002
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1
99
1
99
1
99
100
Limited
Newtonvale Limited
Lowe International Limited
Lowe International Limited
Lowe International Limited
Interpublic Limited
Ludgate Group Limited
Ludgate Group Limited
Interpublic Limited
Ludgate Group Limited
True North Holdings (United Kingdom) Limited
The Interpublic Group of Companies, Inc.
Interpublic Limited
Jack Morton Worldwide Limited
Interpublic Limited
Interpublic Limited
Marketing Drive Group Limited
True North Holdings (United Kingdom) Limited
Marketing Drive Group Limited
Springer & Jacoby UK Holdings Limited
Initiative Media London Limited
McCann-Erickson Advertising Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
Interpublic Limited
Interpublic Limited
McCann-Erickson Network Limited
Interpublic Limited
McCann-Erickson Bristol Limited
Interpublic Limited
McCann-Erickson Network Limited
McCann-Erickson UK Group Limited
0.005
99.995
0.005
99.995
Interpublic Limited
McCann-Erickson UK Group Limited
Interpublic Limited
McCann-Erickson Network Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 30
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
McCann-Erickson EMEA Limited
McCann-Erickson Healthcare UK
Limited
McCann-Erickson Manchester
Limited
United Kingdom
United Kingdom
100
100
Interpublic Limited
Interpublic Limited
United Kingdom
0.005
Interpublic Limited
99.995
100
100
McCann-Erickson Network Limited
Interpublic Limited
McCann-Erickson Network Limited
100
100
200
100
300
Interpublic Limited
Marketing Drive Group Limited
The Interpublic Group of Companies, Inc.
Octagon Sports Marketing Limited
The Interpublic Group of Companies, Inc.
99.995
McCann-Erickson Payne Golley Limited
99.995
0.005
100
100
49.931
81.533
18.467
100
100
100
99.999
100
28.006
100
100
100
100
100
100
100
100
100
100
100
100
100
100
McCann-Erickson Payne Golley Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
Exp. Momentum Limited
Octagon Worldwide Limited
The Interpublic Group of Companies, Inc.
TPD Group Limited
Octagon Sports Marketing Limited
Interpublic Limited
Weber Shandwick Limited
The Interpublic Group of Companies, Inc.
NDI Momentum Limited
Lowe International Limited
Octagon Sports Marketing Limited
Third Dimension Holdings Limited (Jersey)
Interpublic Limited
Octagon Sports Marketing Limited
Octagon Worldwide Limited
Movie & Media Sports (Holdings) Limited
Octagon Sponsorship Consulting Limited
Octagon Sports Marketing Limited
Octagon Sports Marketing Limited
Octagon Sponsorship Consulting Limited
Octagon Worldwide Limited
Interpublic Limited
True North Holdings (United Kingdom) Limited
True North Holdings (United Kingdom) Limited
McCann-Erickson Network Limited United Kingdom
United Kingdom
McCann-Erickson Payne Golley
Limited
McCann-Erickson UK Group Limited United Kingdom
United Kingdom
MDGS Limited
United Kingdom
Miller Starr Limited
United Kingdom
MLS Soccer Limited
United Kingdom
Momentum Activating Demand
Limited
Momentum Experiential Marketing
Limited
Momentum Experiential Marketing
Limited
Momentum Field Marketing Limited United Kingdom
United Kingdom
Momentum on the Move Ltd
United Kingdom
Movie & Media Sports (Holdings)
Limited
MRM Partners (UK) Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
MSW Management Ltd
mworks Limited
United Kingdom
Nationwide Public Relations Limited United Kingdom
United Kingdom
NDI Momentum Limited
United Kingdom
NDI Retail Development Limited
United Kingdom
Newtonvale Limited
United Kingdom
Octagon Athlete Representation
Limited
United Kingdom
Octagon CSI Limited
Octagon Event Marketing Limited
United Kingdom
Octagon Marketing Services Limited United Kingdom
United Kingdom
Octagon Motorsports Marketing
Limited
Octagon Movie And Media Limited
Octagon SC Limited
Octagon Sponsorship Consulting
Limited
Octagon Sponsorship Europe Limited United Kingdom
United Kingdom
Octagon Sponsorship Limited
United Kingdom
Octagon Sports Marketing Limited
United Kingdom
Octagon Worldwide Limited
Opus Group International Limited
United Kingdom
Opus Holdings International Limited United Kingdom
United Kingdom
United Kingdom
United Kingdom
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Page 31
August 31, 2005
Immediate Parent
Lowe International Limited
ISOGroup Europe BV
Lowe International Limited
Weber Shandwick Limited
McCann-Erickson Manchester Limited
Interpublic Limited
Weber Shandwick International Limited
Weber Shandwick UK Limited
Weber Shandwick UK Limited
Weber Shandwick UK Limited
Weber Shandwick International Limited
Harrision Advertising International Limited
Interpublic Limited
Jack Morton Worldwide Limited
PR Consultants Scotland Limited
Weber Shandwick International Limited
Weber Shandwick Limited
Interpublic Limited
Weber Shandwick Limited
PR Consultants Scotland Limited
True North Holdings (United Kingdom) Limited
Octagon Sports Marketing Limited
Lowe International Limited
Jack Morton Worldwide Limited
Springer & Jacoby Holding GmbH & Co. KG
Marketing Drive Group Limited
Springer & Jacoby UK Holdings Limited
Weber Shandwick Marketing Services Limited
The Interpublic Group of Companies, Inc.
Square Mile Holdings Limited
BSMG Worldwide Europe Limited
APL Group Limited
McCann-Erickson Network Limited
Interpublic Limited
Lowe International Limited
Interpublic Limited
Lowe International Limited
Octagon Sports Marketing Limited
Exhibit 21
Name
Foreign:
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
100
100
100
100
99
1
100
100
100
100
100
99
1
100
100
100
100
100
100
100
100
100
100
100
100
64
100
100
100
100
100
99.995
99.995
0.005
100
99.995
100
100
Orbit International (1990) Limited
OSI Group UK Limited
Poundhold Limited
PR Consultants Scotland Limited
Propeller Creative Services Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Radclyffe Communications Group
Limited
Rebel Enterprises Limited
Rebel Raceway Limited
Rogers & Cowan Brand Placement
Limited
Rogers & Cowan International
Limited
Salesdesk Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
SCH International Limited
United Kingdom
Shandwick Design Limited
Shandwick North Limited
United Kingdom
Shandwick Northern Ireland Limited United Kingdom
United Kingdom
Shandwick Public Affairs Limited
Shandwick Public Relations Limited United Kingdom
United Kingdom
Shandwick Scotland Limited
United Kingdom
Slaymaker Cowley White/Bozell
(Holdings) Limited
SM Activities Limited
Smithfield Lease Limited
Spectrum Communications Limited
Springer & Jacoby Design UK
Limited
Springer & Jacoby UK Holdings
Limited
United Kingdom
Springer & Jacoby UK Limited
United Kingdom
Springpoint Limited
Springpoint UK Limited
United Kingdom
Square Mile Communications Limited United Kingdom
United Kingdom
Square Mile Holdings Limited
United Kingdom
Still Price Court Twivy d’Souza
Limited
Stowe, Bowden, Wilson Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Tavistock Advertising Limited
United Kingdom
The Below The Line Agency Limited United Kingdom
United Kingdom
The Brompton Group Limited
United Kingdom
The Championship Group Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 32
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
The Howland Street Studio Limited
The HPI Research Group Limited
The Internet Factory Limited
The Line Limited
The Lowe Group Limited
The PR Centre Limited
The Promotions Department
Partnership Limited
The Quay Advertising and Marketing
Limited
The Really Big Promotions Company
Limited
The Rebel Group Limited
The Sloan Group Limited
Tinker and Partners Limited
TPD Group Limited
TPD IP Limited
True North Holdings (United
Kingdom) Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Two Six Seven Limited
Universal Advertising Limited
Universal Communications
Worldwide Limited
Universal McCann Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Virtual Reality Sports Limited
WAM/McCann-Erickson Limited
United Kingdom
United Kingdom
United Kingdom
Washington Soccer Limited
Weber Europe Limited
United Kingdom
Weber Shandwick Broadcast Limited United Kingdom
United Kingdom
Weber Shandwick Consultants
Limited
Weber Shandwick Consumer Limited United Kingdom
United Kingdom
Weber Shandwick International
Limited
Weber Shandwick Investor Relations
Limited
Weber Shandwick Limited
Weber Shandwick Marketing Services
Limited
Weber Shandwick PR Company
Limited
Weber Shandwick Technology
Limited
Weber Shandwick Trustees Limited
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
99
100
100
100
100
100
100
100
100
100
100
99.900
100
100
52.389
28.811
18.798
0.002
100
99.995
100
99.999
0.001
100
99.995
0.005
100
100
100
100
100
100
100
Interpublic Limited
Draft Group Holdings Limited
Business Geographics Limited
APL Group Limited
Lowe International Limited
PR Consultants Scotland Limited
Momentum Activating Demand Limited
Bahbout and Stratton Limited
Interpublic Limited
Lowe International Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
TPD Group Limited
FCB Worldwide, Inc
True North Holdings (Europe) Inc
True North Holding Netherlands B.V.
True North Communications, Inc.
Lowe International Limited
Interpublic Limited
Interpublic Limited
Interpublic Limited
The Interpublic Group of Companies, Inc.
Octagon Sports Marketing Limited
McCann-Erickson UK Group Limited
Interpublic Limited
Octagon Sports Marketing Limited
Golin/Harris International Limited
Weber Shandwick International Limited
Weber Shandwick International Limited
Weber Shandwick Limited
Weber Shandwick Limited
Weber Shandwick UK Limited
54.084
100
Interpublic Limited
AMS Advanced Marketing Services Limited
100
100
100
Weber Shandwick International Limited
Interpublic Limited
Weber Shandwick Limited
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Name
Foreign:
Page 33
August 31, 2005
Jurisdiction
Under Which
Organized
Percentage
Of Voting
Securities
Owned By
Immediate
Parent (%)
Immediate Parent
Weber Shandwick UK Limited
Western International Media Europe
Limited
Western International Media Limited United Kingdom
United Kingdom
United Kingdom
Widestrong Limited
WIMC (UK) Limited
Zentropy Partners United Kingdom
Ltd
Aderal S.A.
Asdia Uganda Limited
Intelan
Lingfield S.A. (S.A.F.I.)
United Kingdom
United Kingdom
United Kingdom
Uruguay
Uruguay
Uruguay
Uruguay
Uruguay
Uruguay
Lintas Uruguay (S.A.F.I.)
Lowe & Partners South America
Holdings, S.A.
McCann-Erickson Latin America, S.A. Uruguay
Uraguay
Paradiser SA
Uruguay
Universal Publicidad S.A. (S.A.F.I.)
Uzbekistan
McCann Uzbekistan
Venezuela
AJL Park Publicidad, CA
FCB Publicidad, C.A.
Venezuela
Foote, Cone & Belding Publicidad, CA Venezuela
Venezuala
FutureBrand S.A.
Venezuela
McCann-Erickson Publicidad De
Venezuela, S.A.
TN Medios Publicidad, CA
Lowe Vietnam
McCann-Erickson (Vietnam) Ltd
Asiatic Corporation
Hanks International
Karting Marketing and Management
Corporation
Octagon Asia Inc.
Octagon CSI International Holdings
S.A.
Octagon CSI S.A.
Afamal Advertising (Rhodesia )
Private Limited
FCB MB&A
Lintas (Private) Limited
Media Initiative (Zimbabwe) Pty.
Limited
Zimbabwe
Zimbabwe
Zimbabwe
Venezuela
Vietnam
Vietnam
Virgin Islands
Virgin Islands
Virgin Islands
Virgin Islands
Virgin Islands
Virgin Islands
Zimbabwe
100
100
52
48
100
100
100
90
100
100
100
100
100
100
80
100
100
60
100
100
99.9
100
100
100
80
100
100
51
100
100
100
100
100
80
80
Weber Shandwick International Limited
Lowe International Limited
Lowe International Limited
WIMC (UK) Limited
AMS Advanced Marketing Services Limited
Interpublic Limited
MRM Partners (UK) Limited
Grupo Nueva Communicacion S.A.
Asdia Limited
Lingfield S.A. (S.A.F.I.)
Interpublic Publicidade e Pesquisas Sociedade
Ltda.
Lowe LTDA
Lowe Group Holdings, Inc.
Universal Publicidad S.A. (S.A.F.I.)
True North Holdings (Latin America), Inc.
McCann-Erickson Publicidade Ltda.
Registrant
True North Holdings (Latin America), Inc.
Foote, Cone & Boeding Publicidad
True North Holdings (Latin America), Inc.
The FutureBrand Company, Inc.
Registrant
True North Holdings (Latin America), Inc.
Registrant
McCann-Erickson (Singapare) Private Ltd
AMS Investment Ltd
True North Communications, Inc.
Brand Hatch Leisure Ltd.
Octagon Greater China Limited
Octagon CSI S.A.
Communication Services Int’l (Holdings) S.A.
Registant
FCB South Africa Holding
Fieldplan Ltd.
Ammirati Puris Lintas (Private) Ltd.
A number of inactive subsidiaries and other subsidiaries, all of which considered in the aggregate as a single subsidiary would not
constitute a significant subsidiary, are omitted from the above list. These subsidiaries normally do business under their official
corporate names. International Business Services, Inc. does business in Michigan under the name “McCann-I.B.S., Inc.” and in New
York under the name “McCann International Business Services”. Lowe & Partners Worldwide, Inc. conducts business through its
Ammirati Puris Lintas New York division. McCann-Erickson conducts
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 21
Page 34
August 31, 2005
some of its business in the states of Kentucky and Michigan under the name “McGraphics”. McCann-Erickson USA, Inc. does
business in Michigan under the name SAS and does business in Indiana, Michigan, New York, Pennsylvania and Wisconsin under the
name of McCann-Erickson Universal Group.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints
MICHAEL I. ROTH, FRANK MERGENTHALER, NICK S. CYPRUS and NICHOLAS J. CAMERA, and each of them, as true and
lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him or her, and in his or her name, place and
stead, in any and all capacities, to sign the Report on Form 10-K for the year ended December 31, 2004, for The Interpublic Group of
Companies, Inc., S.E.C. File No. 1-6686, and any and all amendments and supplements thereto and all other instruments necessary or
desirable in connection therewith, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing requested and necessary to be done in and about the
premises as fully to all intents and purposes as he or she might do or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated: September 27, 2005
/s/ Michael I. Roth
Michael I. Roth
/s/ Frank J. Borelli
Frank J. Borelli
/s/ Jill M. Considine
Jill M. Considine
/s/ Richard A. Goldstein
Richard A. Goldstein
/s/ David A. Bell
David A. Bell
/s/ Reginald K. Brack
Reginald K. Brack
/s/ John J. Dooner, Jr.
John J. Dooner, Jr.
/s/ H. John Greeniaus
H. John Greeniaus
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
/s/ J. Philip Samper
J. Philip Samper
/s/ Frank Mergenthaler
Frank Mergenthaler
/s/ David M. Thomas
David M. Thomas
/s/ Nick S. Cyprus
Nick S. Cyprus
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
THE INTERPUBLIC GROUP OF COMPANIES, INC.
Certified Resolutions
I, Nicholas J. Camera, Secretary of The Interpublic Group of Companies, Inc. (the “Corporation”), hereby certify that the
resolutions attached hereto were duly adopted on September 27, 2005 by the Board of Directors of the Corporation and that such
resolutions have not been amended or revoked.
WITNESS my hand and the seal of the Corporation this 27th day of September, 2005.
/s/ Nicholas J. Camera
Nicholas J. Camera
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
THE INTERPUBLIC GROUP OF COMPANIES, INC.
RESOLUTIONS OF THE BOARD OF DIRECTORS
Resolutions re Form 10-K
RESOLVED, that the Chairman of the Board and the Executive Vice President and Chief Financial Officer of the Corporation be,
and each of them hereby is, authorized to execute and deliver on behalf of the Corporation an annual report on Form 10-K for the year
ended December 31, 2004, in the form presented to this meeting with such changes therein as either of them with the advice of the
General Counsel shall approve; and further
RESOLVED, that the Chairman of the Board in his capacity as Chief Executive Officer, the Executive Vice President and Chief
Financial Officer in his capacity as Chief Financial Officer, and the Senior Vice President, Controller and Chief Accounting Officer in
his capacity as Chief Accounting Officer of the Corporation be, and each of them hereby is, authorized to execute such annual report
on Form 10-K; and further
RESOLVED, that the officers of the Corporation be and each of them hereby is, authorized and directed to file such annual report
on Form 10-K, with all the exhibits thereto and any other documents that may be necessary or desirable in connection therewith, after
its execution by the foregoing officers and by a majority of this Board of Directors, with the Securities and Exchange Commission and
the New York Stock Exchange; and further
RESOLVED, that the officers and directors of the Corporation who may be required to execute such annual report on Form 10-K
be, and each of them hereby is, authorized to execute a power of attorney in the form submitted to this meeting appointing Michael I.
Roth, Frank Mergenthaler, Nicholas S. Cyprus and Nicholas J. Camera, and each of them, severally, his or her true and lawful
attorneys and agents to act in his or her name, place and stead, to execute said annual report on Form 10-
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
K and any and all amendments and supplements thereto and all other instruments necessary or desirable in connection therewith; and
further
RESOLVED, that the signature of any officer of the Corporation required by law to affix his signature to such annual report on
Form 10-K or to any amendment or supplement thereto and such additional documents as they may deem necessary or advisable in
connection therewith, may be affixed by said officer personally or by any attorney-in-fact duly constituted in writing by said officer to
sign his name thereto; and further
RESOLVED, that the officers of the Corporation be, and each of them hereby is, authorized to execute such amendments or
supplements to such annual report on Form 10-K and such additional documents as they may deem necessary or advisable in
connection with any such amendment or supplement and to file the foregoing with the Securities and Exchange Commission and the
New York Stock Exchange; and further
RESOLVED, that the officers of the Corporation be, and each of them hereby is, authorized to take such actions and to execute
such other documents, agreements or instruments as may be necessary or desirable in connection with the foregoing.
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 31.1
I, Michael I. Roth, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of The Interpublic Group of Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Michael I. Roth
Michael I. Roth
Chairman and Chief Executive Officer
Date: September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Exhibit 31.2
I, Frank Mergenthaler, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K of The Interpublic Group of Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Frank Mergenthaler
Frank Mergenthaler
Executive Vice President and Chief Financial Officer
Date: September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code), each of the undersigned officers of The Interpublic Group of Companies, Inc. (the “Company”), does hereby
certify, to such officer’s knowledge, that:
The annual report on Form 10-K for the year ended December 31, 2004 of the Company fully complies with the requirements of
Section 13(a)(1) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the annual report on Form 10-K
fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32
/s/ Michael I. Roth
Michael I. Roth
Chairman and Chief Executive Officer
Dated: September 30, 2005
/s/ Frank Mergenthaler
Frank Mergenthaler
Executive Vice President and Chief Financial Officer
Dated: September 30, 2005
(1) Except to the extent that management’s report on internal control over financial reporting, or the disclaimer of opinion on internal
control over financial reporting in the report of PricewaterhouseCoopers LLP, is ever deemed not to comply with the requirements of
Section 13(a).
_______________________________________________
Created by 10KWizard www.10KWizard.com
Source: INTERPUBLIC GROUP OF, 10-K, September 30, 2005