10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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Commission file number 1-6686
THE INTERPUBLIC GROUP OF
COMPANIES, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-1024020
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State or other jurisdiction
of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive
offices) (Zip Code)
(212) 704-1200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.10 par value
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New York Stock Exchange
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Securities
Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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. Yes þ No o
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 registrants
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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Smaller reporting company
o
(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 29, 2007, the aggregate market value of the
shares of registrants common stock held by non-affiliates
was $5,372,567,216. The number of shares of the
registrants common stock outstanding as of
February 15, 2008 was 471,152,044.
DOCUMENTS
INCORPORATED BY REFERENCE
The following sections of the Proxy Statement for the Annual
Meeting of Stockholders to be held on May 22, 2008 are
incorporated by reference in Part III: Election of
Directors, Director Selection Process,
Code of Conduct, Principal Committees of the
Board of Directors, Audit Committee,
Section 16(a) Beneficial Ownership Reporting
Compliance, Compensation of Executive
Officers, Non-Management Director
Compensation, Compensation Discussion and
Analysis, Compensation Committee Report,
Outstanding Shares, Review and Approval of
Transactions with Related Persons, Director
Independence and Appointment of Independent
Registered Public Accounting Firm.
STATEMENT
REGARDING FORWARD-LOOKING DISCLOSURE
This annual report on
Form 10-K
contains forward-looking statements. Statements in this report
that are not historical facts, including statements about
managements beliefs and expectations, constitute
forward-looking statements. These statements are based on
current plans, estimates and projections, and are subject to
change based on a number of factors, including those outlined in
this report under Item 1A, 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 factors include, but are not
limited to, the following:
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our ability to attract new clients and retain existing clients;
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our ability to retain and attract key employees;
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risks associated with assumptions we make in connection with our
critical accounting estimates;
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potential adverse effects if we are required to recognize
impairment charges or other adverse accounting-related
developments;
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potential adverse developments in connection with the ongoing
Securities and Exchange Commission (SEC)
investigation;
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risks associated with the effects of global, national and
regional economic and political conditions, including
fluctuations in economic growth rates, interest rates and
currency exchange rates; and
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developments from changes in the regulatory and legal
environment for advertising and marketing and communications
services companies around the world.
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Investors should carefully consider these factors and the
additional risk factors outlined in more detail in Item 1A,
Risk Factors, in this report.
3
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.
About
Us
We are one of the worlds premier advertising and marketing
services companies. Our agency brands deliver custom marketing
solutions to many of the worlds largest marketers. Our
companies cover the spectrum of marketing disciplines and
specialties, from consumer advertising and direct marketing to
mobile and search engine marketing.
The work we produce for our clients is specific to their unique
needs. Our solutions vary from project-based activity involving
one agency and its client to long-term, fully-integrated
campaigns created by a group of our companies working together
on behalf of a client. With offices in over 100 countries, we
can operate in a single region or align work globally across all
major world markets.
The role of the holding company is to provide resources and
support to ensure that our agencies can best meet our
clients needs. Based in New York City, Interpublic sets
company-wide financial objectives and corporate strategy,
directs collaborative inter-agency programs, establishes
financial management and operational controls, guides personnel
policy, conducts investor relations and initiates, manages and
approves mergers and acquisitions. In addition, we provide
limited centralized functional services that offer our companies
operational efficiencies, including accounting and finance,
marketing information retrieval and analysis, legal services,
real estate expertise, travel services, recruitment aid,
employee benefits and executive compensation management.
To keep our company well-positioned, we support our
agencies initiatives to expand their high-growth
capabilities and build their offerings in key developing
markets. When appropriate, we also develop relationships with
companies that are building leading-edge marketing tools that
complement our agencies and the programs they are developing for
clients. In addition, we look for opportunities within our
company to modernize operations through mergers, strategic
alliances and the development of internal programs that
encourage intra-company collaboration.
Market
Strategy
We have taken several strategic steps in recent years to
position our agencies as leaders in the global advertising and
communications market. We operate in a media landscape that has
vastly changed over the last few years. Media markets continue
to fragment and clients face an increasingly complex consumer
culture.
To stay ahead of these challenges and to achieve our objectives,
we have invested in creative talent in high-growth areas and
have realigned a number of our capabilities to meet market
demand. At our McCann Worldgroup unit, we have continued to
invest in talent and in upgrading the groups integrated
marketing services offering at MRM, Momentum and McCann
Healthcare. We combined accountable marketing and consumer
advertising agencies to form the unique global offering
Draftfcb. And at our marketing services group, Constituency
Management Group (CMG), we continue to strengthen
our public relations and events marketing specialists.
We have also taken a unique approach to our media offering by
aligning our largest media assets with global brand agencies.
This approach ensures that the ideas we develop for clients work
across new media as well as traditional channels. In 2007, this
differentiated media strategy gained significant traction in the
marketplace.
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The digital component of our business continues to evolve and is
increasingly vital to all of our agencies. In order to grow with
our clients, we have accelerated our investment in talent,
professional training and technology throughout the
organization. This reflects our strongly held belief that
digital marketing is not a silo. Instead, digital capabilities
must reside in all of our assets. For example, our public
relations companies increasingly use blogs and social networking
sites to influence consumer opinion, while our special events
companies use digital kiosks and website surveys to gauge
audience response. Recruiting and developing digitally
conversant talent at all our agencies and in all marketing
disciplines is therefore a priority and an area where we must be
willing to invest. Strong, multi-channel talent is vital if we
are to continue building long-term relationships with our
clients.
Where necessary, we have acquired or built specialty digital
assets, such as Reprise Media (search engine marketing), The
Interpublic Emerging Media Lab, and Ansible (mobile marketing),
to meet the changing needs of our clients. R/GA, a stand-alone
digital agency, is an industry leader in the development of
award-winning interactive campaigns for global clients. All of
these specialty assets have unique capabilities and serve as key
digital partners to many of our agencies within the group.
Likewise, we continue to look for strategic investments that
give us a leadership position in emerging markets. Recent
investments in India, where we operate three leading agency
networks, and Brazil give our clients a strong foot-hold in
these high-growth developing markets. Our partner in Russia is
the acknowledged advertising leader in the country. In China, we
continue to invest in our existing companies in the market,
building on our decades-long commercial history.
We believe that our market strategy and offerings can improve
our organic revenue growth and operating income margin, with our
ultimate objective to be fully competitive with our industry
peer group on both measures. To further improve our operating
margin we continue to focus on actively managing staff costs in
non-revenue supporting roles; improving financial systems and
back-office processing; reducing organizational complexity and
rationalizing our portfolio by divesting non-core and
underperforming businesses; and improving our real estate
utilization.
Our
Offering
Interpublic is home to some of the worlds best known and
most innovative communications specialists. We have three global
brands that provide integrated, large-scale solutions for
clients: McCann Worldgroup (McCann), Draftfcb, and
Lowe Worldwide (Lowe), as well as our domestic
integrated agencies and media agencies.
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McCann offers
best-in-class
communications tools and resources to many of the worlds
top companies and most famous brands. We believe McCann is
exceptionally qualified to meet client demands, in all regions
of the world and in all marketing disciplines, through its
operating units: McCann Erickson Advertising, with operations in
over 100 countries; MRM Worldwide for relationship
marketing and digital expertise; Momentum Worldwide for
experiential marketing; and McCann Healthcare Worldwide for
healthcare communications.
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Launched in 2006, Draftfcb is a modern agency model for clients
seeking creative and accountable marketing programs. With more
than 130 years of expertise, the company has its roots in
both consumer advertising and behavioral, data-driven direct
marketing. We believe the agency is the first global,
behavior-based, creative and accountable marketing
communications organization operating as a financially and
structurally integrated business unit.
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Lowe is a premier creative agency that operates in the
worlds largest advertising markets. Lowe is focused on
delivering and sustaining high-value ideas for some of the
worlds largest clients. The quality of the agencys
product is evident in its global creative rankings and its
standing in major markets. By partnering with Interpublics
marketing services companies, Lowe generates and executes ideas
that are frequently recognized for effectiveness, amplified by
smart communication channel planning.
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Our domestic independent agencies include some of the larger
full-service agency brands, Campbell-Ewald, Campbell Mithun,
Deutsch, Hill Holliday, The Martin Agency and Mullen. The
integrated marketing programs created by this group have helped
build some of the most powerful brands in the U.S., across all
sectors and industries.
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We have exceptional marketing specialists across a range of
channels. These include FutureBrand (corporate branding), Jack
Morton (experiential marketing), Octagon (sports marketing),
public relations specialists like WeberShandwick and Golin
Harris, and
best-in-class
digital agencies, led by
R/GA. Our
healthcare communications specialists reside within our three
global brands, McCann, Draftfcb and Lowe.
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We also have two global media agencies, Initiative and Universal
McCann, which provide specialized services in media planning and
buying, market intelligence and
return-on-marketing
investment analysis for clients. Initiative and Universal McCann
operate independently but work alongside Draftfcb and McCann
Erickson, respectively. Aligning the efforts of our major media
and our integrated communications networks improves cross-media
communications and our ability to deliver integrated marketing
programs.
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Interpublic lists approximately 90 companies on our
websites Company Finder tool, with
descriptions and office locations for each. To learn more about
our broad range of capabilities, visit www.interpublic.com.
Information on our website is not part of this report.
Financial
Reporting Segments
We have two reportable segments: Integrated Agency Network
(IAN), which is comprised of McCann, Draftfcb and
Lowe, our media agencies and our leading stand-alone agencies,
and CMG, which is comprised of the bulk of our specialist
marketing service offerings. We also report results for the
Corporate and other group. See Note 15 to the
Consolidated Financial Statements for further discussion.
Principal
Markets
Our agencies are located in over 100 countries, including every
significant world 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. The U.S., Europe (excluding the
U.K.), the U.K., Asia Pacific and Latin America represented
55.7%, 16.5%, 9.0%, 8.9% and 4.8% of our total revenue,
respectively, in 2007. For further discussion concerning
revenues and long-lived assets on a geographical basis for each
of the last three years, see Note 15 to the Consolidated
Financial Statements.
Sources
of Revenue
Our revenues are primarily derived from the planning and
execution of advertising programs in various media and the
planning and execution of other marketing and communications
programs. Most of our client contracts are individually
negotiated and accordingly, the terms of client engagements and
the basis on which we earn commissions and fees vary
significantly. Our client contracts are complex arrangements
that may include provisions for incentive compensation and
govern vendor rebates and credits. Our largest clients are
multinational entities and, as such, we often provide services
to these clients out of multiple offices and across various
agencies. In arranging for such services to be provided, we may
enter into global, regional and local agreements.
Revenues for creation, planning and placement of advertising are
determined primarily 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 include an incentive compensation component in
their total compensation package. This provides added revenue
based on achieving mutually
agreed-upon
qualitative
and/or
quantitative metrics within specified time periods. Commissions
are earned based on services provided, and are usually derived
from a percentage or fee over the total cost to complete the
assignment. Commissions can also be derived when clients pay us
the gross rate billed by media and we pay for media at a lower
net
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rate; the difference is the commission that we earn, 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 clients non-payment, we
typically pay media charges only after we have received funds
from our clients. Generally, we act as the clients 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 directly 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 in client
activity.
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Consolidated Revenues for the Three Months Ended
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2007
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2006
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2005
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March 31
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$
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1,359.1
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20.7%
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$
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1,327.0
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21.4%
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$
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1,328.2
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21.2%
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June 30
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1,652.7
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25.2%
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1,532.9
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24.8%
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1,610.7
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25.7%
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September 30
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1,559.9
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23.8%
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1,453.8
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23.5%
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1,439.7
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22.9%
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December 31
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1,982.5
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30.3%
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1,877.1
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30.3%
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1,895.7
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30.2%
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$
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6,554.2
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$
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6,190.8
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$
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6,274.3
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Depending on the terms of the client contract, fees for services
performed can be recognized in three principal ways:
proportional performance, straight-line (or monthly basis) or
completed contract. Fee revenue recognized on a completed
contract basis also contributes to the higher seasonal revenues
experienced in the fourth quarter because the majority of our
contracts end at December 31. As is customary in the
industry, our contracts generally 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
One of the benefits of the holding company structure is that our
agencies can work with a variety of clients from competing
sectors. In the aggregate, our top ten clients based on revenue
accounted for approximately 26% of revenue in 2007 and 2006.
Based on revenue for the year ended December 31, 2007, our
largest clients were General Motors Corporation, Microsoft,
Johnson & Johnson, Unilever and Verizon. 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 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, as well as provide
services across multiple advertising and marketing disciplines,
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, 2007, we employed approximately
43,000 persons, of whom approximately 19,000 were employed
in the U.S. Because of the 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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Available
Information
Our annual reports 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.
Our Corporate Governance Guidelines, Code of Conduct and the
charters for each of 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. Information on our website is not part of this report.
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. The risks described below may
not be the only risks we face. Additional risks that we do not
yet know of, or that we currently think are immaterial, could
also impair our business operations or financial condition. See
also Statement Regarding Forward-Looking Disclosure.
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Ongoing SEC investigations regarding our accounting
restatements could adversely affect us.
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Since January 2003 the SEC has been conducting a formal
investigation in response to the restatement we first announced
in August 2002, and in 2005 the investigation expanded to
encompass the restatement we presented in our Annual Report on
Form 10-K
for the year ended December 31, 2004 that we filed in
September 2005. We have also responded to inquiries from the SEC
staff concerning the restatement of the first three quarters of
2005 that we made in our 2005 Annual Report on
Form 10-K.
We continue to cooperate with the investigation. We expect that
the investigation will result in monetary liability, but as
settlement discussions have not yet commenced, we cannot
reasonably estimate the amount, range of amounts or timing of a
resolution. Accordingly, we have not yet established any
provision relating to these matters.
The SEC staff has informed us that it intends to seek approval
from the Commission to enter into settlement discussions with us
or, failing a settlement, to litigate an action charging the
Company with various violations of the federal securities laws.
In that connection, and as previously disclosed in our current
report on
Form 8-K
filed June 14, 2007, the staff sent us a Wells
notice, which invited us to make a responsive submission
before the staff makes a final determination concerning its
recommendation to the Commission. We expect to discuss
settlement with the staff once the Commission authorizes the
staff to engage in such discussions. We cannot at this time
predict what the Commission will authorize or the outcome of any
settlement negotiations.
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We operate in a highly competitive industry.
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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. Our competitors include not only other large
multinational advertising and marketing communications
companies, but also smaller entities that operate in local or
regional markets. New market participants include systems
integrators, database marketing and modeling companies,
telemarketers and internet companies.
The clients perception of the quality of an agencys
creative work, our reputation and the agencies reputations
are important factors in determining our competitive position.
An agencys 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 agencys 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 clients
account from a much larger competitor.
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Many companies put their advertising and marketing
communications business up for competitive review from time to
time. We have won and lost client accounts in the past as a
result of such periodic competitions. In the aggregate, our top
ten clients based on revenue accounted for approximately 26% of
revenue in 2007. While we believe it unlikely that we would lose
the entire business of any one of our largest clients at the
same time, a substantial decline in such a clients
advertising and marketing spending, or the loss of its entire
business, could have a material adverse effect upon our business
and results of operations.
Our ability to attract new clients and to retain existing
clients may also, 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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We may lose or fail to attract and retain key employees
and management personnel.
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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. Our ability to do
so is influenced by a variety of factors, including the
compensation we award, and could be adversely affected by our
recent financial or market performance.
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As a marketing services company, our revenues are highly
susceptible to declines as a result of unfavorable economic
conditions.
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Economic downturns often more severely affect the marketing
services industry than other industries. In the past, some
clients have responded 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.
This pattern may recur in the future.
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Downgrades of our credit ratings could adversely affect
us.
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Our long-term debt is currently rated Ba3 with stable outlook by
Moodys, B with positive outlook by Standard and
Poors, and BB- with stable outlook by Fitch. Any ratings
downgrades or comparatively weak ratings can adversely affect
us, because ratings are an important factor influencing our
ability to access capital and the terms of any new indebtedness,
including covenants and interest rates. Our clients and vendors
may also consider our credit profile when negotiating contract
terms, and if they were to change the terms on which they deal
with us, it could have an adverse effect on our liquidity.
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Our liquidity profile could be adversely affected.
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In previous years, we have experienced operating losses and weak
operating cash flow. Until our margins consistently improve in
connection with our turnaround, cash generation from operations
could be challenged in certain periods. This could have a
negative impact on our liquidity in future years and could lead
us to seek new or additional sources of liquidity to fund our
working capital needs. There can be no guarantee that we would
be able to access any new sources of liquidity on commercially
reasonable terms or at all. If we were unable to do so, our
liquidity position could be adversely affected.
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If some of our clients experience financial distress,
their weakened financial position could negatively affect our
own financial position and results.
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We have a large and diverse client base, and at any given time,
one or more of our clients may experience financial distress,
file for bankruptcy protection or go out of business. If any
client with whom we have a substantial amount of business
experiences financial difficulty, it could delay or jeopardize
the collection of accounts receivable, may result in significant
reductions in services provided by us and may have a material
adverse effect on our financial position, results of operations
and liquidity. For a description of our client base, see
Item 1, Business Clients.
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International business risks could adversely affect our
operations.
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International revenues represent a significant portion of our
revenues, approximately 44% in 2007. Our international
operations are exposed to risks that affect foreign operations
of all kinds, including 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 significant portion of our business is
denominated in currencies other than the U.S. dollar, such
as the Euro, Pound Sterling, Canadian Dollar, Brazilian Real,
Japanese Yen and South African Rand, fluctuations in exchange
rates between the U.S. dollar and such currencies may
materially affect our financial results.
|
|
|
|
|
In 2006 and prior years, we recognized 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, 2007, we have substantial amounts of
long-lived assets, investments and deferred tax assets on our
Consolidated Balance Sheet. Future events, including our
financial performance and strategic decisions, could cause us to
conclude that further impairment indicators exist and that the
asset values associated with long-lived assets, 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.
|
|
|
|
|
We may not be able to meet our performance targets and
milestones.
|
From time to time, we communicate to the public certain targets
and milestones for our financial and operating performance
including, but not limited to, the areas of revenue 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 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 and other governmental
scrutiny that could restrict our activities or negatively impact
our revenues.
|
Our industry is subject to government regulation and other
governmental action, both domestic and foreign. There has been
an increasing tendency on the part of advertisers and consumer
groups to challenge advertising through legislation, regulation,
the courts or otherwise, for example on the grounds that the
advertising is false and deceptive or injurious to public
welfare. 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 1B.
|
Unresolved
Staff Comments
|
None.
10
Substantially all of our office space is leased from third
parties. Several of our leases will be expiring within the next
few months, while the remainder will be expiring within the next
17 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 17 to the Consolidated
Financial Statements for a discussion of our lease commitments.
|
|
Item 3.
|
Legal
Proceedings
|
Information about our legal proceedings is set forth in
Note 17 to the Consolidated Financial Statements included
in this report.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
Executive
Officers of Interpublic
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Office
|
|
Michael I.
Roth(1)
|
|
|
62
|
|
|
Chairman of the Board and Chief Executive Officer
|
Nicholas J. Camera
|
|
|
61
|
|
|
Senior Vice President, General Counsel and Secretary
|
Christopher F. Carroll
|
|
|
41
|
|
|
Senior Vice President, Controller and Chief Accounting Officer
|
John J. Dooner, Jr.
|
|
|
59
|
|
|
Chairman and CEO of McCann Worldgroup
|
Thomas A. Dowling
|
|
|
56
|
|
|
Senior Vice President, Chief Risk Officer
|
Philippe Krakowsky
|
|
|
45
|
|
|
Executive Vice President, Strategy and Corporate Relations
|
Frank Mergenthaler
|
|
|
47
|
|
|
Executive Vice President and Chief Financial Officer
|
Timothy A. Sompolski
|
|
|
55
|
|
|
Executive Vice President, Chief Human Resources Officer
|
There is no family relationship among any of the executive
officers.
Mr. 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 of Interpublic since February 2002. He is
also a director of Pitney Bowes Inc. and Gaylord Entertainment
Company.
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. Carroll was named Senior Vice President,
Controller and Chief Accounting Officer in April 2006. Prior to
joining us, Mr. Carroll served as Senior Vice President and
Controller of McCann Worldgroup from November 2005 to March
2006. Mr. Carroll served as Chief Accounting Officer and
Controller at Eyetech Pharmaceuticals from June 2004 to October
2005. Prior to that time, Mr. Carroll served as Chief
Accounting Officer and Controller at MIM Corporation from
January 2003 to June 2004 and served as a Financial Vice
President at Lucent Technologies, Inc. from July 2001 to January
2003.
Mr. Dooner became Chairman and Chief Executive
Officer of the McCann Worldgroup, effective February 27,
2003. Prior to that time, Mr. Dooner served as Chairman of
the Board, President and Chief
11
Executive Officer of Interpublic, from December 2000 to February
2003, and as President and Chief Operating Officer of
Interpublic from April 2000 to December 14, 2000.
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. Krakowsky was hired in January 2002 as Senior
Vice President, Director of Corporate Communications. He was
elected Executive Vice President, Strategy and Corporate
Relations in December 2005. 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 Officer for Columbia House Company from July 2002 to
July 2005. Mr. Mergenthaler served as Senior Vice President
and Deputy Chief Financial Officer 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.
12
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Price
Range of Common Stock
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 February 15, 2008, there were 24,025 registered
holders of our common stock.
|
|
|
|
|
|
|
|
|
|
|
NYSE Sale Price
|
|
Period
|
|
High
|
|
|
Low
|
|
|
2007:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
10.55
|
|
|
$
|
8.10
|
|
Third Quarter
|
|
$
|
11.61
|
|
|
$
|
9.75
|
|
Second Quarter
|
|
$
|
12.97
|
|
|
$
|
11.31
|
|
First Quarter
|
|
$
|
13.81
|
|
|
$
|
12.17
|
|
2006:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
12.35
|
|
|
$
|
9.79
|
|
Third Quarter
|
|
$
|
9.98
|
|
|
$
|
7.86
|
|
Second Quarter
|
|
$
|
10.04
|
|
|
$
|
8.35
|
|
First Quarter
|
|
$
|
10.56
|
|
|
$
|
9.51
|
|
Dividend
Policy
No dividend has been paid on our common stock since the fourth
quarter of 2002. 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. Our future dividend policy may
also be influenced by the terms of certain of our outstanding
securities. The terms of our outstanding series of preferred
stock do not permit us to pay dividends on our common stock
unless all accumulated and unpaid dividends have been or
contemporaneously are declared and paid or provision for the
payment thereof has been made. In the event we pay dividends on
our common stock, holders of our 4.50% Convertible Senior
Notes will be entitled to additional interest and the conversion
terms of our 4.75% Convertible Senior Notes,
4.25% Convertible Senior Notes and our Series B
Convertible Preferred Stock, and the exercise prices of our
outstanding warrants, will be adjusted (see Notes 10, 11
and 12 to the Consolidated Financial Statements).
Transfer
Agent and Registrar for Common Stock
The transfer agent and registrar for our common stock is:
BNY Mellon Shareowner Services, Inc.
480 Washington Boulevard
29th Floor
Jersey City, NJ 07310
Tel:
(877) 363-6398
Sales of
Unregistered Securities
Not applicable
13
Repurchase
of Equity Securities
The following table provides information regarding our purchases
of equity securities during the fourth quarter of 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
|
|
|
|
Average
|
|
|
Total Number of Shares
|
|
|
that May Yet Be
|
|
|
|
Total Number
|
|
|
Price
|
|
|
Purchased as Part of
|
|
|
Purchased
|
|
|
|
of Shares
|
|
|
Paid per
|
|
|
Publicly Announced
|
|
|
Under the Plans
|
|
|
|
Purchased
|
|
|
Share(2)
|
|
|
Plans or Programs
|
|
|
or Programs
|
|
|
October 1-31
|
|
|
34,750
|
|
|
$
|
10.08
|
|
|
|
|
|
|
|
|
|
November 1-30
|
|
|
38,075
|
|
|
$
|
9.35
|
|
|
|
|
|
|
|
|
|
December 1-31
|
|
|
29,293
|
|
|
$
|
8.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
102,118
|
|
|
$
|
9.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 during each month of the fourth
quarter of 2007 (the Withheld Shares). |
|
(2) |
|
The average price per month of the Withheld Shares was
calculated by dividing the aggregate value of the tax
withholding obligations for each month by the aggregate number
of shares of our common stock withheld each month. |
14
|
|
Item 6.
|
Selected
Financial Data
|
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Selected Financial Data
(Amounts in Millions, Except Per Share Amounts and Ratios)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Revenue
|
|
$
|
6,554.2
|
|
|
$
|
6,190.8
|
|
|
$
|
6,274.3
|
|
|
$
|
6,387.0
|
|
|
$
|
6,161.7
|
|
Salaries and related expenses
|
|
|
4,139.2
|
|
|
|
3,944.1
|
|
|
|
3,999.1
|
|
|
|
3,733.0
|
|
|
|
3,501.4
|
|
Office and general expenses
|
|
|
2,044.8
|
|
|
|
2,079.0
|
|
|
|
2,288.1
|
|
|
|
2,250.4
|
|
|
|
2,225.3
|
|
Restructuring and other reorganization-related charges
(reversals)
|
|
|
25.9
|
|
|
|
34.5
|
|
|
|
(7.3
|
)
|
|
|
62.2
|
|
|
|
172.9
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
27.2
|
|
|
|
98.6
|
|
|
|
322.2
|
|
|
|
294.0
|
|
Motorsports contract termination costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113.6
|
|
|
|
|
|
Operating income (loss)
|
|
|
344.3
|
|
|
|
106.0
|
|
|
|
(104.2
|
)
|
|
|
(94.4
|
)
|
|
|
(31.9
|
)
|
Total (expenses) and other income
|
|
|
(108.6
|
)
|
|
|
(111.0
|
)
|
|
|
(82.4
|
)
|
|
|
(172.6
|
)
|
|
|
(340.9
|
)
|
Provision for income taxes
|
|
|
58.9
|
|
|
|
18.7
|
|
|
|
81.9
|
|
|
|
262.2
|
|
|
|
242.7
|
|
Income (loss) from continuing operations
|
|
|
167.6
|
|
|
|
(36.7
|
)
|
|
|
(271.9
|
)
|
|
|
(544.9
|
)
|
|
|
(640.1
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
5.0
|
|
|
|
9.0
|
|
|
|
6.5
|
|
|
|
101.0
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
131.3
|
|
|
$
|
(79.3
|
)
|
|
$
|
(289.2
|
)
|
|
$
|
(558.2
|
)
|
|
$
|
(539.1
|
)
|
Earnings (loss) per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.29
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(1.36
|
)
|
|
$
|
(1.66
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.29
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(1.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.26
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(1.36
|
)
|
|
$
|
(1.66
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.26
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(1.40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
457.7
|
|
|
|
428.1
|
|
|
|
424.8
|
|
|
|
415.3
|
|
|
|
385.5
|
|
Diluted
|
|
|
503.1
|
|
|
|
428.1
|
|
|
|
424.8
|
|
|
|
415.3
|
|
|
|
385.5
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and marketable securities
|
|
$
|
2,037.4
|
|
|
$
|
1,957.1
|
|
|
$
|
2,191.5
|
|
|
$
|
1,970.4
|
|
|
$
|
2,067.0
|
|
Total assets
|
|
|
12,458.1
|
|
|
|
11,864.1
|
|
|
|
11,945.2
|
|
|
|
12,253.7
|
|
|
|
12,467.9
|
|
Long-term debt
|
|
|
2,044.1
|
|
|
|
2,248.6
|
|
|
|
2,183.0
|
|
|
|
1,936.0
|
|
|
|
2,198.7
|
|
Total liabilities
|
|
|
10,125.9
|
|
|
|
9,923.5
|
|
|
|
9,999.9
|
|
|
|
10,535.4
|
|
|
|
10,349.1
|
|
Preferred stock Series A
|
|
|
|
|
|
|
|
|
|
|
373.7
|
|
|
|
373.7
|
|
|
|
373.7
|
|
Preferred stock Series B
|
|
|
525.0
|
|
|
|
525.0
|
|
|
|
525.0
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,332.2
|
|
|
|
1,940.6
|
|
|
|
1,945.3
|
|
|
|
1,718.3
|
|
|
|
2,118.8
|
|
Ratios of earnings to fixed
charges(1)
|
|
|
1.6
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
We had a less than 1:1 ratio of earnings to fixed charges due to
our losses in the years ended December 31, 2006, 2005, 2004
and 2003. To provide a 1:1 coverage ratio for the deficient
periods, results as reported would have required additional
earnings of $5.0, $186.6, $267.0 and $372.8 in 2006, 2005, 2004
and 2003, respectively. |
15
Managements
Discussion and Analysis of Financial Condition
and Results of Operations
(Amounts in Millions, Except Per Share Amounts)
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) is intended to help you understand The
Interpublic Group of Companies, Inc. and its subsidiaries (the
Company, Interpublic, we,
us or our). MD&A should be read in
conjunction with our consolidated financial statements and the
accompanying notes. Our MD&A includes the following
sections:
EXECUTIVE SUMMARY provides an overview of our results of
operations and liquidity.
CRITICAL ACCOUNTING ESTIMATES provides a discussion of our
accounting policies that require critical judgment, assumptions
and estimates.
RESULTS OF OPERATIONS provides an analysis of the consolidated
and segment results of operations for 2007 compared to 2006 and
2006 compared to 2005.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash
flows, funding requirements, contractual obligations, financing
and sources of funds.
OTHER MATTERS provides a discussion of other significant items
which may impact our financial statements.
RECENT ACCOUNTING STANDARDS, by reference to Note 18 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 future operations.
EXECUTIVE
SUMMARY
We are one of the worlds premier advertising and marketing
services companies. Our agency brands deliver custom marketing
solutions to many of the worlds largest marketers. Our
companies cover the spectrum of marketing disciplines and
specialties, from consumer advertising and direct marketing to
mobile and search engine marketing. Major global brands include
Draftfcb, FutureBrand, GolinHarris International, Initiative,
Jack Morton Worldwide, Lowe Worldwide (Lowe), MAGNA
Global, McCann Erickson, Momentum, MRM, Octagon, Universal
McCann and Weber Shandwick. Leading domestic brands include
Campbell-Ewald, Carmichael Lynch, Deutsch, Hill Holliday, Mullen
and The Martin Agency.
The work we produce for our clients is specific to their unique
needs. Our solutions vary from project-based activity involving
one agency and its client to long-term, fully-integrated
campaigns created by a group of our companies working together
on behalf of a client. With offices in over 100 countries, we
can operate in a single region or align work globally across all
major world markets. Our revenue is directly 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 in client
activity.
Our strategy is focused on improving our organic revenue growth
and operating income. We are working to achieve significant
improvements in our organic revenue growth and operating
margins, with our ultimate objective to be fully competitive
with our industry peer group on both measures.
We analyze period-to-period changes in our operating performance
by determining the portion of the change that is attributable to
foreign currency rates and the change attributable to the net
effect of acquisitions and divestitures, with the remainder
considered the organic change. For purposes of analyzing this
change, acquisitions and divestitures are treated as if they
occurred on the first day of the quarter during which the
transaction occurred.
We have strategically realigned a number of our capabilities to
promote revenue growth. For example, we have combined
accountable marketing and consumer advertising to form the
global offering Draftfcb and
16
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
implemented a differentiated approach to media by aligning our
largest media assets with our global brand agencies. We continue
to develop our capacity in strategically critical areas, notably
digital, marketing services and media, that we expect will drive
future revenue growth. The digital component of our business
continues to evolve and is increasingly vital to all of our
agencies. In order to grow with our clients, we have accelerated
our investment in talent, professional development and
technology throughout the organization.
To further improve our operating margin we continue to focus on
the following areas:
|
|
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|
|
Actively managing staff costs in non-revenue supporting roles;
|
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|
Improving financial systems and back-office processing;
|
|
|
|
Reducing organizational complexity and divesting non-core and
underperforming businesses; and
|
|
|
|
Improving our real estate utilization.
|
Although the U.S. Dollar is our reporting currency, a
substantial portion of our revenues is generated in foreign
currencies. Therefore, our reported results are affected by
fluctuations in the currencies in which we conduct our
international businesses. The weakening of the U.S. Dollar
against the currencies of many countries in which we operate
contributed to higher revenues and operating expenses. In
particular, during 2007 and 2006, the U.S. Dollar was
weaker against the Euro, Pound Sterling, Brazilian Real and
Canadian Dollar compared to 2006 and 2005, respectively. The
2007 impact was also due to the strength of the Australian
Dollar compared to 2006. The average value of the Euro and Pound
Sterling, currencies in which the majority of our international
operations are conducted, each strengthened approximately 9%
against the U.S. Dollar during 2007. Foreign currency
variations resulted in increases of approximately 3% in
revenues, salaries and related expenses and office and general
expenses in 2007 compared to 2006.
As discussed in more detail in this MD&A, for 2007 compared
to 2006:
|
|
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Total revenue increased by 5.9%.
|
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|
|
Organic revenue increase was 3.8%, primarily due to higher
revenue from existing clients.
|
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|
|
Operating margin was 5.3% in 2007, compared to 1.7% in 2006.
Salaries and related expenses as a percentage of revenue was
63.2% in 2007 compared to 63.7% in 2006. Office and general
expenses as a percentage of revenue was 31.2% in 2007, compared
to 33.6% in 2006.
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Operating expenses increased $125.1.
|
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Total salaries and related expenses increased 4.9%, primarily to
support the growth of our business. The organic increase was
2.7%.
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Total office and general expenses decreased 1.6% mainly due to
improvements in our financial systems, back-office processes and
internal controls, which resulted in lower professional fees.
The organic decrease was 2.7%.
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Restructuring and other reorganization-related charges reduced
operating income by $25.9 in 2007 and $34.5 in 2006. The
majority of charges in 2007 related to a restructuring plan at
Lowe and the reorganization of our media businesses.
|
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As of December 31, 2007, cash and cash equivalents and
marketable securities increased $80.3 primarily due to improved
operating results and proceeds from the sale of businesses and
investments, partially offset by working capital usage,
acquisitions, including deferred payments, and capital
expenditures.
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We have successfully completed our
18-month
plan to remediate the remainder of our previous material
weaknesses as of December 31, 2007. See Item 9A,
Controls and Procedures, for further discussion.
|
17
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
CRITICAL
ACCOUNTING ESTIMATES
Our Consolidated Financial Statements are prepared in accordance
with generally accepted accounting principles in the United
States of America. Preparation of the Consolidated Financial
Statements and related disclosures requires us to make
judgments, assumptions and estimates that affect the amounts
reported and disclosed in the accompanying financial statements
and notes. We believe that of our significant accounting
policies, the following critical accounting estimates involve
managements most difficult, subjective or complex
judgments. We consider these accounting estimates to be critical
because changes in the underlying assumptions or estimates have
the potential to materially impact our financial statements.
Management has discussed with our Audit Committee the
development, selection, application and disclosure of these
critical accounting estimates. We regularly evaluate our
judgments, assumptions and estimates based on historical
experience and various other factors that we believe to be
relevant under the circumstances. Actual results may differ from
these estimates under different assumptions or conditions.
Revenue
Recognition
Our revenues are primarily derived from the planning and
execution of advertising programs in various media and the
planning and execution of other marketing and communications
programs. Most of our client contracts are individually
negotiated and accordingly, the terms of client engagements and
the bases on which we earn commissions and fees vary
significantly. Our client contracts are complex arrangements
that may include provisions for incentive compensation and
govern vendor rebates and credits. Our largest clients are
multinational entities and, as such, we often provide services
to these clients out of multiple offices and across various
agencies. In arranging for such services to be provided, it is
possible for a global, regional and local agreement to be
initiated. Multiple agreements of this nature are reviewed by
legal counsel to determine the governing terms to be followed by
the offices and agencies involved. Critical judgments and
estimates are involved in determining both the amount and timing
of revenue recognition under these arrangements.
Revenue for our 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 a client contract, fees for services performed can be
recognized in three principal ways: proportional performance,
straight-line (or monthly basis) or completed contract. See
Note 1 to the Consolidated Financial Statements for further
discussion.
Depending on the terms of the client contract, revenue is
derived from diverse arrangements involving fees for services
performed, commissions, performance incentive provisions and
combinations of the three. 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 from the client. The classification of client
arrangements to determine the appropriate revenue recognition
involves judgments. If the judgments change there can be a
material impact on our financial statements, and particularly on
the allocation of revenues between periods. Incremental direct
costs incurred related to contracts where revenue is accounted
for on a completed contract basis are generally expensed as
incurred. There are certain exceptions made for significant
contracts or for certain agencies where the majority of the
contracts are project-based and systems are in place to properly
capture appropriate direct costs.
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)
Issue
18
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, we assess whether our 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 operate broadly 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 and the related
costs incurred as office and general expenses. Revenue is
reported net of taxes assessed by governmental authorities that
are directly imposed on our revenue-producing transactions.
The determination as to whether revenue in a particular line of
business should be recognized net or gross involves complex
judgments. If we make these judgments differently, it could
significantly affect our financial performance. If it were
determined that we must recognize a significant portion of
revenues on a gross basis rather than a net basis, it would
positively impact revenues, have no impact on our operating
income and have an adverse impact on operating margin.
We receive credits from our vendors and media outlets for
transactions entered into on behalf of our clients that, based
on the terms of our contracts and local law, are either remitted
to our clients or retained by us. If amounts are to be passed
through to clients they are recorded as liabilities until
settlement or, if retained by us, are recorded as revenue when
earned. Negotiations with a client at the close of a current
engagement could result in either payments to the client in
excess of the contractual liability or in payments less than the
contractual liability. These items, referred to as concessions,
relate directly to the operations of the period and are recorded
as operating expense or income. Concession income or expense may
also be realized in connection with settling vendor discount or
credit liabilities that were established as part of the
restatement we presented in our Annual Report on
Form 10-K
for the year ended December 31, 2004 that we filed in
September 2005 (the 2004 Restatement). In these
situations, and given the historical nature of these
liabilities, we have recorded such items as other income or
expense in order to prevent distortion of current operating
results. See Notes 1 and 4 to the Consolidated Financial
Statements for further discussion.
Stock-Based
Compensation
We account for stock-based compensation in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). SFAS 123R requires
compensation costs related to share-based transactions,
including employee stock options, to be recognized in the
financial statements based on fair value. Compensation cost is
generally recognized ratably over the requisite service period,
net of estimated forfeitures.
We use the Black-Scholes option-pricing model to estimate the
fair value of options granted, which requires the input of
subjective assumptions including the options expected term
and the price volatility of the underlying stock. Changes in the
assumptions can materially affect the estimate of fair value and
our results of operations could be materially impacted. The
expected volatility factor is based on a blend of historical
volatility of our common stock and implied volatility of our
tradable forward put and call options to purchase and sell
shares of our common stock. The expected term is based on the
average of an assumption that outstanding options are exercised
upon achieving their full vesting date and will be exercised at
the midpoint between the current date (i.e., the date awards
have been ratably vested through) and their full contractual
term. Additionally, we calculate an estimated forfeiture rate
which impacts our recorded expense. See Note 14 to the
Consolidated Financial Statements for further discussion.
19
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
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 reversed. Changes to enacted tax
rates would result in either increases or decreases in the
provision for income taxes in the period of changes.
Under SFAS No. 109, Accounting for Income Taxes
(SFAS 109), we are required to
evaluate the realizability of our deferred tax assets. The
realization of our deferred tax assets is primarily dependent on
future earnings. SFAS 109 requires that a valuation
allowance be recognized 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 significant negative evidence,
establishment of valuation allowance must be considered. We
believe that cumulative losses in the most recent three-year
period represent significant negative evidence under the
provisions of SFAS 109. A pattern of sustained
profitability is considered significant positive evidence to
reverse a valuation allowance. Accordingly, the increase and
decrease of valuation allowances has had and could have a
significant negative or positive impact on our future earnings.
On January 1, 2007 we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), which prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position that an entity
takes or expects to take in a tax return. Additionally,
FIN 48 provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods,
disclosure, and transition. The assessment of recognition and
measurement requires critical estimates and the use of complex
judgments. We evaluate our tax positions using a more
likely than not recognition threshold and then we apply a
measurement assessment to those positions that meet the
recognition threshold. We have established tax reserves that we
believe to be adequate in relation to the potential for
additional assessments in each of the jurisdictions in which we
are subject to taxation. We regularly assess the likelihood of
additional tax assessments in those jurisdictions and adjust our
reserves as additional information or events require. See
Note 9 to the Consolidated Financial Statements for further
information.
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 and the remainder
allocated to goodwill and other intangible assets. Determining
the fair market value of assets acquired and liabilities assumed
requires managements judgment and involves the use of
significant estimates, including future cash inflows and
outflows, discount rates, asset lives and market multiples.
Considering the characteristics of advertising, specialized
marketing and communication services companies, our acquisitions
usually do not have significant amounts of tangible assets as
the principal asset we typically acquire is creative talent. As
a result, a substantial portion of the purchase price is
allocated to goodwill.
We review goodwill and other intangible assets with indefinite
lives not subject to amortization during the fourth quarter of
each year or whenever events or significant changes in
circumstances indicate that the carrying value may not be
recoverable. We evaluate the recoverability of goodwill at a
reporting unit level. We have 15 reporting units subject to the
2007 annual impairment testing that are either the entities at
the operating segment level or one level below the operating
segment level. In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), we did not test certain
reporting units in 2007 as we determined we could carry forward
the fair value of the reporting unit from the previous year.
20
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
We review intangible assets with definite lives subject to
amortization whenever events or circumstances indicate that a
carrying amount of an asset may not be recoverable. Intangible
assets with definite lives subject to amortization are amortized
on a straight-line basis with estimated useful lives generally
between 7 and 15 years. Events or circumstances that might
require impairment testing include the loss of a significant
client, the identification of other impaired assets within a
reporting unit, loss of key personnel, the disposition of a
significant portion of a reporting unit, or a significant
adverse change in business climate or regulations.
SFAS 142 specifies a two-step process for goodwill
impairment testing and measuring the magnitude of any
impairment. The first step of the impairment test is a
comparison of the fair value of a reporting unit to its carrying
value, including goodwill. 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.
Should the carrying amount for a reporting unit exceed its fair
value, then the first step of the impairment test is failed and
the magnitude of any goodwill impairment is determined under the
second step. The second step is a comparison of the implied fair
value of a reporting units 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
traditional valuation techniques such as the income approach,
which incorporates the use of the discounted cash flow method
and the market approach, which incorporates the use of earning
and revenue multiples. These techniques use projections which
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 they
are susceptible to change from period to period. For example,
our strategic decisions or changes in market valuation multiples
could lead to 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.
Our annual impairment reviews as of October 1, 2007 did not
result in an impairment charge at any of our reporting units. 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 at the low
end of the valuation range. The following tables show the number
of reporting units we tested in our 2007 and 2006 annual
impairment reviews, together with the range of values we
obtained for the excess of fair value over carrying value of
each non-impaired reporting unit determined by using fair values
for each unit (a) at the low end of our valuation range,
(b) at the high end of our valuation range and (c) 10%
below the low end of our valuation range.
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Units
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Excess of Fair Value Over Carrying Value (Lowest -
Highest)
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Tested
|
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Low End
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High End
|
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90% of Low End
|
|
2007
|
|
9
|
|
$5.3 $250.6
|
|
$13.4 $380.6
|
|
$(42.7) $124.6
|
2006
|
|
13
|
|
$0.2 $1,990.2
|
|
$2.4 $2,400.2
|
|
$(46.8) $1,330.2
|
Applying the hypothetical 10% decrease in 2007 to the fair
values would result in 3 reporting units failing step one of the
goodwill impairment test.
Pension
and Postretirement Benefits
We use various actuarial assumptions in determining our net
pension and postretirement benefit costs and obligations. These
assumptions include discount rates and expected returns on plan
assets and are updated annually or more frequently with the
occurrence of significant events. Changes in the related pension
and postretirement benefit costs may occur in the future due to
changes in the assumptions.
21
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
The discount rate is one of the significant assumptions that
impact our net pension and postretirement costs and obligations.
Changes in the discount rates are generally due to increases or
decreases in long-term interest rates. A higher discount rate
will decrease our pension cost. The discount rates are
determined at the beginning of the year based on prevailing
interest rates as of the measurement date and are adjusted to
match the duration of the underlying obligation. For 2008, we
plan to use weighted average discount rates of 5.89%, 5.33% and
6.00% for the domestic pension plans, foreign plans and the
postretirement plan, respectively. A 25 basis point
increase or decrease in the discount rate would have decreased
or increased the 2007 net pension and postretirement cost
by $2.4 and $2.5, respectively. In addition, a 25 basis
point increase or decrease in the discount rate would have
decreased or increased the December 31, 2007 benefit
obligation by $22.5 and $23.8, respectively.
The expected rate of return on pension plan assets is another
significant assumption that impacts our net pension cost and is
determined at the beginning of the year. Changes in the rates
are due to lower or higher expected future returns based on the
mix of assets held. For 2008, we plan to use weighted average
expected rates of return of 8.15% and 7.02% for the domestic and
foreign pension plans, respectively. A lower expected rate of
return will increase our net pension cost. A 25 basis point
increase or decrease in the expected return on plan assets would
have decreased or increased the 2007 net pension cost by
$1.0. See Note 13 to the Consolidated Financial Statements
for further discussion.
RESULTS
OF OPERATIONS
Consolidated
Results of Operations
REVENUE
2007
Compared to 2006
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
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|
|
|
|
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Year Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
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|
|
Organic
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|
|
2007
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|
|
Organic
|
|
|
Total
|
|
|
Consolidated
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|
$
|
6,190.8
|
|
|
|
197.5
|
|
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|
(70.7
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)
|
|
|
236.6
|
|
|
$
|
6,554.2
|
|
|
|
3.8
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%
|
|
|
5.9
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%
|
Domestic
|
|
|
3,441.2
|
|
|
|
|
|
|
|
(9.3
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)
|
|
|
218.1
|
|
|
|
3,650.0
|
|
|
|
6.3
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%
|
|
|
6.1
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%
|
International
|
|
|
2,749.6
|
|
|
|
197.5
|
|
|
|
(61.4
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)
|
|
|
18.5
|
|
|
|
2,904.2
|
|
|
|
0.7
|
%
|
|
|
5.6
|
%
|
United Kingdom
|
|
|
565.6
|
|
|
|
50.3
|
|
|
|
(35.5
|
)
|
|
|
8.7
|
|
|
|
589.1
|
|
|
|
1.5
|
%
|
|
|
4.2
|
%
|
Continental Europe
|
|
|
1,043.0
|
|
|
|
95.1
|
|
|
|
(24.0
|
)
|
|
|
(29.4
|
)
|
|
|
1,084.7
|
|
|
|
(2.8
|
)%
|
|
|
4.0
|
%
|
Latin America
|
|
|
303.4
|
|
|
|
18.4
|
|
|
|
(10.6
|
)
|
|
|
2.9
|
|
|
|
314.1
|
|
|
|
1.0
|
%
|
|
|
3.5
|
%
|
Asia Pacific
|
|
|
512.0
|
|
|
|
25.7
|
|
|
|
12.5
|
|
|
|
31.1
|
|
|
|
581.3
|
|
|
|
6.1
|
%
|
|
|
13.5
|
%
|
Other
|
|
|
325.6
|
|
|
|
8.0
|
|
|
|
(3.8
|
)
|
|
|
5.2
|
|
|
|
335.0
|
|
|
|
1.6
|
%
|
|
|
2.9
|
%
|
Our revenue increased by $363.4, which consisted of a favorable
foreign currency rate impact of $197.5, net divestitures of
$70.7 and organic revenue growth of $236.6. The change in
revenues was negatively affected by net divestitures of
non-strategic businesses, primarily at Draftfcb and Lowe, and a
sports marketing business at the Constituency Management Group
(CMG). This was partially offset by businesses
acquired during 2007, primarily in the U.S. and India. The
organic revenue growth was primarily driven by domestic markets
through expanding business with existing clients, winning new
clients in advertising and public relations and completing
several projects within the events marketing business. The
international organic revenue increase was primarily driven by
increases in spending by existing clients in the Asia Pacific
region, partially offset by net client losses in Continental
Europe, primarily in France at the Integrated Agency Network
(IAN).
22
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
2006
Compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2005
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2006
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
6,274.3
|
|
|
|
20.6
|
|
|
|
(165.4
|
)
|
|
|
61.3
|
|
|
$
|
6,190.8
|
|
|
|
1.0
|
%
|
|
|
(1.3
|
)%
|
Domestic
|
|
|
3,461.1
|
|
|
|
|
|
|
|
(38.3
|
)
|
|
|
18.4
|
|
|
|
3,441.2
|
|
|
|
0.5
|
%
|
|
|
(0.6
|
)%
|
International
|
|
|
2,813.2
|
|
|
|
20.6
|
|
|
|
(127.1
|
)
|
|
|
42.9
|
|
|
|
2,749.6
|
|
|
|
1.5
|
%
|
|
|
(2.3
|
)%
|
United Kingdom
|
|
|
619.9
|
|
|
|
3.8
|
|
|
|
(18.4
|
)
|
|
|
(39.7
|
)
|
|
|
565.6
|
|
|
|
(6.4
|
)%
|
|
|
(8.8
|
)%
|
Continental Europe
|
|
|
1,135.5
|
|
|
|
2.4
|
|
|
|
(110.1
|
)
|
|
|
15.2
|
|
|
|
1,043.0
|
|
|
|
1.3
|
%
|
|
|
(8.1
|
)%
|
Latin America
|
|
|
259.7
|
|
|
|
11.6
|
|
|
|
1.6
|
|
|
|
30.5
|
|
|
|
303.4
|
|
|
|
11.7
|
%
|
|
|
16.8
|
%
|
Asia Pacific
|
|
|
473.5
|
|
|
|
(3.6
|
)
|
|
|
(2.8
|
)
|
|
|
44.9
|
|
|
|
512.0
|
|
|
|
9.5
|
%
|
|
|
8.1
|
%
|
Other
|
|
|
324.6
|
|
|
|
6.4
|
|
|
|
2.6
|
|
|
|
(8.0
|
)
|
|
|
325.6
|
|
|
|
(2.5
|
)%
|
|
|
0.3
|
%
|
Revenue decreased due to net divestitures, partially offset by
organic revenue increases and changes in foreign currency
exchange rates. Net divestitures primarily impacted IAN, largely
from Draftfcb and McCann Worldgroup (McCann) during
2005. There were net organic revenue increases in both our
international and domestic locations. The international organic
increase was driven by higher revenue from existing clients,
primarily in the Asia Pacific and Latin America regions,
partially offset by net client losses, primarily in 2005, at IAN
as well as decreases in the events marketing businesses at CMG
in the U.K. The domestic organic increase was primarily driven
by growth in the public relations and branding businesses at CMG
as well as higher revenue from existing clients, partially
offset by net client losses and decreased client spending at IAN.
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
$
|
|
|
Revenue
|
|
|
Salaries and related expenses
|
|
$
|
4,139.2
|
|
|
|
63.2
|
%
|
|
$
|
3,944.1
|
|
|
|
63.7
|
%
|
|
$
|
3,999.1
|
|
|
|
63.7
|
%
|
Office and general expenses
|
|
|
2,044.8
|
|
|
|
31.2
|
%
|
|
|
2,079.0
|
|
|
|
33.6
|
%
|
|
|
2,288.1
|
|
|
|
36.5
|
%
|
Restructuring and other reorganization- related charges
(reversals)
|
|
|
25.9
|
|
|
|
|
|
|
|
34.5
|
|
|
|
|
|
|
|
(7.3
|
)
|
|
|
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
|
|
|
|
27.2
|
|
|
|
|
|
|
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
6,209.9
|
|
|
|
|
|
|
$
|
6,084.8
|
|
|
|
|
|
|
$
|
6,378.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
344.3
|
|
|
|
5.3
|
%
|
|
$
|
106.0
|
|
|
|
1.7
|
%
|
|
$
|
(104.2
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Related Expenses
Salaries and related expenses is the largest component of
operating expenses and consist of payroll costs, employee
performance incentives, including cash bonus and long-term
incentive stock awards, and other benefits associated with
client service professional staff and administrative staff.
Salaries and related expenses do not vary significantly with
short-term changes in revenue levels. However, salaries may
fluctuate due to the timing of hiring freelance contractors who
are utilized to support business development, changes in the
funding levels of employee performance incentives, changes in
foreign currency exchange rates and acquisitions and
dispositions of businesses. Changes can occur in employee
performance incentives based on
23
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
projected results and could affect trends between various
periods in the future. In addition, long-term incentive stock
awards may fluctuate as they are tied to our financial
performance, generally for three-year periods beginning with the
grant year, with the achievement of performance targets required
for these awards. Our financial performance over the past few
years has lagged behind that of our peers, primarily due to
lower revenue and operating margin growth. As a result, salaries
and related expenses reflect significant severance charges and
investments in hiring creative talent to realign the business
for revenue growth and improved operating margins. Also,
salaries and related expenses reflect the hiring of additional
finance professionals and information technology staff to
upgrade system infrastructure and to address weaknesses in our
accounting and control environment, as well as to develop shared
services.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change During the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Year
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
Reported
|
|
|
Change
|
|
|
|
Amount
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
Amount
|
|
|
Organic
|
|
|
Total
|
|
|
2007
|
|
$
|
3,944.1
|
|
|
|
122.2
|
|
|
|
(32.5
|
)
|
|
|
105.4
|
|
|
$
|
4,139.2
|
|
|
|
2.7
|
%
|
|
|
4.9
|
%
|
2006
|
|
|
3,999.1
|
|
|
|
11.7
|
|
|
|
(85.0
|
)
|
|
|
18.3
|
|
|
|
3,944.1
|
|
|
|
0.5
|
%
|
|
|
(1.4
|
)%
|
The following table details our salary and related expenses as a
percentage of consolidated revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Base salaries, benefits and tax
|
|
|
51.9
|
%
|
|
|
52.3
|
%
|
|
|
51.8
|
%
|
Incentive expense
|
|
|
3.6
|
%
|
|
|
3.3
|
%
|
|
|
2.2
|
%
|
Severance expense
|
|
|
1.2
|
%
|
|
|
1.6
|
%
|
|
|
2.6
|
%
|
Temporary help
|
|
|
3.5
|
%
|
|
|
3.6
|
%
|
|
|
3.7
|
%
|
All other salaries and related expenses
|
|
|
3.0
|
%
|
|
|
2.9
|
%
|
|
|
3.4
|
%
|
2007
Compared to 2006
Salaries and related expenses increased by $195.1, which
consisted of a negative foreign currency rate impact of $122.2,
net divestitures of $32.5 and an organic salary increase of
$105.4. Net divestitures related primarily to the disposition of
non-strategic businesses offset in part by acquisitions of
businesses, primarily in the U.S. and India. The organic
increase was primarily due to the following:
|
|
|
|
|
Base salaries, benefits and temporary help grew by $99.1,
primarily to support business growth in IAN, predominantly at
our largest network, McCann, and to support growth in the public
relations businesses in CMG.
|
|
|
|
Cash bonus accruals and long-term incentive stock expense
increased by $31.7, primarily due to improved operating
performance versus financial targets at certain operating units,
higher long-term incentive stock expense due to the effect of
equity awards granted in June 2006 and a one-time
performance-based equity award granted in 2006 to a limited
number of senior executives across the Company.
|
These increases were offset by a decrease in severance expense
of $22.4 during 2007, primarily in IAN.
2006
Compared to 2005
Salaries and related expenses decreased during 2006 due to net
divestitures, primarily from the sale of several businesses at
IAN during 2005, partially offset by changes in foreign currency
exchange rates and an organic increase. Total salaries and
related expenses as a percentage of revenue remained flat as a
result of the decline in revenue. Key factors behind the organic
increase in salaries and related expenses from the prior year
24
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
were an increase in long-term incentive awards and bonus awards
of $67.6 offset by a significant reduction in severance expense
of $63.6. Expenses related to incentive awards increased in 2006
due to long-term equity based awards granted in June 2006 and
the full year impact of awards granted in August 2005, while
expenses related to bonus awards increased primarily due to
performance.
Office
and General Expenses
Office and general expenses primarily include rent expense,
professional fees, expenses attributable to the support of
client service professional staff, depreciation and amortization
costs, bad debt expense relating to accounts receivable, the
costs associated with the development of a shared services
center and implementation costs associated with upgrading our
information technology infrastructure. Office and general
expenses also include costs directly attributable to client
engagements. These costs include out-of-pocket costs such as
travel for client service professional staff, production costs
and other direct costs that are rebilled to our clients.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change During the Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
Reported
|
|
|
Change
|
|
|
|
Prior Year Amount
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
Amount
|
|
|
Organic
|
|
|
Total
|
|
|
2007
|
|
$
|
2,079.0
|
|
|
|
66.0
|
|
|
|
(43.8
|
)
|
|
|
(56.4
|
)
|
|
$
|
2,044.8
|
|
|
|
(2.7
|
)%
|
|
|
(1.6
|
)%
|
2006
|
|
|
2,288.1
|
|
|
|
6.5
|
|
|
|
(95.8
|
)
|
|
|
(119.8
|
)
|
|
|
2,079.0
|
|
|
|
(5.2
|
)%
|
|
|
(9.1
|
)%
|
The following table details our office and general expenses as a
percentage of consolidated revenue. All other office and general
expenses includes production expenses, depreciation and
amortization, bad debt expense, foreign currency gains (losses)
and other expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Professional fees
|
|
|
2.5
|
%
|
|
|
3.9
|
%
|
|
|
5.3
|
%
|
Occupancy expense (excluding depreciation and amortization)
|
|
|
8.1
|
%
|
|
|
8.6
|
%
|
|
|
8.4
|
%
|
Travel & entertainment, office supplies and telecom
|
|
|
4.7
|
%
|
|
|
4.8
|
%
|
|
|
5.0
|
%
|
All other office and general expenses
|
|
|
15.9
|
%
|
|
|
16.3
|
%
|
|
|
17.8
|
%
|
2007
Compared to 2006
Office and general expenses decreased by $34.2, which consisted
of a negative foreign currency rate impact of $66.0, net
divestitures of $43.8 and an organic decrease of $56.4. Net
divestitures related primarily to the disposition of
non-strategic businesses offset in part by acquisitions of
businesses, primarily in the U.S. and India. The organic
decrease was primarily due to the following:
|
|
|
|
|
Improvements in our financial systems, back-office processes and
internal controls resulted in a reduction in professional fees
of $75.8. We expect professional fees to continue to decline in
2008.
|
|
|
|
Occupancy costs, including depreciation and amortization,
declined by $13.6.
|
These decreases were partially offset by an increase in
production expenses of $34.2, primarily related to increased
business at the events marketing business at CMG.
2006
Compared to 2005
Office and general expenses for 2006 declined as a result of
significant reductions in professional fees, which decreased by
$93.7, primarily for projects related to our restatement
activities and internal control compliance that occurred in
2005, lower production expenses, lower bad debt expenses and net
divestitures, primarily due to the sale of several businesses at
IAN during 2005. Partially offsetting this decrease were
25
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
higher rent expense and a reduction in foreign exchange gains on
certain balance sheet items. The above items resulted in an
organic decline which was primarily reflected at Corporate and
IAN.
Restructuring
and Other Reorganization-Related Charges
(Reversals)
The components of restructuring and other reorganization-related
charges (reversals) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Restructuring charges (reversals):
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination and other exit costs
|
|
$
|
(0.4
|
)
|
|
$
|
1.5
|
|
|
$
|
(5.9
|
)
|
Severance and termination costs
|
|
|
13.8
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.4
|
|
|
|
1.5
|
|
|
|
(7.3
|
)
|
Other reorganization-related charges
|
|
|
12.5
|
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25.9
|
|
|
$
|
34.5
|
|
|
$
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
Charges (Reversals)
Restructuring charges (reversals) related to the 2003 and 2001
restructuring programs and a restructuring program entered into
at Lowe during the third quarter of 2007. Due to changes in the
business environment that have occurred during the year, we
committed to and began implementing a restructuring program to
realign resources with our strategic business objectives within
Lowe. This plan includes reducing and restructuring Lowes
workforce both domestically and internationally, and terminating
certain lease agreements. For this plan, we recognized charges
related to severance and termination costs of $14.5 and expense
related to lease termination and other exit costs of $4.6 during
the year ended December 31, 2007. We expect to incur
additional charges related to this program of approximately $4.0
in the first half of 2008. Cash payments are expected to be made
through December 31, 2009.
Offsetting the severance and termination costs incurred at Lowe
were adjustments to estimates relating to our prior severance
and termination related actions. Offsetting the lease
termination and other exit costs incurred at Lowe were reversals
related to the utilization of previously vacated property by a
Draftfcb agency and adjustments to estimates relating to our
prior year plans.
During the years ended December 31, 2006 and 2005 net
lease termination and other exit costs were primarily related to
adjustments to managements estimates as a result of
changes in sublease rental income assumptions and utilization of
previously vacated properties relating to the 2003 program by
certain of our agencies due to improved economic conditions in
certain markets.
Other
Reorganization-Related Charges
Other reorganization-related charges relate to strategic
business decisions made during 2007 and 2006: our realignment of
our media businesses and the 2006 merger of Draft Worldwide and
Foote, Cone and Belding Worldwide to create Draftfcb. Charges in
2007 and 2006 primarily related to severance and terminations
costs and lease termination and other exit costs. We expect
charges associated with the realignment of our media businesses
in 2007 to be completed during 2008. Charges related to the
creation of Draftfcb in 2006 are complete. The charges were
separated from our operating expenses within the Consolidated
Statements of Operations as they did not result from charges
that occurred in the normal course of business.
26
Managements
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
Long-lived assets include furniture, equipment, leasehold
improvements, goodwill and other intangible assets. Long-lived
assets with finite lives are generally depreciated or amortized
on a straight-line basis over their respective estimated useful
lives. When necessary, we record an impairment charge for the
amount by which the carrying value of the asset exceeds the
implied fair value. No impairment charges were recorded for 2007.
The following table summarizes long-lived asset impairment and
other charges in previous years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
IAN
|
|
|
IAN
|
|
|
CMG
|
|
|
Total
|
|
|
Goodwill impairment
|
|
$
|
27.2
|
|
|
$
|
97.0
|
|
|
$
|
|
|
|
$
|
97.0
|
|
Other
|
|
|
|
|
|
|
1.5
|
|
|
|
0.1
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27.2
|
|
|
$
|
98.5
|
|
|
$
|
0.1
|
|
|
$
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Our long-term projections, which were updated in the fourth
quarter of 2006, showed previously unanticipated declines in
discounted future operating cash flows due primarily to client
losses at one of our domestic advertising reporting units. These
discounted future operating cash flow projections indicated that
the implied fair value of goodwill at this reporting unit was
less than its book value, resulting in a goodwill impairment
charge of $27.2.
2005
A triggering event occurred subsequent to our 2005 annual
impairment test when a major client was lost by Lowes
London agency and the possibility of losing other clients was
considered a higher risk due to management defections and
changes in the competitive landscape. This caused projected
revenue growth to decline. As a result of these changes, our
long-term projections showed declines in discounted future
operating cash flows. These revised cash flows indicated that
the implied fair value of Lowes goodwill was less than the
related book value resulting in a goodwill impairment charge of
$91.0 at our Lowe reporting unit.
During our annual impairment test in the third quarter of 2005,
we recorded a goodwill impairment charge of $5.8 at a reporting
unit within our sports and entertainment marketing business. The
long-term projections showed previously unanticipated declines
in discounted future operating cash flows and, as a result,
these discounted future operating cash flows indicated that the
implied fair value of goodwill was less than the related book
value.
27
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
EXPENSES
AND OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash interest on debt obligations
|
|
$
|
(205.9
|
)
|
|
$
|
(186.8
|
)
|
|
$
|
(177.3
|
)
|
Non-cash amortization
|
|
|
(30.8
|
)
|
|
|
(31.9
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(236.7
|
)
|
|
|
(218.7
|
)
|
|
|
(181.9
|
)
|
Interest income
|
|
|
119.6
|
|
|
|
113.3
|
|
|
|
80.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(117.1
|
)
|
|
|
(105.4
|
)
|
|
|
(101.9
|
)
|
Other income (expense)
|
|
|
8.5
|
|
|
|
(5.6
|
)
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(108.6
|
)
|
|
$
|
(111.0
|
)
|
|
$
|
(82.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Expense
The increase in net interest expense during 2007 is primarily
attributable to higher cash interest expense on increased
short-term debt, partially offset by increased interest income
due to higher average cash balances and higher interest rates at
some of our international agencies. The change in non-cash
amortization from the prior year was minimal. Non-cash
amortization primarily consists of amortization of debt issuance
costs and deferred warrant costs from a transaction in 2006,
which we refer to as the ELF Financing, in
connection with entering into our current committed credit
agreement, partially offset by reduced expense related to the
amortization of the loss on extinguishment of $400.0 of our
4.50% Convertible Senior Notes. For additional information,
see Note 10 to the Consolidated Financial Statements.
The increase in net interest expense during 2006 was primarily
due to increases in non-cash amortization of $27.3, offset by
interest income due to an increase in interest rates and higher
average cash balances compared to the prior year. Non-cash
amortization was primarily from the amortization of fees and
deferred warrant costs incurred as a result of the ELF Financing
transaction, prior year benefit from the amortization of gains
on terminated swaps and the amortization of the remaining costs
associated with our previous committed credit agreement.
Additionally, the increase was due to one-time fees associated
with the exchange of our Floating Rate Notes in 2006. The
2006 year-over-year comparison benefited from the fact that
we did not incur waiver and consent fees similar to those
incurred in 2005 for the amendment of the indentures governing
our debt securities and our prior credit facility.
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Loss on early extinguishment of debt
|
|
$
|
(12.5
|
)
|
|
$
|
(80.8
|
)
|
|
$
|
|
|
Net (losses) gains on sales of businesses
|
|
|
(16.7
|
)
|
|
|
8.1
|
|
|
|
10.1
|
|
Vendor discount and credit adjustments
|
|
|
24.3
|
|
|
|
28.2
|
|
|
|
2.6
|
|
Net gains on sales of available-for-sale securities and
miscellaneous investment income
|
|
|
7.3
|
|
|
|
36.1
|
|
|
|
16.3
|
|
Investment impairments
|
|
|
(6.2
|
)
|
|
|
(0.3
|
)
|
|
|
(12.2
|
)
|
Other income
|
|
|
12.3
|
|
|
|
3.1
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.5
|
|
|
$
|
(5.6
|
)
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
Loss on
Early Extinguishment of Debt
|
|
|
|
|
2007 In November, we retired $200.0 of our
4.50% Convertible Senior Notes due 2023 in connection with
the issuance of $200.0 aggregate principal amount of
4.75% Convertible Senior Notes due 2023 and as a result we
recorded non-cash charges relating to the debt extinguishment.
|
|
|
|
2006 In November, we retired $400.0 of our
4.50% Convertible Senior Notes due 2023 in connection with
the issuance of $400.0 aggregate principal amount of
4.25% Convertible Senior Notes due 2023 and as a result we
recorded non-cash charges relating to the debt extinguishment.
|
For additional information, see Note 10 to the Consolidated
Financial Statements.
Net
(Losses) Gains on Sales of Businesses
|
|
|
|
|
2007 In the second quarter we sold several
businesses within Draftfcb for a loss of $9.3 and in the third
quarter incurred charges at Lowe of $7.8 as a result of the
realization of cumulative translation adjustment balances from
the liquidation of several businesses, as well as charges from
the partial disposition of a business in South Africa.
|
|
|
|
2006 In connection with the 2005 sale of a European
FCB agency, we released $11.1 into income primarily related to
certain contingent liabilities that we retained subsequent to
the sale, which were resolved in the fourth quarter of 2006.
|
|
|
|
2005 We had net gains related to the sale of a
McCann agency of $18.6, partially offset by a loss of $13.0 from
the sale of a European FCB agency.
|
Vendor
Discount and Credit Adjustments
|
|
|
|
|
We are in the process of settling our liabilities related to
vendor discounts and credits primarily established during the
2004 Restatement. Amounts included in other income (expense)
reflect the reversal of certain liabilities as a result of
settlements with clients or vendors or where the statute of
limitations has lapsed. For further information on vendor
discounts and credits see Note 4 to the Consolidated
Financial Statements and the Liquidity and Capital Resources
section.
|
Net Gains
on Sales of Available-for-Sale Securities and Miscellaneous
Investment Income
|
|
|
|
|
2007 In the fourth quarter we realized a gain of
$3.0 related to the sale of certain available-for-sale
securities.
|
|
|
|
2006 In the second quarter, we had net gains of
$20.9 related to the sale of an investment located in Asia
Pacific and the sale of our remaining ownership interest in an
agency within Lowe. In addition, during the third quarter, we
sold our interest in a German advertising agency and recognized
its remaining cumulative translation adjustment balance, which
resulted in a non-cash benefit of $17.0.
|
|
|
|
2005 We had net gains of $8.3 related to the sale of
our remaining equity ownership interest in an agency within FCB,
and net gains on sales of certain available-for-sale securities
of $7.9.
|
Investment
Impairments
|
|
|
|
|
2007 During the fourth quarter we realized an
other-than-temporary charge of $5.8 relating to a $12.5
investment in auction rate securities, representing our total
investment in auction rate securities.
|
|
|
|
2005 We recorded charges of $12.2, primarily related
to a $7.1 adjustment of the carrying amount of our remaining
unconsolidated investment in Latin America to fair value as a
result of our intent to sell
|
29
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
and $3.7 related to a decline in value of certain
available-for-sale investments that were determined to be
other-than-temporary.
|
For additional information, see Note 16 to the Consolidated
Financial Statements.
Other
Income
|
|
|
|
|
2007 Primarily includes dividend income from our
cost investments.
|
INCOME
TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) from continuing operations before provision for
income taxes
|
|
$
|
235.7
|
|
|
$
|
(5.0
|
)
|
|
$
|
(186.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes continuing operations
|
|
$
|
58.9
|
|
|
$
|
18.7
|
|
|
$
|
81.9
|
|
Benefit of income taxes discontinued operations
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
58.9
|
|
|
$
|
13.7
|
|
|
$
|
72.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, our effective tax rate was negatively impacted by
foreign profits subject to tax at different rates and by losses
in certain foreign locations where we receive no tax benefit due
to 100% valuation allowances. Our effective tax rate was
positively impacted in 2007 by the release of tax reserves
resulting from the effective settlement of the IRS examination
for
2003-2004
and by the net reversal of valuation allowances. Certain tax law
changes also impacted the effective tax rate, which resulted in
the write-down of net deferred tax assets of $16.2, primarily in
certain
non-U.S. jurisdictions
and, to a lesser extent, certain U.S. states.
The effective settlement of the IRS examination referred to
above resulted in the realization of previously unrecognized tax
benefits, of which approximately $80.0 was attributable to
certain worthless securities deductions. The favorable impact of
this item and other net reserve releases are primary reasons for
the change in the effective tax rate compared to 2006.
The tax provision for 2006 was primarily impacted by domestic
losses, foreign profits subject to tax at different rates and
losses in certain foreign locations where we receive no tax
benefit due to 100% valuation allowances.
The tax provision for 2005 was primarily impacted by an increase
in valuation allowances, a non-deductible asset impairment,
state and local taxes and the resolution of various income tax
audits and issues.
During 2007, we had a net reversal of valuation allowances of
$49.0, of which $30.5 relates to the write-down of deferred tax
assets due to tax law changes in jurisdictions with existing
valuation allowances and $18.5 relates to reversals of valuation
allowances in various countries where we believe that it is now
more likely than not that the corresponding tax loss
carryforwards will be utilized. During 2006 and 2005, we had net
provisions for valuation allowances of $63.6 and $69.9,
respectively, recorded in continuing operations on existing
deferred tax assets, current year tax losses and temporary
differences. The total valuation allowance as of
December 31, 2007, 2006 and 2005 was $481.6, $504.0 and
$501.0, respectively.
For additional information, see Note 9 to the Consolidated
Financial Statements.
Segment
Results of Operations
As discussed in Note 15 to the Consolidated Financial
Statements, we have two reportable segments as of
December 31, 2007: IAN and CMG. We also report results for
the Corporate and other group. As of
30
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
December 31, 2005, we had an additional segment,
Motorsports, which was sold during 2004 and had immaterial
residual operating results in 2005.
INTEGRATED
AGENCY NETWORKS (IAN)
REVENUE
2007
Compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
5,230.6
|
|
|
|
170.3
|
|
|
|
(45.5
|
)
|
|
|
150.3
|
|
|
$
|
5,505.7
|
|
|
|
2.9
|
%
|
|
|
5.3
|
%
|
Domestic
|
|
|
2,840.0
|
|
|
|
|
|
|
|
(9.3
|
)
|
|
|
140.1
|
|
|
|
2,970.8
|
|
|
|
4.9
|
%
|
|
|
4.6
|
%
|
International
|
|
|
2,390.6
|
|
|
|
170.3
|
|
|
|
(36.2
|
)
|
|
|
10.2
|
|
|
|
2,534.9
|
|
|
|
0.4
|
%
|
|
|
6.0
|
%
|
The revenue increase in 2007 was a result of net changes in
foreign currency exchange rates and organic revenue increases,
partially offset by net divestitures. The domestic organic
increase was a result of higher revenue from existing clients
and net client wins, primarily at McCann and Hill Holliday.
Partially offsetting this domestic organic increase was
decreased revenue from existing clients at Lowe and net client
losses at Draftfcb. The international organic increase was due
to increases in client spending at McCann in the U.K. and Asia
Pacific, partially offset by net client losses at Draftfcb and
Lowe across most international regions. Net divestitures
negatively affected revenue, due to the sale of non-strategic
businesses in 2007 and 2006, primarily at Draftfcb and Lowe,
partially offset by businesses acquired, primarily at Lowe.
2006
Compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Components of Change
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Net Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2005
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2006
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
5,327.8
|
|
|
|
19.7
|
|
|
|
(151.9
|
)
|
|
|
35.0
|
|
|
$
|
5,230.6
|
|
|
|
0.7
|
%
|
|
|
(1.8
|
)%
|
Domestic
|
|
|
2,904.6
|
|
|
|
|
|
|
|
(37.8
|
)
|
|
|
(26.8
|
)
|
|
|
2,840.0
|
|
|
|
(0.9
|
)%
|
|
|
(2.2
|
)%
|
International
|
|
|
2,423.2
|
|
|
|
19.7
|
|
|
|
(114.1
|
)
|
|
|
61.8
|
|
|
|
2,390.6
|
|
|
|
2.6
|
%
|
|
|
(1.3
|
)%
|
The revenue decline in 2006 was a result of net divestitures,
primarily from the sale of several businesses at Draftfcb and
McCann in 2005, partially offset by an organic increase and
changes in foreign currency exchange rates. The organic increase
was driven primarily by McCann and Draftfcb, partially offset by
decreases at Lowe and The Works, one of our independent
agencies. The organic increase at McCann was the result of
higher revenue from existing clients across domestic and
international regions, primarily Asia Pacific and Latin America.
McCanns increase was primarily driven by digital, direct
and event marketing services. The increase at Draftfcb was
primarily the result of increased spending from existing
clients, partially offset by net client losses, primarily in
2005, across domestic and most international regions, primarily
Europe, Asia Pacific and Latin America. The decrease at Lowe was
primarily due to reduced spending by existing clients and net
client losses, primarily in domestic locations in 2005. The
revenue decrease at The Works, a dedicated General Motors
resource, was primarily due to the loss of the General Motors
U.S. media buying business in 2005.
31
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
SEGMENT
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Change
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07 vs 06
|
|
|
06 vs 05
|
|
|
|
|
|
Segment operating income
|
|
$
|
528.2
|
|
|
$
|
391.4
|
|
|
$
|
249.7
|
|
|
|
35.0
|
%
|
|
|
56.7
|
%
|
|
|
|
|
Operating margin
|
|
|
9.6
|
%
|
|
|
7.5
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
Compared to 2006
Operating income increased due to an increase in revenue of
$275.1, partially offset by increases in salaries and related
expenses of $122.9 and office and general expenses of $15.4.
Higher salaries and related expenses were primarily due to an
increase in base salaries, benefits and temporary help of $131.2
to support growth, primarily at McCann. The increase in office
and general expenses was due to shared service expenses which
were not allocated in prior years and the increased allocation
of technology expenses from Corporate, partially offset by lower
occupancy costs, primarily due to lease termination and other
exit costs related to facilities exited in 2006.
2006
Compared to 2005
Operating income increased during 2006 due to a decrease in
office and general expenses of $139.7, a decrease in salaries
and related expenses of $99.2, partially offset by a decrease in
revenue of $97.2. The reduction in office and general expenses
primarily related to a decrease in production expenses of $46.4,
a reduction in professional fees of $26.3 in connection with
accounting projects, such as those related to our restatement
activities, and a decrease in bad debt expense of $22.2. The
reduction in salaries and related expenses primarily related to
a reduction in severance expense of $63.1 for headcount
reductions that occurred in international locations in 2005 and
a decrease in salaries of $42.0.
CONSTITUENCY
MANAGEMENT GROUP (CMG)
REVENUE
2007
Compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Components of Change
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Net Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2006
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2007
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
960.2
|
|
|
|
27.2
|
|
|
|
(25.2
|
)
|
|
|
86.3
|
|
|
$
|
1,048.5
|
|
|
|
9.0
|
%
|
|
|
9.2
|
%
|
Domestic
|
|
|
601.2
|
|
|
|
|
|
|
|
|
|
|
|
78.0
|
|
|
|
679.2
|
|
|
|
13.0
|
%
|
|
|
13.0
|
%
|
International
|
|
|
359.0
|
|
|
|
27.2
|
|
|
|
(25.2
|
)
|
|
|
8.3
|
|
|
|
369.3
|
|
|
|
2.3
|
%
|
|
|
2.9
|
%
|
Revenue growth was a result of organic increases and net changes
in foreign currency exchange rates, partially offset by net
divestitures. The domestic organic revenue increase was
primarily due to client wins and expanding business with
existing clients in the public relations business, the
completion of several projects with existing clients in the
events marketing business and expanding business with existing
clients in the sports marketing business. Revenues in the events
marketing business can fluctuate due to timing of completed
projects, as revenue is typically recognized when the project is
complete. Furthermore, we generally act as principal for these
projects and as such record the gross amount billed to the
client as revenue and the related costs incurred as pass-through
costs in office and general expenses. The international organic
revenue increase was primarily from existing clients in the
public relations business in Europe and the Asia Pacific Region.
The international revenue increase was partially offset by
decreased revenues from existing clients in Europe primarily due
to project-based events in 2006 that did not recur in 2007
related to the sports marketing business. Net divestitures
primarily relate to a sports marketing business sold in 2006.
32
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
2006
Compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Net
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Foreign
|
|
|
Acquisitions/
|
|
|
|
|
|
December 31,
|
|
|
Change
|
|
|
|
2005
|
|
|
Currency
|
|
|
(Divestitures)
|
|
|
Organic
|
|
|
2006
|
|
|
Organic
|
|
|
Total
|
|
|
Consolidated
|
|
$
|
944.2
|
|
|
|
0.9
|
|
|
|
(11.2
|
)
|
|
|
26.3
|
|
|
$
|
960.2
|
|
|
|
2.8
|
%
|
|
|
1.7
|
%
|
Domestic
|
|
|
556.5
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
45.2
|
|
|
|
601.2
|
|
|
|
8.1
|
%
|
|
|
8.0
|
%
|
International
|
|
|
387.7
|
|
|
|
0.9
|
|
|
|
(10.7
|
)
|
|
|
(18.9
|
)
|
|
|
359.0
|
|
|
|
(4.9
|
)%
|
|
|
(7.4
|
)%
|
Revenue growth was a result of domestic organic revenue
increases in the public relations and branding businesses, which
was due to higher revenue from existing clients. Additionally,
there were organic revenue increases domestically in the sports
marketing and events marketing businesses due to higher revenue
from existing clients and client wins. The domestic increase was
partially offset by declines at some CMG agencies due to client
losses. Internationally, the decline related primarily to a
decrease in the events marketing and sports marketing businesses
caused by client losses. The international decrease was
partially offset by increases in the public relations and
branding businesses due to higher revenue from existing clients.
SEGMENT
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07 vs 06
|
|
|
06 vs 05
|
|
|
Segment operating income
|
|
$
|
57.9
|
|
|
$
|
51.6
|
|
|
$
|
53.0
|
|
|
|
12.2
|
%
|
|
|
(2.6
|
)%
|
Operating margin
|
|
|
5.5
|
%
|
|
|
5.4
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
2007
Compared to 2006
Operating income increased primarily due to an increase in
revenue of $88.3, partially offset by increases in office and
general expenses of $46.1 and salaries and related expenses of
$35.9. Salaries and related expenses increased primarily due to
an increase in salaries of $28.4 related to the hiring of
additional staff in the public relations business to support
revenue growth. Office and general expenses increased primarily
due to higher production expenses of $32.0 related to the
completion of several projects in the events marketing business
and higher occupancy costs, primarily due to lease termination
charges and accelerated depreciation and amortization related to
certain leasehold improvements in facilities exited in 2007.
2006
Compared to 2005
Operating income decreased slightly, primarily as a result of an
increase in salaries and related expenses of $32.0, partially
offset by a decrease in office and general expenses of $14.6 and
an increase in revenue of $16.0. The increase in salaries and
related expenses primarily related to an increase in base
salaries expense of $22.3 and the decrease in office and general
expenses primarily related to a decrease in production expenses
of $19.8.
CORPORATE
AND OTHER
Certain corporate and other charges are reported as a separate
line item within total segment operating income (loss) and
include corporate office expenses and shared service center
expenses, as well as certain other centrally managed expenses
that are not fully allocated to operating divisions. Salaries
and related expenses include salaries, long-term incentives,
bonus, and other miscellaneous benefits for corporate office
employees. Office and general expenses primarily includes
professional fees related to internal control compliance,
financial statement audits, legal, information technology and
other consulting services, which are
33
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
engaged and managed through the corporate office. In addition,
office and general expenses also includes rental expense and
depreciation of leasehold improvements for properties occupied
by corporate office employees. Offsetting these expenses are
amounts we allocate to operating divisions based on a formula
that uses the revenues of each of the operating units. Amounts
allocated also include specific charges for information
technology-related projects, which are allocated based on
utilization.
2007
Compared to 2006
Corporate and other expenses decreased by $59.4 to $215.9 for
the year ended December 31, 2007. This was primarily driven
by improvements in our financial systems, back-office processes
and internal controls, which resulted in a reduction in
professional fees. Partially offsetting this reduction were
higher salaries and related expenses, primarily related to
long-term incentive award accruals for a one-time
performance-based equity award granted in 2006 to a limited
number of senior executives across the Company and the transfer
of resources into a global finance organization as part of a
regional monitoring program. In addition, amounts allocated to
operating divisions increased primarily due to the charging of
shared services expenses that were not previously allocated as
well as for costs relating to the consolidation of certain
global processes into our shared service center.
2006
Compared to 2005
Corporate and other expenses decreased by $41.0 to $275.3 for
the year ended December 31, 2006. Expenses decreased
primarily due to reduced professional fees and higher amounts
allocated to operating divisions, partially offset by higher
rent, depreciation and amortization and increased salaries and
related expenses. We incurred lower professional fees for
accounting projects, which included those related to our
prior-year restatement activities. Amounts allocated to
operating divisions increased primarily due to the
implementation of new information technology-related projects,
the consolidation of information technology support staff, and
the allocation of audit fees, which are now being allocated back
to operating divisions. Higher rent, depreciation and
amortization were due to software-related costs from our ongoing
initiatives to consolidate and upgrade our financial systems, as
well as to further develop our shared services. Salaries and
related expenses increased due to higher headcount, primarily
related to our technology initiatives, and for larger incentive
compensation and bonus awards related to performance.
LIQUIDITY
AND CAPITAL RESOURCES
CASH
FLOW OVERVIEW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
298.1
|
|
|
$
|
9.0
|
|
|
$
|
(20.2
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(267.8
|
)
|
|
|
11.6
|
|
|
|
166.4
|
|
Net cash (used in) provided by financing activities
|
|
|
(37.3
|
)
|
|
|
(129.7
|
)
|
|
|
410.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital usage (included in operating activities)
|
|
$
|
(171.0
|
)
|
|
$
|
(250.6
|
)
|
|
$
|
(173.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
2,037.4
|
|
|
$
|
1,957.1
|
|
Cash, cash equivalents and marketable securities increased by
$80.3 during 2007, primarily due to improved operating results
and proceeds from the sale of businesses and investments,
partially offset by
34
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
working capital usage, acquisitions, including deferred
payments, and capital expenditures. Of this change, marketable
securities increased by $21.1.
Operating
Activities
Cash provided by operating activities of $298.1 reflects a
significant improvement compared to both 2006 and 2005. The
increase was primarily due to net income of $167.6, which
includes net non-cash expense items of $316.1, partially offset
by working capital usage of $171.0. Net non-cash expense items
primarily include depreciation of fixed assets, the amortization
of intangible assets, restricted stock awards, non-cash
compensation, bond discounts and deferred financing costs, and
deferred taxes.
During 2007 working capital improved to a use of working capital
of $171.0 compared to the use of working capital of $250.6
during 2006. Working capital usage reflects changes in accounts
receivable, expenditures billable to clients, prepaid expenses
and other current assets, accounts payable and accrued
liabilities. The working capital usage was impacted by the
timing of certain vendor payments and cash collections from
clients, the reversal, payment or settlement of various prior
period liabilities that were established during the 2004
Restatement and the resolution of various tax matters. As we
continue to strengthen our business operations we anticipate
that working capital will improve.
The timing of media buying on behalf of our clients affects our
working capital and operating cash flow. In most of our
businesses, we collect funds from our clients that we use, on
their behalf, to pay production costs and media costs. The
amounts involved substantially exceed our revenues, and
primarily affect the level of accounts receivable, expenditures
billable to clients, accounts payable and accrued media and
production liabilities. Our assets include both cash received
and accounts receivable from clients for these pass-through
arrangements, while our liabilities include amounts owed on
behalf of clients to media and production suppliers. Generally,
we pay production and media charges after we have received funds
from our clients, and our risk from client nonpayment has
historically not been significant.
In addition to the timing of accrued media and production,
accrued liabilities are also affected by the timing of certain
payments. For example, while cash incentive awards are accrued
throughout the year, they are generally paid during the first
quarter of the subsequent year.
Investing
Activities
Cash used in investing activities during 2007 primarily reflects
acquisitions and capital expenditures, partially offset by
proceeds from sales of investments. Payments for acquisitions
relate to purchases of agencies and deferred payments on prior
acquisitions. During 2007, we made a number of acquisitions for
total cash consideration of $140.4. Under the contractual terms
of certain of our prior acquisitions we made cash payments of
$17.5 for the year ended December 31, 2007. For additional
information, see Note 3 to the Consolidated Financial
Statements. Capital expenditures of $147.6 primarily related to
costs associated with leasehold improvements and computer
hardware.
Financing
Activities
Cash used in financing activities during 2007 primarily reflects
dividend payments of $27.6 on our Series B Preferred Stock
and distributions to our minority interests.
LIQUIDITY
OUTLOOK
We expect our operating cash flow, cash and cash equivalents to
be sufficient to meet our anticipated operating requirements at
a minimum for the next twelve months. We believe that a
conservative approach to liquidity is appropriate for our
Company, in view of the cash requirements resulting from, among
other things,
35
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
liabilities to our clients for vendor discounts and credits, any
potential penalties or fines that may have to be paid in
connection with the ongoing SEC investigation, the normal cash
variability inherent in our operations, other unanticipated
requirements and our funding requirements noted below. In
addition, until our margins consistently improve in connection
with our turnaround, cash generation from operations could be
challenged in certain periods.
A reduction in our liquidity in future periods could lead us to
seek new or additional sources of liquidity to fund our working
capital needs. From time to time we evaluate market conditions
and financing alternatives for opportunities to raise additional
financing or otherwise improve our liquidity profile and enhance
our financial flexibility. There can be no guarantee that we
would be able to access new sources of liquidity on commercially
reasonable terms, or at all.
Funding
Requirements
Our most significant funding requirements include: our
operations, non-cancelable operating lease obligations,
acquisitions, capital expenditures, payments related to vendor
discounts and credits, debt service, preferred stock dividends,
contributions to pension and postretirement plans, and taxes.
|
|
|
|
|
Acquisitions We continue to evaluate strategic
opportunities to grow and to increase our ownership interests in
current investments, particularly to develop the digital and
marketing services components of our business and to expand our
presence in high-growth markets, including Brazil, Russia, India
and China.
|
|
|
|
Payments related to vendor discounts and
credits Of the liabilities recognized as part
of the 2004 Restatement, we estimate that we will pay
approximately $65.0 related to vendor discounts and credits,
internal investigations and international compensation
arrangements over the next 12 months. As of
December 31, 2007 our liability balance was $184.6.
|
|
|
|
Debt Service On March 15, 2008 holders of our
$200.0 4.50% Convertible Senior Notes due 2023 may
require us to repurchase these Notes for cash at par. Based on
current market conditions, we believe that most or all holders
will require us to repurchase their Notes. The remainder of our
debt profile is primarily long-term, with maturities scheduled
from 2009 to 2023.
|
Contractual
Obligations
The following summarizes our estimated contractual obligations
as of December 31, 2007, and their effect on our liquidity
and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Long-term
debt(1)
|
|
$
|
9.2
|
|
|
$
|
252.3
|
|
|
$
|
244.1
|
|
|
$
|
500.6
|
|
|
$
|
0.7
|
|
|
$
|
1,246.4
|
|
|
$
|
2,253.3
|
|
Interest payments
|
|
|
128.0
|
|
|
|
122.0
|
|
|
|
96.8
|
|
|
|
93.6
|
|
|
|
57.4
|
|
|
|
416.5
|
|
|
|
914.3
|
|
Non-cancelable operating lease obligations
|
|
|
283.0
|
|
|
|
263.4
|
|
|
|
236.7
|
|
|
|
208.0
|
|
|
|
177.7
|
|
|
|
837.9
|
|
|
|
2,006.7
|
|
Contingent acquisition
payments(2)
|
|
|
60.4
|
|
|
|
26.4
|
|
|
|
49.8
|
|
|
|
17.1
|
|
|
|
10.0
|
|
|
|
3.5
|
|
|
|
167.2
|
|
Uncertain tax positions
|
|
|
31.5
|
|
|
|
24.1
|
|
|
|
21.1
|
|
|
|
2.1
|
|
|
|
13.4
|
|
|
|
28.9
|
|
|
|
121.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
512.1
|
|
|
$
|
688.2
|
|
|
$
|
648.5
|
|
|
$
|
821.4
|
|
|
$
|
259.2
|
|
|
$
|
2,533.2
|
|
|
$
|
5,462.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Holders of our $200.0 4.50% Notes may require us to
repurchase their Notes for cash at par in March 2008 and as
such, starting with the first quarter of 2007, we have included
these Notes in short-term debt on our Consolidated Balance
Sheets. These Notes will mature in 2023 if not converted or
repurchased. |
36
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
Holders of our $400.0 4.25% Notes may require us to
repurchase their 4.25% Notes for cash at par in March 2012.
These Notes will mature in 2023 if not converted or repurchased. |
|
(2) |
|
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. 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. See Note 17
to the Consolidated Financial Statements for further information. |
Regular quarterly dividends on our Series B Preferred Stock
are $6.9, or $27.6 annually. For additional information, see
Note 12 to the Consolidated Financial Statements.
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. For the year ended
December 31, 2007, we made contributions of $30.1 to our
foreign pension plans, but did not contribute to our domestic
pension plans. For 2008, we do not expect to contribute to our
domestic pension plans, and expect to contribute $24.7 to our
foreign pension plans.
FINANCING
AND SOURCES OF FUNDS
Substantially all of our operating cash flow is generated by our
agencies. Our liquid assets are held primarily at the holding
company level, and to a lesser extent at our largest
subsidiaries.
Since 2006, we have engaged in several transactions to improve
our liquidity and debt maturity profile:
|
|
|
|
|
In November 2007, we exchanged $200.0 of our
4.50% Convertible Senior Notes due 2023 for the same
aggregate principal amount of our 4.75% Convertible Senior
Notes due 2023. This transaction extended the first date on
which holders can require us to repurchase this portion of our
debt from 2008 to 2013. It also extended the first date on which
we can redeem this portion of our debt from 2009 to 2013.
|
|
|
|
In December 2006, we exchanged all of our $250.0 Floating Rate
Notes due 2008 for the same aggregate principal amount of
Floating Rate Notes due 2010. The new Floating Rate Notes bear
interest at a per annum rate equal to three-month LIBOR plus
200 basis points, 125 basis points less than the
interest rate on the old Floating Rate Notes.
|
|
|
|
In November 2006, we exchanged $400.0 of our
4.50% Convertible Senior Notes due 2023 for the same
aggregate principal amount of our 4.25% Convertible Senior
Notes due 2023. This transaction extended the first date on
which holders can require us to repurchase this portion of our
debt from 2008 to 2012 and extended the second date on which
holders can require us to repurchase this portion of our debt
from 2013 to 2015. It also extended the first date on which we
can redeem this portion of our debt from 2009 to 2012.
|
|
|
|
In June 2006, we replaced our existing $500.0 Three-Year
Revolving Credit Facility, which would have expired in May 2007,
with a new $750.0 Three-Year Credit Agreement (the Credit
Agreement) as part of a capital markets transaction.
|
Credit
Facilities
Under our principal credit facility, the Credit Agreement, a
special-purpose entity called ELF Special Financing Ltd.
(ELF) acts as the lender and letter of credit
issuer. ELF is obligated at our request to make
37
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
cash advances to us and to issue letters of credit for our
account, in an aggregate amount not to exceed $750.0 outstanding
at any time. The aggregate face amount of letters of credit may
not exceed $600.0 at any time. Our obligations under the Credit
Agreement are unsecured. The Credit Agreement is a revolving
facility, under which amounts borrowed may be repaid and
borrowed again, and the aggregate available amount of letters of
credit may decrease or increase, subject to the overall limit of
$750.0 and the $600.0 limit on letters of credit. We have not
drawn on this facility to date or on our previous committed
credit agreements since late 2003. We are not subject to any
financial or other material restrictive covenants under this
facility. For additional information, see Note 10 to the
Consolidated Financial Statements.
In addition to the Credit Agreement, we have uncommitted credit
facilities with various banks that permit borrowings at variable
interest rates. We use our uncommitted credit lines for working
capital needs at some of our operations outside the
U.S. There were borrowings under the uncommitted facilities
made by several of our subsidiaries outside the
U.S. totaling $95.9 and $80.3 as of December 31, 2007
and 2006, respectively. We have guaranteed the repayment of some
of these borrowings by our subsidiaries. If we lose access to
these credit lines, we would have to provide funding directly to
some overseas operations. The weighted-average interest rate on
outstanding balances under the uncommitted short-term facilities
as of December 31, 2007 and 2006 was approximately 5%.
Letters
of Credit
We are required from time to time to post letters of credit,
primarily to support our commitments, or those of our
subsidiaries, to purchase media placements, mostly in locations
outside the U.S., or to satisfy other obligations. These letters
of credit are generally backed by letters of credit issued under
the Credit Agreement. The aggregate amount of outstanding
letters of credit issued for our account under the Credit
Agreement was $222.9 and $219.9 as of December 31, 2007 and
2006, respectively. These letters of credit have historically
not been drawn upon.
Cash
Pooling
We aggregate our net domestic cash position on a daily basis.
Outside the U.S., we use cash pooling arrangements with banks to
help manage our liquidity requirements. In these pooling
arrangements, several Interpublic agencies agree with a single
bank that the cash balances of any of the agencies with the bank
will be subject to a full right of setoff against amounts the
other agencies owe the bank, and the bank provides overdrafts as
long as the net balance for all the agencies does not exceed an
agreed-upon
level. Typically each agency pays interest on outstanding
overdrafts and receives interest on cash balances. Our
Consolidated Balance Sheets reflect cash net of overdrafts for
each pooling arrangement. As of December 31, 2007 and 2006
a gross amount of $1,295.7 and $1,052.5, respectively, in cash
was netted against an equal gross amount of overdrafts under
pooling arrangements.
DEBT
RATINGS
Our long-term debt credit ratings as of February 15, 2008
were Ba3 with stable outlook, B with positive outlook and BB-
with stable outlook, as reported by Moodys Investors
Service, Standard & Poors and Fitch Ratings,
respectively. A credit rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning credit rating agency.
The rating of each credit rating agency should be evaluated
independently of any other rating.
38
Managements
Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
(Amounts in Millions, Except Per Share Amounts)
OTHER
MATTERS
SEC
Investigation
Since January 2003 the SEC has been conducting a formal
investigation in response to the restatement we first announced
in August 2002, and in 2005 the investigation expanded to
encompass the 2004 Restatement. We have also responded to
inquiries from the SEC staff (the Staff) concerning
the restatement of the first three quarters of 2005 that we made
in our 2005 Annual Report on
Form 10-K.
We continue to cooperate with the investigation. We expect that
the investigation will result in monetary liability, but as
settlement discussions have not yet commenced, we cannot
reasonably estimate the amount, range of amounts or timing of a
resolution. Accordingly, we have not yet established any
provision relating to these matters.
The Staff has informed us that it intends to seek approval from
the Commission to enter into settlement discussions with us or,
failing a settlement, to litigate an action charging the Company
with various violations of the federal securities laws. In that
connection, and as previously disclosed by the Company in a
current report on
Form 8-K
filed June 14, 2007, the Staff sent the Company a
Wells notice, which invited us to make a responsive
submission before the Staff makes a final determination
concerning its recommendation to the Commission. We expect to
discuss settlement with the Staff once the Commission authorizes
the Staff to engage in such discussions. We cannot at this time
predict what the Commission will authorize or the outcome of any
settlement negotiations.
2006
Out-of-Period Amounts
During 2006, we recorded adjustments to certain vendor discounts
and credits, contractual liabilities, foreign exchange, tax and
other miscellaneous items which related to prior periods. For
the year ended December 31, 2006, these adjustments
resulted in a net favorable impact to revenue of $6.1, a net
favorable impact to salaries and related expenses of $5.6, a net
unfavorable impact to office and general expenses of $6.5 and a
net favorable impact to net loss of $4.5. The operating income
impact of these adjustments primarily affected our IAN segment.
Because these changes are not material to our financial
statements for the periods prior to 2006, for the quarters of
2006 or for 2006 as a whole, we recorded these out-of-period
amounts in their respective quarters of 2006. See also
Note 19 to the Consolidated Financial Statements for
additional information.
RECENT
ACCOUNTING STANDARDS
See Note 18 to the Consolidated Financial Statements for a
complete description of recent accounting pronouncements that
have affected us or may affect us.
39
|
|
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.
Interest
Rates
Our exposure to market risk for changes in interest rates
relates primarily to our debt obligations. As of
December 31, 2007 and 2006, approximately 85% 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. However, there
would be an impact on the fair market value of the debt, as the
fair market value of debt is sensitive to changes in interest
rates. For 2007, the fair market value of the debt obligations
would decrease by $18.4 if market rates were to increase by 10%
and would increase by $19.4 if market rates were to decrease by
10%. For 2006, the fair market value of the debt obligations
would decrease by $28.8 if market rates were to increase by 10%
and would increase by $29.5 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 as of
December 31, 2007 and 2006, net interest expense and cash
out-flow would increase or decrease by approximately $2.0 in
each year if market rates were to increase or decrease by 10%.
Interest rate swaps have been used to manage the mix of our
fixed and floating rate debt obligations. However, we 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 U.S. Dollars at the exchange
rates in effect at the balance sheet date. The resulting
translation adjustments are recorded as a component of
accumulated other comprehensive loss in the stockholders
equity section of our Consolidated Balance Sheets. Our foreign
subsidiaries generally collect revenues and pay expenses in
currencies other than the U.S. 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.
Since we report revenues and expenses in U.S. Dollars,
changes in exchange rates may either positively or negatively
affect our consolidated revenues and expenses (as expressed in
U.S. Dollars) from foreign operations. Currency transaction
gains or losses arising from transactions in currencies other
than the functional currency are included in results of
operations and were not significant in the years ended
December 31, 2007 and 2006. 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.
Derivatives
The terms of the 4.50% Notes include two embedded
derivative instruments and the terms of our 4.75% Notes,
4.25% Notes and our Series B Preferred Stock each
include one embedded derivative instrument. The fair value of
these derivatives on December 31, 2007 was negligible. In
addition, we have entered into operating leases in a foreign
country with payments that are payable in the U.S. dollar
or its equivalent dollar value in that countrys currency
and future rent increases are based on the U.S. inflation
rate according to the Consumer Price Index. As such, these
leases contain an embedded foreign currency derivative and we
have recorded a long-term asset on our Consolidated Balance
Sheets. The changes in value of this asset, which are
negligible, have been recorded as other income or expense in our
Consolidated Statements of Operations.
40
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX
|
|
|
|
|
Page
|
|
|
|
42
|
|
|
|
|
|
43
|
|
|
|
|
|
44
|
|
|
|
|
|
45
|
|
|
|
|
|
46
|
|
|
|
|
|
47
|
|
|
|
|
|
48
|
|
|
|
|
|
48
|
|
|
54
|
|
|
55
|
|
|
57
|
|
|
60
|
|
|
61
|
|
|
62
|
|
|
62
|
|
|
63
|
|
|
67
|
|
|
72
|
|
|
73
|
|
|
74
|
|
|
83
|
|
|
87
|
|
|
90
|
|
|
91
|
|
|
94
|
|
|
95
|
|
|
96
|
|
|
97
|
41
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Management (with the participation of our Chief Executive
Officer and Chief Financial Officer) conducted an evaluation of
the effectiveness of internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Companys
internal control over financial reporting was effective as of
December 31, 2007. PricewaterhouseCoopers LLP, an
independent registered public accounting firm, has audited the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2007, as stated in
their report which appears in this annual report.
42
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of The Interpublic
Group of Companies, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of cash flows
and of stockholders equity and comprehensive income (loss)
present fairly, in all material respects, the financial position
of The Interpublic Group of Companies, Inc. and its subsidiaries
(the Company) at December 31, 2007 and 2006,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2007 in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control Over Financial
Reporting appearing under Item 8. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included 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. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 13 to the consolidated financial
statements, the Company changed the manner in which it accounts
for defined benefit pension and other postretirement plans in
2006.
A companys 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 companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) 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 (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys 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.
/s/ PricewaterhouseCoopers
LLP
New York, New York
February 29, 2008
43
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
(Amounts
in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
REVENUE
|
|
$
|
6,554.2
|
|
|
$
|
6,190.8
|
|
|
$
|
6,274.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related expenses
|
|
|
4,139.2
|
|
|
|
3,944.1
|
|
|
|
3,999.1
|
|
Office and general expenses
|
|
|
2,044.8
|
|
|
|
2,079.0
|
|
|
|
2,288.1
|
|
Restructuring and other reorganization-related charges
(reversals)
|
|
|
25.9
|
|
|
|
34.5
|
|
|
|
(7.3
|
)
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
27.2
|
|
|
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,209.9
|
|
|
|
6,084.8
|
|
|
|
6,378.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS)
|
|
|
344.3
|
|
|
|
106.0
|
|
|
|
(104.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES AND OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(236.7
|
)
|
|
|
(218.7
|
)
|
|
|
(181.9
|
)
|
Interest income
|
|
|
119.6
|
|
|
|
113.3
|
|
|
|
80.0
|
|
Other income (expense)
|
|
|
8.5
|
|
|
|
(5.6
|
)
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (expenses) and other income
|
|
|
(108.6
|
)
|
|
|
(111.0
|
)
|
|
|
(82.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
235.7
|
|
|
|
(5.0
|
)
|
|
|
(186.6
|
)
|
Provision for income taxes
|
|
|
58.9
|
|
|
|
18.7
|
|
|
|
81.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations of consolidated
companies
|
|
|
176.8
|
|
|
|
(23.7
|
)
|
|
|
(268.5
|
)
|
Income applicable to minority interests, net of tax
|
|
|
(16.7
|
)
|
|
|
(20.0
|
)
|
|
|
(16.7
|
)
|
Equity in net income of unconsolidated affiliates, net of tax
|
|
|
7.5
|
|
|
|
7.0
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
167.6
|
|
|
|
(36.7
|
)
|
|
|
(271.9
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
5.0
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
167.6
|
|
|
|
(31.7
|
)
|
|
|
(262.9
|
)
|
Dividends on preferred stock
|
|
|
27.6
|
|
|
|
47.6
|
|
|
|
26.3
|
|
Allocation to participating securities
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
|
|
$
|
131.3
|
|
|
$
|
(79.3
|
)
|
|
$
|
(289.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.29
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.29
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.26
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.26
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
457.7
|
|
|
|
428.1
|
|
|
|
424.8
|
|
Diluted
|
|
|
503.1
|
|
|
|
428.1
|
|
|
|
424.8
|
|
The accompanying notes are an integral part of these financial
statements.
44
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(Amounts
in Millions)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,014.9
|
|
|
$
|
1,955.7
|
|
Marketable securities
|
|
|
22.5
|
|
|
|
1.4
|
|
Accounts receivable, net of allowance of $61.8 and $81.3
|
|
|
4,132.7
|
|
|
|
3,934.9
|
|
Expenditures billable to clients
|
|
|
1,210.6
|
|
|
|
1,021.4
|
|
Other current assets
|
|
|
305.1
|
|
|
|
295.4
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,685.8
|
|
|
|
7,208.8
|
|
Furniture, equipment and leasehold improvements, net
|
|
|
620.0
|
|
|
|
624.0
|
|
Deferred income taxes
|
|
|
479.9
|
|
|
|
476.5
|
|
Goodwill
|
|
|
3,231.6
|
|
|
|
3,067.8
|
|
Other assets
|
|
|
440.8
|
|
|
|
487.0
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
12,458.1
|
|
|
$
|
11,864.1
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,124.3
|
|
|
$
|
4,124.1
|
|
Accrued liabilities
|
|
|
2,691.2
|
|
|
|
2,426.7
|
|
Short-term debt
|
|
|
305.1
|
|
|
|
82.9
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,120.6
|
|
|
|
6,633.7
|
|
Long-term debt
|
|
|
2,044.1
|
|
|
|
2,248.6
|
|
Deferred compensation and employee benefits
|
|
|
553.5
|
|
|
|
606.3
|
|
Other non-current liabilities
|
|
|
407.7
|
|
|
|
434.9
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
10,125.9
|
|
|
|
9,923.5
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, shares authorized: 20.0
|
|
|
|
|
|
|
|
|
Series B shares issued and outstanding: 0.5
|
|
|
525.0
|
|
|
|
525.0
|
|
Common stock, $0.10 par value, shares authorized: 800.0
|
|
|
|
|
|
|
|
|
shares issued: 2007 471.7; 2006 469.0
|
|
|
|
|
|
|
|
|
shares outstanding: 2007 471.2; 2006
468.6
|
|
|
45.9
|
|
|
|
45.6
|
|
Additional paid-in capital
|
|
|
2,635.0
|
|
|
|
2,586.2
|
|
Accumulated deficit
|
|
|
(741.1
|
)
|
|
|
(899.2
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
|
(118.6
|
)
|
|
|
(303.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,346.2
|
|
|
|
1,954.6
|
|
Less:
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: 0.4 shares
|
|
|
(14.0
|
)
|
|
|
(14.0
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
2,332.2
|
|
|
|
1,940.6
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
12,458.1
|
|
|
$
|
11,864.1
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
45
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Amounts
in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
167.6
|
|
|
$
|
(31.7
|
)
|
|
$
|
(262.9
|
)
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
(9.0
|
)
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets and intangible
assets
|
|
|
177.2
|
|
|
|
173.6
|
|
|
|
168.8
|
|
(Reversal) provision for bad debt
|
|
|
(3.6
|
)
|
|
|
1.2
|
|
|
|
16.9
|
|
Amortization of restricted stock and other non-cash compensation
|
|
|
79.7
|
|
|
|
55.1
|
|
|
|
42.3
|
|
Amortization of bond discounts and deferred financing costs
|
|
|
30.8
|
|
|
|
31.8
|
|
|
|
9.1
|
|
Deferred income tax (benefit) provision
|
|
|
(22.4
|
)
|
|
|
(57.9
|
)
|
|
|
44.6
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
27.2
|
|
|
|
98.6
|
|
Loss on early extinguishment of debt
|
|
|
12.5
|
|
|
|
80.8
|
|
|
|
|
|
Losses (gains) on sales of businesses and investments
|
|
|
9.4
|
|
|
|
(44.2
|
)
|
|
|
(26.4
|
)
|
Income applicable to minority interests, net of tax
|
|
|
16.7
|
|
|
|
20.0
|
|
|
|
16.7
|
|
Other
|
|
|
15.8
|
|
|
|
6.8
|
|
|
|
14.5
|
|
Change in assets and liabilities, net of acquisitions and
dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
43.5
|
|
|
|
235.4
|
|
|
|
39.6
|
|
Expenditures billable to clients
|
|
|
(124.5
|
)
|
|
|
(87.7
|
)
|
|
|
(54.3
|
)
|
Prepaid expenses and other current assets
|
|
|
9.7
|
|
|
|
(6.9
|
)
|
|
|
(6.6
|
)
|
Accounts payable
|
|
|
(221.5
|
)
|
|
|
(370.0
|
)
|
|
|
(163.5
|
)
|
Accrued liabilities
|
|
|
121.8
|
|
|
|
(21.4
|
)
|
|
|
11.1
|
|
Other non-current assets and liabilities
|
|
|
(14.6
|
)
|
|
|
(3.1
|
)
|
|
|
40.3
|
|
Net change in assets and liabilities related to discontinued
operations
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
298.1
|
|
|
|
9.0
|
|
|
|
(20.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, including deferred payments, net of cash acquired
|
|
|
(151.4
|
)
|
|
|
(15.1
|
)
|
|
|
(91.7
|
)
|
Capital expenditures
|
|
|
(147.6
|
)
|
|
|
(127.8
|
)
|
|
|
(140.7
|
)
|
Sales and maturities of short-term marketable securities
|
|
|
702.7
|
|
|
|
951.8
|
|
|
|
690.5
|
|
Purchases of short-term marketable securities
|
|
|
(720.8
|
)
|
|
|
(839.1
|
)
|
|
|
(384.0
|
)
|
Proceeds from sales of businesses and investments, net of cash
sold
|
|
|
69.6
|
|
|
|
76.4
|
|
|
|
129.4
|
|
Purchases of investments
|
|
|
(25.0
|
)
|
|
|
(36.4
|
)
|
|
|
(39.9
|
)
|
Other investing activities
|
|
|
4.7
|
|
|
|
1.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(267.8
|
)
|
|
|
11.6
|
|
|
|
166.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term bank borrowings
|
|
|
10.0
|
|
|
|
34.3
|
|
|
|
(35.9
|
)
|
Payments of long-term debt
|
|
|
(6.7
|
)
|
|
|
(5.2
|
)
|
|
|
(257.1
|
)
|
Proceeds from long-term debt
|
|
|
2.5
|
|
|
|
1.8
|
|
|
|
252.4
|
|
Issuance costs and consent fees
|
|
|
(3.5
|
)
|
|
|
(50.6
|
)
|
|
|
(17.9
|
)
|
Issuance of preferred stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
508.0
|
|
Call spread transactions in connection with ELF Financing
|
|
|
|
|
|
|
(29.2
|
)
|
|
|
|
|
Distributions to minority interests
|
|
|
(18.1
|
)
|
|
|
(24.4
|
)
|
|
|
(22.6
|
)
|
Preferred stock dividends
|
|
|
(27.6
|
)
|
|
|
(47.0
|
)
|
|
|
(20.0
|
)
|
Other financing activities
|
|
|
6.1
|
|
|
|
(9.4
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(37.3
|
)
|
|
|
(129.7
|
)
|
|
|
410.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
66.2
|
|
|
|
(11.1
|
)
|
|
|
(30.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
59.2
|
|
|
|
(120.2
|
)
|
|
|
525.5
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,955.7
|
|
|
|
2,075.9
|
|
|
|
1,550.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,014.9
|
|
|
$
|
1,955.7
|
|
|
$
|
2,075.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
205.9
|
|
|
$
|
186.8
|
|
|
$
|
177.3
|
|
Cash paid for income taxes, net of $31.1, $41.4 and $34.1 of
refunds in 2007, 2006 and 2005 respectively
|
|
$
|
88.3
|
|
|
$
|
111.0
|
|
|
$
|
94.9
|
|
The accompanying notes are an integral part of these financial
statements.
46
THE
INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders Equity and Comprehensive Income
(Loss)
(Amounts
in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
45.6
|
|
|
$
|
43.0
|
|
|
$
|
42.5
|
|
Series A conversion to common stock
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
Reclassification upon adoption of SFAS No. 123R
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
Other
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
45.9
|
|
|
|
45.6
|
|
|
|
43.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, Series A
|
|
|
|
|
|
|
373.7
|
|
|
|
373.7
|
|
Conversion to common stock
|
|
|
|
|
|
|
(373.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year, Series A
|
|
|
|
|
|
|
|
|
|
|
373.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year, Series B
|
|
|
525.0
|
|
|
|
525.0
|
|
|
|
|
|
Issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
525.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year, Series B
|
|
|
525.0
|
|
|
|
525.0
|
|
|
|
525.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID IN CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
2,586.2
|
|
|
|
2,224.1
|
|
|
|
2,208.9
|
|
Cumulative effect of the adoption of SAB No. 108
|
|
|
|
|
|
|
23.3
|
|
|
|
|
|
Stock-based compensation
|
|
|
81.8
|
|
|
|
60.0
|
|
|
|
|
|
Reclassification upon adoption of SFAS No. 123R
|
|
|
|
|
|
|
(88.4
|
)
|
|
|
|
|
Restricted stock grants, net of forfeitures and amortization
|
|
|
|
|
|
|
|
|
|
|
42.7
|
|
Series A conversion to common stock
|
|
|
|
|
|
|
370.9
|
|
|
|
|
|
Issuance of shares for acquisitions and investments
|
|
|
0.4
|
|
|
|
11.3
|
|
|
|
12.9
|
|
Issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(17.4
|
)
|
Preferred stock dividends
|
|
|
(27.6
|
)
|
|
|
(47.6
|
)
|
|
|
(26.3
|
)
|
Call spread transactions in connection with ELF Financing
|
|
|
|
|
|
|
(29.2
|
)
|
|
|
|
|
Warrants issued to investors
|
|
|
|
|
|
|
63.4
|
|
|
|
|
|
Other
|
|
|
(5.8
|
)
|
|
|
(1.6
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
2,635.0
|
|
|
|
2,586.2
|
|
|
|
2,224.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(899.2
|
)
|
|
|
(841.1
|
)
|
|
|
(578.2
|
)
|
Cumulative effect of the adoption of SAB No. 108
|
|
|
|
|
|
|
(26.4
|
)
|
|
|
|
|
Cumulative effect of the adoption of FIN No. 48
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
167.6
|
|
|
|
(31.7
|
)
|
|
|
(262.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(741.1
|
)
|
|
|
(899.2
|
)
|
|
|
(841.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(303.0
|
)
|
|
|
(276.0
|
)
|
|
|
(248.6
|
)
|
Adjustment for minimum pension liability (net of tax of ($1.7)
and ($1.0) in 2006 and 2005, respectively)
|
|
|
|
|
|
|
39.7
|
|
|
|
1.4
|
|
Unrecognized losses, transition obligation and prior service
cost (net of tax of $9.8 in 2007)
|
|
|
46.5
|
|
|
|
|
|
|
|
|
|
Changes in market value of securities available-for-sale (net of
tax of ($1.2), ($2.7) and ($7.8) in 2007, 2006 and 2005,
respectively)
|
|
|
(5.2
|
)
|
|
|
(9.0
|
)
|
|
|
14.6
|
|
Foreign currency translation adjustment
|
|
|
142.1
|
|
|
|
(23.3
|
)
|
|
|
(43.0
|
)
|
Reclassification of investment gain to net earnings
|
|
|
|
|
|
|
17.0
|
|
|
|
|
|
Recognition of previously unrealized (gain) loss on securities
available-for-sale, net of tax
|
|
|
1.0
|
|
|
|
(8.8
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) adjustments
|
|
|
184.4
|
|
|
|
15.6
|
|
|
|
(27.4
|
)
|
Adoption of SFAS No. 158
|
|
|
|
|
|
|
(42.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(118.6
|
)
|
|
|
(303.0
|
)
|
|
|
(276.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of year
|
|
|
(14.0
|
)
|
|
|
(14.0
|
)
|
|
|
(14.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAMORTIZED DEFERRED COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
(89.4
|
)
|
|
|
(66.0
|
)
|
Reclassification upon adoption of SFAS No. 123R
|
|
|
|
|
|
|
89.4
|
|
|
|
|
|
Restricted stock, net of forfeitures and amortization
|
|
|
|
|
|
|
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
(89.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
$
|
2,332.2
|
|
|
$
|
1,940.6
|
|
|
$
|
1,945.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
131.3
|
|
|
$
|
(79.3
|
)
|
|
$
|
(289.2
|
)
|
Preferred stock dividends
|
|
|
27.6
|
|
|
|
47.6
|
|
|
|
26.3
|
|
Allocation to participating securities
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss) adjustments
|
|
|
184.4
|
|
|
|
15.6
|
|
|
|
(27.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
352.0
|
|
|
$
|
(16.1
|
)
|
|
$
|
(290.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
469.0
|
|
|
|
430.3
|
|
|
|
424.9
|
|
Restricted stock, net of forfeitures
|
|
|
3.1
|
|
|
|
4.3
|
|
|
|
4.1
|
|
Series A conversion to common stock
|
|
|
|
|
|
|
27.7
|
|
|
|
|
|
Other
|
|
|
(0.4
|
)
|
|
|
6.7
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
471.7
|
|
|
|
469.0
|
|
|
|
430.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
47
Notes to
Consolidated Financial Statements
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 1:
|
Summary
of Significant Accounting Policies
|
Business
Description
The Interpublic Group of Companies, Inc. and subsidiaries (the
Company, Interpublic, we,
us or our) is one of the worlds
premier advertising and marketing services companies. Our agency
brands deliver custom marketing solutions to many of the
worlds largest marketers. Our companies cover the spectrum
of marketing disciplines and specialties, from consumer
advertising and direct marketing to mobile and search engine
marketing and develop marketing programs that 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 over which we do not have
control, but the ability to exercise significant influence, are
accounted for using the equity method of accounting. Investments
in companies over which we have neither control nor the ability
to exercise significant influence are accounted for under the
cost method. All intercompany accounts and transactions have
been eliminated in consolidation.
In accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 46(R),
Consolidation of Variable Interest Entities (revised December
2003), an Interpretation of ARB No. 51, along with
certain revisions, we have consolidated certain entities meeting
the definition of variable interest entities. The inclusion of
these entities does not have a material impact on our
Consolidated Financial Statements.
Reclassifications
Certain reclassifications have been made to the prior period
financial statements to conform to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) 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.
Revenue
Recognition
Our revenues are primarily derived from the planning and
execution of advertising programs in various media and the
planning and execution of other marketing and communications
programs. Our revenue is directly 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 in client
activity.
Most of our client contracts are individually negotiated and
accordingly, the terms of client engagements and the bases on
which we earn commissions and fees vary significantly. Our
client contracts are complex arrangements that may include
provisions for incentive compensation and govern vendor rebates
and credits. Our largest clients are multinational entities and,
as such, we often provide services to these clients out of
multiple offices and across various agencies. In arranging for
such services to be provided, it is possible for a global,
regional and local agreement to be initiated. Multiple
agreements of this nature are reviewed by legal counsel to
determine the governing terms to be followed by the offices and
agencies involved.
48
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Revenue for our 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 a client contract, fees for services performed can be
recognized in three principal 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 under 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 milestone basis if the terms of the
contract call for the delivery of discrete projects, or on the
completed contract basis if any of the criteria of Staff
Accounting Bulletin (SAB) No. 104, Revenue
Recognition, were not satisfied prior to job completion or
if the terms of the contract do not otherwise qualify for
proportional performance or monthly basis recognition.
|
Depending on the terms of the client contract, revenue is
derived from diverse arrangements involving fees for services
performed, commissions, performance incentive provisions and
combinations of the three. 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 from the client. Incremental direct costs incurred
related to contracts where revenue is accounted for on a
completed contract basis are generally expensed as incurred.
There are certain exceptions made for significant contracts or
for certain agencies where the majority of the contracts are
project-based and systems are in place to properly capture
appropriate direct costs.
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)
Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, we assess whether our 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 operate broadly 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 and the related
costs incurred as office and general expenses. Revenue is
reported net of taxes assessed by governmental authorities that
are directly imposed on our revenue-producing transactions.
49
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
As we provide services as part of our core operations, we
generally incur incidental expenses, which, in practice, are
commonly referred to as out-of-pocket expenses.
These expenses often include expenses related to airfare,
mileage, hotel stays, out of town meals and telecommunication
charges. In accordance with EITF Issue
No. 01-14,
Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred, we record
the reimbursements received for incidental expenses as revenue
with a corresponding offset to office and general expense.
We receive credits from our vendors and media outlets for
transactions entered into on behalf of our clients that, based
on the terms of our contracts and local law, are either remitted
to our clients or retained by us. If amounts are to be passed
through to clients they are recorded as liabilities until
settlement or, if retained by us, are recorded as revenue when
earned. Negotiations with a client at the close of a current
engagement could result in either payments to the client in
excess of the contractual liability or in payments less than the
contractual liability. These items, referred to as concessions,
relate directly to the operations of the period and are recorded
as operating expense or income. Concession income or expense may
also be realized in connection with settling vendor discount or
credit liabilities that were established as part of the
restatement we presented in our Annual Report on
Form 10-K
for the year ended December 31, 2004 that we filed in
September 2005 (the 2004 Restatement). In these
situations, and given the historical nature of these
liabilities, we have recorded such items as other income or
expense in order to prevent distortion of current operating
results. We release certain of these credit liabilities when the
statute of limitations has lapsed, unless the liabilities are
associated with customers with whom we are in the process of
settling such liabilities. These amounts are reported in other
income (expense).
Cash
Equivalents
Cash equivalents are highly liquid investments, including
certificates of deposit, government securities, commercial paper
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.
As of December 31, 2007 and 2006, we held restricted cash
of $45.8 and $44.0, respectively, included in other current
assets. Restricted cash primarily represents cash equivalents
that are maintained on behalf of our clients and are legally
restricted for a specified business purpose.
Short-Term
Marketable Securities
We classify short-term marketable debt and equity securities as
available-for-sale, which are carried at fair value with the
corresponding unrealized gains and losses reported as a separate
component of other comprehensive income (loss), which is a
component of stockholders equity. The cost of securities
sold is determined based upon the average cost of the securities
sold.
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 are primarily comprised of
production and media costs that have been incurred but have not
yet been billed to clients, as well as internal labor and
overhead amounts and other accrued receivables which have not
yet been billed to clients. Unbilled amounts are presented in
expenditures
50
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
billable to clients regardless of whether they relate to our
fees or production and media costs. A provision is made for
unrecoverable costs as deemed appropriate.
Investments
Publicly traded investments in companies over which we do not
exert a significant influence are classified as
available-for-sale and reported at fair value with net
unrealized gains and losses reported as a component of other
comprehensive income (loss). Non-publicly traded investments and
all other publicly traded 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 equity and cost method 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 determine if the decline has been
other-than-temporary. We consider our investments strategic and
long-term in nature, so we determine if the fair value decline
is recoverable within a reasonable period. For investments
accounted for using the equity basis or cost basis, we evaluate
fair value based on specific information (valuation
methodologies, estimates of appraisals, financial statements,
etc.) in addition to quoted market price, if available. In the
absence of other evidence, cost is presumed to equal fair value
for our cost and equity method investments. 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.
Dividends received from our investments in unconsolidated
affiliated companies were $3.1, $4.4 and $5.9 in 2007, 2006 and
2005, respectively, and reduced the carrying values of the
related investments.
Furniture,
Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are stated at
cost, net of accumulated depreciation. Furniture and equipment
are depreciated generally using the straight-line method over
the estimated useful lives of the related assets, which range
from 3 to 7 years for furniture, equipment and computer
software costs, 10 to 35 years for buildings and the
shorter of the useful life or the remaining lease term for
leasehold improvements. The total depreciation and amortization
expense for the years ended December 31, 2007, 2006 and
2005 was $168.7, $167.4 and $167.3, respectively.
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 and the remainder
allocated to goodwill and other intangible assets. Considering
the characteristics of advertising, specialized marketing and
communication services companies, our acquisitions usually do
not have significant amounts of tangible assets as the principal
asset we typically acquire is creative talent. 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 managements judgment and
involves the use of significant estimates, including future cash
inflows and outflows, discount rates, asset lives and market
multiples.
We perform an annual impairment review of goodwill as of
October 1st of each year or whenever events or
significant changes in circumstances indicate that the carrying
value may not be recoverable. We evaluate the recoverability of
goodwill at a reporting unit level. We have 15 reporting units
subject to the 2007 annual impairment testing that are either
the entities at the operating segment level or one level below
the operating segment level. For 2007, in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 142,
51
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Goodwill and Other Intangible Assets
(SFAS 142), we did not test certain
reporting units in 2007 as we determined we could carry forward
the fair value of the reporting unit from the previous year.
We review intangible assets with definite lives subject to
amortization whenever events or circumstances indicate that a
carrying amount of an asset may not be recoverable. Events or
circumstances that might require impairment testing include the
loss of a significant client, the identification of other
impaired assets within a reporting unit, loss of key personnel,
the disposition of a significant portion of a reporting unit, or
a significant adverse change in business climate or regulations.
SFAS 142 specifies a two-step process for goodwill
impairment testing and measuring the magnitude of any
impairment. The fair value of a reporting unit is estimated
using traditional valuation techniques such as the income
approach, which incorporates the use of the discounted cash flow
method and the market approach, which incorporates the use of
earning and revenue multiples.
Foreign
Currencies
The financial statements of our foreign operations, when the
local currency is the functional currency, are translated into
U.S. Dollars at the exchange rates in effect at each year
end for assets and liabilities and average exchange rates during
each year for the results of operations. The related unrealized
gains or losses from translation are reported as a separate
component of other comprehensive income (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 office
and general expenses.
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 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 our large number of clients and
their 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 foreign currency contracts. We limit our
exposure to any one financial institution and do not anticipate
nonperformance by these counterparties.
A downgrade in our credit ratings could adversely affect our
ability to access capital and could result in more stringent
covenants and higher interest rates under the terms of any new
indebtedness.
Income
Taxes
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 reversed. 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 9 for further explanation.
52
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Earnings
(Loss) Per Share
In periods when we generate income, we calculate basic Earnings
Per Share (EPS) using the two-class method, pursuant
to EITF Issue
No. 03-6,
Participating Securities and the Two-Class Method under
SFAS Statement No. 128
(EITF 03-6).
The two-class method is required as our 4.50% Convertible
Senior Notes qualify as participating securities, 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 stockholders 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. In periods when we generate a loss,
basic loss per share is computed by dividing the loss
attributable to common stockholders by the weighted-average
number of common shares and contingently issuable shares
outstanding for the period, if applicable. We do not use the
two-class method in periods when we generate a loss as the
4.50% Convertible Notes do not participate in losses.
Diluted earnings (loss) per share reflects the potential
dilution that would occur if certain potentially dilutive
securities or debt obligations 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 potentially dilutive 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 the amount, if
any, to be paid upon exercise and, as it relates to stock-based
compensation, the amount of compensation cost attributed to
future service not yet recognized and any tax benefits credited
to additional
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.
Pension
and Postretirement Benefits
We have pension and postretirement benefit plans covering
certain domestic and international employees. We use various
actuarial methods and assumptions in determining our pension and
postretirement benefit costs and obligations, including the
discount rate used to determine the present value of future
benefits, expected long-term rate of return on plan assets and
healthcare cost trend rates. On December 31, 2006 we
adopted SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans
(SFAS 158). SFAS 158 requires, among
other things, balance sheet recognition of the overfunded or
underfunded status of pension and postretirement benefit plans.
See Note 13 for further discussion.
Stock-Based
Compensation
We account for stock-based compensation in accordance with
SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123R). SFAS 123R requires
compensation costs related to share-based transactions,
including employee stock options, to be recognized in the
financial statements based on fair value. We implemented
SFAS 123R as of January 1, 2006 using the modified
prospective transition method. Under this transition method, the
compensation expense recognized beginning January 1, 2006
includes compensation expense for (i) all stock-based
payments granted prior to, but not yet vested as of
January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and (ii) all
stock-based payments granted subsequent to December 31,
2005 based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Stock-based compensation
expense is generally recognized ratably over the requisite
service period, net of estimated forfeitures.
53
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Prior to January 1, 2006, we accounted for stock-based
compensation plans in accordance with the provisions of
Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), as
permitted by SFAS 123, and accordingly did not recognize
compensation expense for the issuance of stock options with an
exercise price equal or greater than the market price at the
date of grant. In addition, our previous Employee Stock Purchase
Plan (ESPP) was not considered compensatory under
APB 25 and, therefore, no expense was required to be recognized.
Compensation expense was previously recognized for restricted
stock, restricted stock units, performance-based stock and share
appreciation performance-based units. The effect of forfeitures
on restricted stock, restricted stock units and
performance-based stock was recognized when such forfeitures
occurred. See Note 14 for further discussion.
|
|
Note 2:
|
Restructuring
and Other Reorganization-Related Charges (Reversals)
|
The components of restructuring and other reorganization-related
charges (reversals) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Restructuring charges (reversals):
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination and other exit costs
|
|
$
|
(0.4
|
)
|
|
$
|
1.5
|
|
|
$
|
(5.9
|
)
|
Severance and termination costs
|
|
|
13.8
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.4
|
|
|
|
1.5
|
|
|
|
(7.3
|
)
|
Other reorganization-related charges
|
|
|
12.5
|
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25.9
|
|
|
$
|
34.5
|
|
|
$
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
Charges (Reversals)
Restructuring charges (reversals) relate to the 2003 and 2001
restructuring programs and a restructuring program entered into
at Lowe Worldwide (Lowe) during the third quarter of
2007. Included in net charges and (reversals) for the years
ended December 31, 2007, 2006 and 2005 are adjustments
resulting from changes in managements estimates. With the
exception of medical and dental benefits paid to employees who
are on long-term disability, we do not establish liabilities
associated with ongoing post-employment benefits that may vest
or accumulate as the employee provides service as we cannot
reasonably predict what our future experience will be. See
Note 13 for further discussion.
Due to changes in the business environment that have occurred
during the year, we committed to and began implementing a
restructuring program to realign resources with our strategic
business objectives within Lowe. This plan includes reducing and
restructuring Lowes workforce both domestically and
internationally, and terminating certain lease agreements. For
this plan, we recognized charges related to severance and
termination costs of $14.5 and expense related to lease
termination and other exit costs of $4.6 during the year ended
December 31, 2007. We expect to incur additional charges
related to this program of approximately $4.0 in the first half
of 2008. Cash payments are expected to be made through
December 31, 2009.
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. Since their inception, total net charges for the
2007, 2003 and 2001 programs were $19.1, $221.4 and $639.6,
respectively. Substantially all activities under the 2003 and
2001 programs have been completed.
Offsetting the severance and termination costs incurred at Lowe
were adjustments to estimates relating to our prior severance
and termination related actions. Offsetting the lease
termination and other exit costs
54
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
incurred at Lowe were reversals related to the utilization of
previously vacated property by a Draftfcb agency and adjustments
to estimates relating to our prior year plans.
During the years ended December 31, 2006 and 2005 net
lease termination and other exit costs were primarily related to
adjustments to managements estimates as a result of
changes in sublease rental income assumptions and utilization of
previously vacated properties relating to the 2003 program by
certain of our agencies due to improved economic conditions in
certain markets.
Net restructuring charges for the year ended December 31,
2007 was comprised of net charges of $14.5 at Integrated Agency
Networks (IAN), partially offset by net reversals of
$1.1 at Constituency Management Group (CMG). For the
year ended December 31, 2006 net restructuring charges
consisted of net charges of $1.5 at CMG. In addition, for the
year ended December 31, 2005, net restructuring reversals
was comprised of net reversals at IAN and Corporate, partially
offset by net charges at CMG.
A summary of the remaining liability for the 2007, 2003 and 2001
restructuring programs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2003
|
|
|
2001
|
|
|
|
|
|
|
Program
|
|
|
Program
|
|
|
Program
|
|
|
Total
|
|
|
Liability at December 31, 2005
|
|
$
|
|
|
|
$
|
26.0
|
|
|
$
|
23.0
|
|
|
$
|
49.0
|
|
Net (reversals) charges and adjustments
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
3.8
|
|
|
|
1.5
|
|
Payments and
other(1)
|
|
|
|
|
|
|
(11.1
|
)
|
|
|
(7.6
|
)
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at December 31, 2006
|
|
$
|
|
|
|
$
|
12.6
|
|
|
$
|
19.2
|
|
|
$
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charges (reversals) and adjustments
|
|
|
19.1
|
|
|
|
(0.5
|
)
|
|
|
(5.2
|
)
|
|
|
13.4
|
|
Payments and
other(1)
|
|
|
(7.2
|
)
|
|
|
(3.1
|
)
|
|
|
(5.3
|
)
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at December 31, 2007
|
|
$
|
11.9
|
|
|
$
|
9.0
|
|
|
$
|
8.7
|
|
|
$
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts representing adjustments to the liability for
changes in foreign currency exchange rates. |
Other
Reorganization-Related Charges
Other reorganization-related charges relate to strategic
business decisions made during 2007 and 2006: our realignment of
our media businesses and the 2006 merger of Draft Worldwide and
Foote, Cone and Belding Worldwide to create Draftfcb. Charges in
2007 and 2006 primarily related to severance and terminations
costs and lease termination and other exit costs. We expect
charges associated with the realignment of our media businesses
in 2007 to be completed during 2008. Charges related to the
creation of Draftfcb in 2006 are complete. The charges were
separated from our operating expenses within the Consolidated
Statements of Operations as they did not result from charges
that occurred in the normal course of business.
|
|
Note 3:
|
Acquisitions
and Dispositions
|
Acquisitions
During 2007, we made eight acquisitions, of which the most
significant were: a) a full-service advertising agency in
Latin America, b) Reprise Media, which is a full-service
search engine marketing firm in North America, c) the
remaining interests in two full-service advertising agencies in
India in which we previously held 49% and 51% interests,
d) a professional healthcare services business in the U.K.,
and e) a branded entertainment business in the
U.S. Total cash consideration for our 2007 acquisitions was
$140.4. The acquired businesses do not have significant amounts
of tangible assets, therefore a substantial portion of the total
consideration has been allocated to goodwill and identifiable
intangible assets (approximately $122.0). The purchase price
allocations for our acquisitions are substantially complete,
however certain of these allocations
55
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
are based on estimates and assumptions and are subject to
change. The final determination of the estimated fair value of
the acquired net assets will be completed as soon as possible,
but no later than one year from the acquisition date. All
acquisitions during 2007 are included within our IAN segment.
Pro forma information related to these acquisitions is not
presented because the impact of these acquisitions, either
individually or in the aggregate, on the Companys
consolidated results of operations is not significant. We did
not complete any acquisitions during 2006 and 2005.
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 tangible net
assets acquired and liabilities assumed based on estimated fair
values with any excess being recorded as goodwill and other
intangible assets. Contingent purchase price payments are
recorded within the financial statements as an increase to
goodwill and other intangible assets once the terms and
conditions of the contingent acquisition obligations have been
met and the consideration is determinable and distributable, or
expensed as compensation in our Consolidated Statements of
Operations based on the acquisition agreement and the terms and
conditions of employment for the former owners of the acquired
businesses. See Note 17 for further discussion.
Cash paid and stock issued for acquisitions are comprised of:
(i) initial acquisition payments; (ii) contingent
payments as described above; (iii) further investments in
companies in which we already have an ownership interest; and
(iv) other payments related to loan notes and guaranteed
deferred payments that have been previously recognized on the
Consolidated Balance Sheets.
The results of operations of our acquired companies were
included in our consolidated results from the closing date of
each acquisition. We made stock payments related to acquisitions
initiated in prior years of $0.3, $11.3 and $12.9 during 2007,
2006 and 2005, respectively. Details of cash paid for current
and prior years acquisitions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash paid for current year acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of investment
|
|
$
|
139.7
|
|
|
$
|
|
|
|
$
|
|
|
Compensation expense related payments
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Cash paid for prior year acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of investment
|
|
|
16.1
|
|
|
|
15.1
|
|
|
|
91.7
|
|
Compensation expense related payments
|
|
|
1.4
|
|
|
|
7.8
|
|
|
|
5.3
|
|
Less: cash acquired
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash paid for acquisitions
|
|
$
|
153.5
|
|
|
$
|
22.9
|
|
|
$
|
97.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, for 2007, we acquired $8.1 of marketable securities
held by one of our current year acquisitions.
Dispositions
In connection with the sale of our NFO World Group Inc.
(NFO) operations in the fourth quarter of 2003, we
established reserves for certain income tax contingencies with
respect to the determination of our tax basis in NFO for income
tax purposes at the time of the disposition of NFO. During the
fourth quarter of 2005, $9.0 of these reserves were reversed, as
the related income tax contingencies were no longer considered
probable based on our preliminary review of our tax basis.
During the third quarter of 2006 we finalized the tax basis of
our investment and we determined that the remaining reserve of
$5.0 should be reversed as the related contingency was no longer
considered probable. The 2006 and 2005 amounts were reversed
through income from discontinued operations for the year ended
December 31, 2006 and 2005, respectively.
56
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 4:
|
Supplementary
Data
|
Valuation
and Qualifying Accounts Allowance for uncollectible
accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of period
|
|
$
|
81.3
|
|
|
$
|
105.5
|
|
|
$
|
136.1
|
|
(Reversals) charges to costs and expenses
|
|
|
(3.6
|
)
|
|
|
1.2
|
|
|
|
16.9
|
|
Charges to other
accounts(1)
|
|
|
3.9
|
|
|
|
0.2
|
|
|
|
(2.7
|
)
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
(0.5
|
)
|
|
|
(5.3
|
)
|
|
|
(3.3
|
)
|
Uncollectible accounts written off
|
|
|
(24.3
|
)
|
|
|
(25.4
|
)
|
|
|
(32.9
|
)
|
Foreign currency translation adjustment
|
|
|
5.0
|
|
|
|
5.1
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
61.8
|
|
|
$
|
81.3
|
|
|
$
|
105.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts relate to allowance for doubtful accounts of acquired
and newly consolidated companies, miscellaneous other amounts
and reclassifications. |
Furniture,
Equipment and Leasehold Improvements
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Furniture and equipment
|
|
$
|
983.2
|
|
|
$
|
952.0
|
|
Leasehold improvements
|
|
|
599.7
|
|
|
|
584.9
|
|
Land and buildings
|
|
|
126.1
|
|
|
|
104.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,709.0
|
|
|
|
1,641.0
|
|
Less: accumulated depreciation
|
|
|
(1,089.0
|
)
|
|
|
(1,017.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
620.0
|
|
|
$
|
624.0
|
|
|
|
|
|
|
|
|
|
|
Accrued
Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Media and production expenses
|
|
$
|
1,943.5
|
|
|
$
|
1,690.7
|
|
Salaries, benefits and related expenses
|
|
|
471.9
|
|
|
|
460.6
|
|
Office and related expenses
|
|
|
90.9
|
|
|
|
99.2
|
|
Professional fees
|
|
|
27.7
|
|
|
|
46.1
|
|
Restructuring and other reorganization-related
|
|
|
30.1
|
|
|
|
18.0
|
|
Interest
|
|
|
33.8
|
|
|
|
30.0
|
|
Other
|
|
|
93.3
|
|
|
|
82.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,691.2
|
|
|
$
|
2,426.7
|
|
|
|
|
|
|
|
|
|
|
2004
Restatement Liabilities
As part of the 2004 Restatement, we recognized liabilities
related to vendor discounts and credits where we had a
contractual or legal obligation to rebate such amounts to our
clients or vendors. Reductions to these liabilities are
primarily achieved through settlements with clients and vendors
but also may occur if a statute of limitations in a jurisdiction
has lapsed. For the year ended December 31, 2007, we
satisfied $27.6 of these
57
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
liabilities through cash payments of $14.6 and reductions of
certain client receivables of $13.0. The remaining decline was
primarily the result of favorable settlements with clients and
the release of liabilities due to the lapse of the respective
statutes of limitations, offset by foreign currency effects.
Also as part of the 2004 Restatement, we recognized liabilities
related to internal investigations and international
compensation arrangements. A summary of these and the vendor
discounts and credits liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Vendor discounts and credits
|
|
$
|
165.5
|
|
|
$
|
211.2
|
|
Internal investigations (includes asset reserves)
|
|
|
8.2
|
|
|
|
19.5
|
|
International compensation arrangements
|
|
|
10.9
|
|
|
|
32.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
184.6
|
|
|
$
|
263.0
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Loss on early extinguishment of debt
|
|
$
|
(12.5
|
)
|
|
$
|
(80.8
|
)
|
|
$
|
|
|
Net (losses) gains on sales of businesses
|
|
|
(16.7
|
)
|
|
|
8.1
|
|
|
|
10.1
|
|
Vendor discount and credit adjustments
|
|
|
24.3
|
|
|
|
28.2
|
|
|
|
2.6
|
|
Net gains on sales of available-for-sale securities and
miscellaneous investment income
|
|
|
7.3
|
|
|
|
36.1
|
|
|
|
16.3
|
|
Investment impairments
|
|
|
(6.2
|
)
|
|
|
(0.3
|
)
|
|
|
(12.2
|
)
|
Other income
|
|
|
12.3
|
|
|
|
3.1
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.5
|
|
|
$
|
(5.6
|
)
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following analysis details the primary drivers of the
captions within other income (expense).
Loss on
Early Extinguishment of Debt
|
|
|
|
|
2007 In November, we retired $200.0 of our
4.50% Convertible Senior Notes due 2023 in connection with
the issuance of $200.0 aggregate principal amount of
4.75% Convertible Senior Notes due 2023 and as a result we
recorded non-cash charges relating to the debt extinguishment.
|
|
|
|
2006 In November, we retired $400.0 of our
4.50% Convertible Senior Notes due 2023 in connection with
the issuance of $400.0 aggregate principal amount of
4.25% Convertible Senior Notes due 2023 and as a result we
recorded non-cash charges relating to the debt extinguishment.
|
See Note 10 for further discussion on our debt transactions.
Net
(Losses) Gains on Sales of Businesses
|
|
|
|
|
2007 In the second quarter we sold several
businesses within Draftfcb for a loss of $9.3 and in the third
quarter incurred charges at Lowe of $7.8 as a result of the
realization of cumulative translation adjustment balances from
the liquidation of several businesses, as well as charges from
the partial disposition of a business in South Africa.
|
|
|
|
2006 In connection with the 2005 sale of a European
FCB agency, we released $11.1 into income, primarily related to
certain contingent liabilities that we retained subsequent to
the sale, which were resolved in the fourth quarter of 2006.
|
|
|
|
2005 We had net gains related to the sale of a
McCann agency of $18.6, partially offset by a loss of $13.0 from
the sale of a European FCB agency.
|
58
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Vendor
Discount and Credit Adjustments
|
|
|
|
|
We are in the process of settling our liabilities related to
vendor discounts and credits primarily established during the
2004 Restatement. The amounts included in other income (expense)
reflect the reversal of certain liabilities as a result of
settlements with clients or vendors or where the statute of
limitations has lapsed.
|
Net Gains on Sales of Available-for-Sale Securities and
Miscellaneous Investment Income
|
|
|
|
|
2007 In the fourth quarter we realized a gain of
$3.0 related to the sale of certain available-for-sale
securities.
|
|
|
|
2006 In the second quarter, we had net gains of
$20.9 related to the sale of an investment located in Asia
Pacific and the sale of our remaining ownership interest in an
agency within Lowe. In addition, during the third quarter, we
sold our interest in a German advertising agency and recognized
its remaining cumulative translation adjustment balance, which
resulted in a non-cash benefit of $17.0.
|
|
|
|
2005 We had net gains of $8.3 related to the sale of
our remaining equity ownership interest in an agency within FCB,
and net gains on sales of certain available-for-sale securities
of $7.9.
|
Investment
Impairments
|
|
|
|
|
2007 During the fourth quarter we realized an
other-than-temporary charge of $5.8 relating to a $12.5
investment in auction rate securities, representing our total
investment in auction rate securities.
|
|
|
|
2005 We recorded charges of $12.2, primarily related
to a $7.1 adjustment of the carrying amount of our remaining
unconsolidated investment in Latin America to fair value as a
result of our intent to sell and $3.7 related to a decline in
value of certain available-for-sale investments that were
determined to be other-than-temporary.
|
See Note 16 for further discussion on our financial
instruments.
Other
Income
|
|
|
|
|
2007 Primarily includes dividend income from our
cost investments.
|
Equity
Investments in Unconsolidated Affiliates
Based on our loss from continuing operations before income taxes
for 2006, summarized financial information for our equity-basis
investments in unconsolidated affiliates, in the aggregate, is
as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Consolidated Balance Sheet
|
|
|
|
|
Total current assets
|
|
$
|
141.6
|
|
Total non-current assets
|
|
|
30.5
|
|
Total current liabilities
|
|
|
84.3
|
|
Total non-current liabilities
|
|
|
3.5
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Consolidated Statement of Operations
|
|
|
|
|
Revenue
|
|
$
|
186.2
|
|
Operating income
|
|
|
22.8
|
|
Net income
|
|
|
16.5
|
|
59
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 5:
|
Earnings
(Loss) Per Share
|
Earnings (loss) per basic common share equals net income (loss)
applicable to common stockholders divided by the weighted
average number of common shares outstanding for the period.
Diluted earnings (loss) per share equals net income (loss)
applicable to common stockholders adjusted to exclude, if
dilutive, preferred stock dividends, allocation to participating
securities and interest expense related to potentially dilutive
securities divided by the weighted average number of common
shares outstanding, plus any additional common shares that would
have been outstanding if potentially dilutive shares had been
issued. The following sets forth basic and diluted earnings
(loss) per common share applicable to common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) from continuing operations
|
|
$
|
167.6
|
|
|
$
|
(36.7
|
)
|
|
$
|
(271.9
|
)
|
Less: Preferred stock dividends
|
|
|
27.6
|
|
|
|
47.6
|
|
|
|
26.3
|
|
Allocation to participating
securities(1)
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing income (loss) applicable to common
stockholders basic
|
|
|
131.3
|
|
|
|
(84.3
|
)
|
|
|
(298.2
|
)
|
Add: Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 4.25% Convertible Senior Notes
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Interest on 4.75% Convertible Senior Notes
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing income (loss) applicable to common
stockholders diluted
|
|
$
|
133.2
|
|
|
$
|
(84.3
|
)
|
|
$
|
(298.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
5.0
|
|
|
|
9.0
|
|
Net income (loss) applicable to common
stockholders basic
|
|
$
|
131.3
|
|
|
$
|
(79.3
|
)
|
|
$
|
(289.2
|
)
|
Net income (loss) applicable to common
stockholders diluted
|
|
$
|
133.2
|
|
|
$
|
(79.3
|
)
|
|
$
|
(289.2
|
)
|
|
|
Weighted-average number of common shares
outstanding basic
|
|
|
457.7
|
|
|
|
428.1
|
|
|
|
424.8
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and stock options
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
ELF Warrants Capped (See Note 11)
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
4.25% Convertible Senior Notes
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
4.75% Convertible Senior Notes
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
outstanding diluted
|
|
|
503.1
|
|
|
|
428.1
|
|
|
|
424.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
Earnings per share from discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic
|
|
$
|
0.29
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations
|
|
$
|
0.26
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.70
|
)
|
Earnings per share from discontinued operations
|
|
|
|
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share diluted
|
|
$
|
0.26
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to EITF
03-6, net
income for purposes of calculating basic earnings per share is
adjusted based on an earnings allocation formula that attributes
earnings to participating securities and common stock according
to dividends declared and participation rights in undistributed
earnings. For 2007, participating |
60
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
securities consist of the 4.50% Convertible Senior Notes.
Our participating securities have no impact on our net loss
applicable to common stockholders for 2006 and 2005 since these
securities do not participate in our net loss. |
Basic and diluted shares outstanding and loss per share are
equal for the years ended December 31, 2006 and 2005
because our potentially dilutive securities are antidilutive as
a result of the net loss applicable to common stockholders.
The following table presents the potential shares excluded from
diluted earnings (loss) per share because the effect of
including these potential shares would be antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock Options and Non-vested Restricted Stock Awards
|
|
|
|
|
|
|
5.5
|
|
|
|
4.8
|
|
4.25% Convertible Senior Notes
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
4.50% Convertible Senior Notes
|
|
|
30.2
|
|
|
|
60.3
|
|
|
|
64.4
|
|
Series A Mandatory Convertible Preferred Stock
|
|
|
|
|
|
|
26.5
|
|
|
|
27.7
|
|
Series B Cumulative Convertible Perpetual Preferred Stock
|
|
|
38.4
|
|
|
|
38.4
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
68.6
|
|
|
|
134.8
|
|
|
|
104.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities excluded from the diluted earnings (loss) per share
calculation because the exercise price was greater than the
average market price:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
(1)
|
|
|
22.4
|
|
|
|
26.3
|
|
|
|
32.4
|
|
Warrants
(2)
|
|
|
38.8
|
|
|
|
37.4
|
|
|
|
|
|
|
|
|
(1) |
|
These options represent what is outstanding at the end of the
respective year. At the point that the exercise price is less
than the average market price, these options have the potential
to be dilutive and application of the treasury stock method
would reduce this amount. |
|
(2) |
|
The potential dilutive impact of the warrants would be based
upon the difference between the market price of one share of our
common stock and the stated exercise prices of the warrants. See
Note 11 for further discussion. |
There were an additional 5.7, 6.2 and 3.3 outstanding options to
purchase common shares as of December 31, 2007, 2006 and
2005, respectively, with exercise prices less than the average
market price for the respective year. However, these options are
not included in the table above presenting the potential shares
excluded from diluted earnings (loss) per share due to the
application of the treasury stock method and the rules related
to stock-based compensation arrangements.
|
|
Note 6:
|
Accumulated
Other Comprehensive Loss
|
Accumulated other comprehensive loss, net of tax, is reflected
in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Foreign currency translation adjustment
|
|
$
|
(53.0
|
)
|
|
$
|
(195.1
|
)
|
Unrealized holding gains on securities, net
|
|
|
2.2
|
|
|
|
6.4
|
|
Unrecognized losses, transition obligation and prior service
cost, net
|
|
|
(67.8
|
)
|
|
|
(114.3
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(118.6
|
)
|
|
$
|
(303.0
|
)
|
|
|
|
|
|
|
|
|
|
61
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 7:
|
Goodwill
and Other Intangible Assets
|
Goodwill
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. The changes in the carrying value of
goodwill by segment for the years ended December 31, 2007
and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
|
CMG
|
|
|
Total
|
|
|
Balance as of December 31, 2005
|
|
$
|
2,612.7
|
|
|
$
|
418.2
|
|
|
$
|
3,030.9
|
|
Contingent and deferred payments for prior acquisitions
|
|
|
11.1
|
|
|
|
13.2
|
|
|
|
24.3
|
|
Amounts allocated to business dispositions
|
|
|
(9.1
|
)
|
|
|
(2.7
|
)
|
|
|
(11.8
|
)
|
Impairment charges (see Note 8)
|
|
|
(27.2
|
)
|
|
|
|
|
|
|
(27.2
|
)
|
Other (primarily currency translation)
|
|
|
45.0
|
|
|
|
6.6
|
|
|
|
51.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
2,632.5
|
|
|
|
435.3
|
|
|
|
3,067.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year acquisitions
|
|
|
86.0
|
|
|
|
|
|
|
|
86.0
|
|
Contingent and deferred payments for prior acquisitions
|
|
|
4.7
|
|
|
|
3.7
|
|
|
|
8.4
|
|
Amounts allocated to business dispositions
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
(5.7
|
)
|
Other (primarily currency translation)
|
|
|
72.2
|
|
|
|
2.9
|
|
|
|
75.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
2,789.7
|
|
|
$
|
441.9
|
|
|
$
|
3,231.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Intangible Assets
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. Intangible assets with definitive lives subject to
amortization are amortized on a straight-line basis with
estimated useful lives generally between 7 and 15 years.
Amortization expense for other intangible assets for the years
ended December 31, 2007, 2006 and 2005 was $8.5, $6.2 and
$1.5, respectively. Expected annual amortization expense of
other intangible assets for the next five years is as follows:
$9.8 in 2008, $8.5 in 2009, $6.8 in 2010, $6.1 in 2011 and $5.2
in 2012. The following table provides a summary of other
intangible assets, which are included in other assets on our
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
amount
|
|
|
amortization
|
|
|
amount
|
|
|
Customer list
|
|
$
|
66.2
|
|
|
$
|
(27.9
|
)
|
|
$
|
38.3
|
|
|
$
|
36.7
|
|
|
$
|
(21.7
|
)
|
|
$
|
15.0
|
|
Trade names
|
|
|
23.3
|
|
|
|
(3.8
|
)
|
|
|
19.5
|
|
|
|
7.1
|
|
|
|
(2.9
|
)
|
|
|
4.2
|
|
Other
|
|
|
23.7
|
|
|
|
(11.5
|
)
|
|
|
12.2
|
|
|
|
19.6
|
|
|
|
(9.8
|
)
|
|
|
9.8
|
|
|
|
Note 8:
|
Long-Lived
Asset Impairment and Other Charges
|
Long-lived assets include furniture, equipment, leasehold
improvements, goodwill and other intangible assets. Long-lived
assets with finite lives are depreciated or amortized on a
straight-line basis over their respective estimated useful
lives. When necessary, we record an impairment charge for the
amount that the carrying value of the asset exceeds the implied
fair value. No impairment charges were recorded for 2007.
62
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following table summarizes the long-lived asset impairment
and other charges in previous years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
IAN
|
|
|
IAN
|
|
|
CMG
|
|
|
Total
|
|
|
Goodwill impairment
|
|
$
|
27.2
|
|
|
$
|
97.0
|
|
|
$
|
|
|
|
$
|
97.0
|
|
Other
|
|
|
|
|
|
|
1.5
|
|
|
|
0.1
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27.2
|
|
|
$
|
98.5
|
|
|
$
|
0.1
|
|
|
$
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Our long-term projections, which were updated in the fourth
quarter of 2006, showed previously unanticipated declines in
discounted future operating cash flows due primarily to client
losses at one of our domestic advertising reporting units. These
discounted future operating cash flow projections indicated that
the implied fair value of the goodwill at this reporting unit
was less than its book value resulting in a goodwill impairment
charge of $27.2.
2005
A triggering event occurred subsequent to our 2005 annual
impairment test when a major client was lost by Lowes
London agency and the possibility of losing other clients was
considered a higher risk due to management defections and
changes in the competitive landscape. This caused projected
revenue growth to decline. As a result of these changes, our
long-term projections showed declines in discounted future
operating cash flows. These revised cash flows indicated that
the implied fair value of Lowes goodwill was less than the
related book value resulting in a goodwill impairment charge of
$91.0 at our Lowe reporting unit.
During our annual impairment test in the third quarter of 2005,
we recorded a goodwill impairment charge of $5.8 at a reporting
unit within our sports and entertainment marketing business. The
long-term projections showed previously unanticipated declines
in discounted future operating cash flows and, as a result,
these discounted future operating cash flows indicated that the
implied fair value of goodwill was less than the related book
value.
|
|
Note 9:
|
Provision
for Income Taxes
|
The components of income (loss) from continuing operations
before provision for income taxes, equity earnings, and minority
interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
$
|
112.6
|
|
|
$
|
(103.5
|
)
|
|
$
|
54.4
|
|
Foreign
|
|
|
123.1
|
|
|
|
98.5
|
|
|
|
(241.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
235.7
|
|
|
$
|
(5.0
|
)
|
|
$
|
(186.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
The provision for income taxes on continuing operations consists
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Federal income taxes (including foreign withholding taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
13.8
|
|
|
$
|
(0.7
|
)
|
|
$
|
20.8
|
|
Deferred
|
|
|
(42.0
|
)
|
|
|
(14.8
|
)
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28.2
|
)
|
|
|
(15.5
|
)
|
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
15.1
|
|
|
|
14.8
|
|
|
|
12.2
|
|
Deferred
|
|
|
11.3
|
|
|
|
(24.8
|
)
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.4
|
|
|
|
(10.0
|
)
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
52.4
|
|
|
|
62.5
|
|
|
|
4.3
|
|
Deferred
|
|
|
8.3
|
|
|
|
(18.3
|
)
|
|
|
24.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.7
|
|
|
|
44.2
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58.9
|
|
|
$
|
18.7
|
|
|
$
|
81.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Operations to the
U.S. federal statutory income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S. federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Federal income tax provision (benefit) at statutory rate
|
|
$
|
82.5
|
|
|
$
|
(1.8
|
)
|
|
$
|
(65.3
|
)
|
State and local income taxes, net of federal income tax benefit
|
|
|
17.2
|
|
|
|
(6.5
|
)
|
|
|
3.6
|
|
Impact of foreign operations, including withholding taxes
|
|
|
46.9
|
|
|
|
(5.3
|
)
|
|
|
44.4
|
|
Change in valuation allowance
|
|
|
(18.5
|
)
|
|
|
63.6
|
|
|
|
69.9
|
|
Goodwill and other long-lived asset impairment charges
|
|
|
(0.3
|
)
|
|
|
3.8
|
|
|
|
19.8
|
|
(Decreases) increases in unrecognized tax benefits, net
|
|
|
(73.6
|
)
|
|
|
(9.7
|
)
|
|
|
19.8
|
|
Capitalized expenses
|
|
|
|
|
|
|
|
|
|
|
10.0
|
|
Restricted stock
|
|
|
6.7
|
|
|
|
5.3
|
|
|
|
|
|
Capital gains (losses)
|
|
|
(2.5
|
)
|
|
|
(34.8
|
)
|
|
|
2.2
|
|
Other
|
|
|
0.5
|
|
|
|
4.1
|
|
|
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
58.9
|
|
|
$
|
18.7
|
|
|
$
|
81.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate on operations
|
|
|
25.0
|
%
|
|
|
(374.0
|
)%
|
|
|
(43.9
|
%)
|
In 2007, our effective tax rate was negatively impacted by
foreign profits subject to tax at different rates and by losses
in certain foreign locations where we receive no tax benefit due
to 100% valuation allowances. Our effective tax rate was
positively impacted in 2007 by the release of tax reserves
resulting from the effective settlement of the IRS examination
for
2003-2004
and by the net reversal of valuation allowances. Certain tax law
changes also impacted the effective tax rate, which resulted in
the write-down of net deferred tax assets of $16.2, primarily in
certain
non-U.S. jurisdictions
and, to a lesser extent, certain U.S. states.
64
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
The components of deferred tax assets consist of the following
items:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Postretirement/post-employment benefits
|
|
$
|
38.8
|
|
|
$
|
32.4
|
|
Deferred compensation
|
|
|
184.2
|
|
|
|
187.2
|
|
Pension costs
|
|
|
27.4
|
|
|
|
37.6
|
|
Basis differences in fixed assets
|
|
|
68.6
|
|
|
|
66.2
|
|
Rent
|
|
|
19.6
|
|
|
|
19.8
|
|
Interest
|
|
|
44.6
|
|
|
|
(3.4
|
)
|
Accruals and reserves
|
|
|
78.4
|
|
|
|
63.7
|
|
Allowance for doubtful accounts
|
|
|
13.1
|
|
|
|
16.3
|
|
Basis differences in intangible assets
|
|
|
(153.6
|
)
|
|
|
(93.1
|
)
|
Investments in equity securities
|
|
|
14.0
|
|
|
|
3.2
|
|
Tax loss/tax credit carry forwards
|
|
|
649.1
|
|
|
|
646.9
|
|
Restructuring and other merger-related costs
|
|
|
6.7
|
|
|
|
11.9
|
|
Other
|
|
|
47.7
|
|
|
|
62.7
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
1,038.6
|
|
|
|
1,051.4
|
|
Valuation allowance
|
|
|
(481.6
|
)
|
|
|
(504.0
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
557.0
|
|
|
$
|
547.4
|
|
|
|
|
|
|
|
|
|
|
As required by SFAS No. 109, Accounting for Income
Tax (SFAS 109), we evaluate on a
quarterly basis the realizability of our deferred tax assets.
SFAS 109 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
significant negative evidence under the provisions of
SFAS 109, and as a result, we determined that certain of
our deferred tax assets required the establishment of a
valuation allowance. The realization of our deferred tax assets
is primarily dependent on future earnings. The amount of the
deferred tax assets considered realizable could be reduced in
the near future if estimates of future taxable income are lower
than anticipated. The deferred tax assets for which an allowance
was recognized relate primarily to tax credit carryforwards,
foreign tax loss carryforwards and U.S. capital loss
carryforwards. The change in the valuation allowance during the
period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of period
|
|
$
|
504.0
|
|
|
$
|
501.0
|
|
|
$
|
488.6
|
|
(Reversed) charged to costs and expenses
|
|
|
(49.0
|
)
|
|
|
63.6
|
|
|
|
69.9
|
|
Charged (reversed) to gross tax assets and other accounts
|
|
|
26.6
|
|
|
|
(60.6
|
)
|
|
|
(57.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
481.6
|
|
|
$
|
504.0
|
|
|
$
|
501.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reversed to costs and expenses primarily relate to a
reversal of $30.5 from the write-down of deferred tax assets in
certain jurisdictions with existing valuation allowances due to
tax law changes. The remainder relates to reversals of valuation
allowances in various countries where we believe that it is now
more likely than not that tax loss carryforwards will be
utilized. Amounts charged to gross tax assets and other accounts
relate primarily to the effect of foreign currency translation.
65
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
The change during 2006 in the deferred tax valuation allowance
relates to uncertainties regarding future utilization of tax
loss carryforwards, offset primarily by reversals of $45.0 of
valuation allowances in two European countries where we believed
that it was more likely than not that the corresponding tax loss
carryforwards will be utilized. In addition, we believed that it
was more likely than not that approximately $29.0 of
U.S. capital loss carryforwards and $17.0 of foreign tax
credits would not be utilized. We also wrote off previously
reserved for deferred tax assets that were deemed to be
permanently unrealizable due to the expiration of tax loss
carryforwards and sales of certain businesses.
As of December 31, 2007, there are $68.1 of tax credit
carryforwards with expiration periods beginning in 2009 and
ending in 2013. There are also $1,793.2 of loss carryforwards,
of which $681.2 are U.S. capital and tax loss carryforwards
that expire in the years 2008 through 2026. The remaining
$1,112.0 are
non-U.S. tax
loss carryforwards of which $835.2 have unlimited carry forward
periods and $276.8 have expiration periods from 2008 through
2023.
As of December 31, 2007 and December 31, 2006, we had
approximately $1,228.0 and $991.8, respectively, of
undistributed earnings attributable to foreign subsidiaries. It
is our intention to permanently reinvest undistributed earnings
of our foreign subsidiaries. We have not provided deferred
U.S. income taxes or foreign withholding taxes on temporary
differences resulting from earnings for certain foreign
subsidiaries which are permanently reinvested outside the
U.S. It is not practicable to determine the amount of
unrecognized deferred tax liability associated with these
temporary differences.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), on January 1, 2007. As a
result of the implementation of FIN 48, we recorded a $9.5
increase in the net liability for unrecognized tax positions,
which was recorded as an adjustment to retained earnings
effective January 1, 2007.
The following table summarizes the activity related to our
unrecognized tax benefits:
|
|
|
|
|
|
|
2007
|
|
|
Balance at January 1, 2007
|
|
$
|
254.0
|
|
Increases as a result of tax positions taken during a prior year
|
|
|
7.9
|
|
Decreases as a result of tax positions taken during a prior year
|
|
|
(153.8
|
)
|
Settlements with taxing authorities
|
|
|
(1.0
|
)
|
Lapse of statutes of limitation
|
|
|
(2.4
|
)
|
Increases as a result of tax positions taken during the current
year
|
|
|
16.4
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
121.1
|
|
|
|
|
|
|
Included in the total amount of unrecognized tax benefits of
$121.1 as of December 31, 2007, is $103.5 of tax benefits
that, if recognized, would impact the effective tax rate and
$17.6 of tax benefits that, if recognized, would result in
adjustments to other tax accounts, primarily deferred taxes. The
total amount of accrued interest and penalties as of
December 31, 2007 is $33.6, of which $9.2 is included in
the current years Consolidated Statement of Operations. In
accordance with our accounting policy, interest and penalties
accrued on unrecognized tax benefits are classified as income
taxes in the Consolidated Statements of Operations. We have not
elected to change this classification with the adoption of
FIN 48.
With respect to all tax years open to examination by
U.S. federal and various state, local, and
non-U.S. tax
authorities, we currently anticipate that the total unrecognized
tax benefits will decrease by an amount between $40.0 and $50.0
in the next twelve months, a portion of which will affect the
effective tax rate, primarily as a result of the settlement of
tax examinations and the lapsing of statutes of limitation. This
net decrease is related to various items of income and expense,
including transfer pricing adjustments and restatement
adjustments. For this purpose, we expect to complete our
discussions with the IRS appeals division regarding the years
1997 through 2004 within the next twelve months.
66
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
On May 1, 2007, the IRS completed its examination of our
2003 and 2004 income tax returns and proposed a number of
adjustments to our taxable income. We have appealed a number of
these items. In addition, during the second quarter of 2007,
there were net reversals of tax reserves, primarily related to
previously unrecognized tax benefits related to various items of
income and expense, including approximately $80.0 for certain
worthless securities deductions associated with investments in
consolidated subsidiaries, which was a result of the completion
of the tax examination.
In December 2007, the IRS commenced its examination for the 2005
and 2006 tax years. In addition, we have various tax years under
examination by tax authorities in various countries, such as the
U.K., and in various 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 our 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 we
are subject to taxation. We regularly assess the likelihood of
additional tax assessments in those jurisdictions and adjust our
reserves as additional information or events require.
With limited exceptions, we are no longer subject to
U.S. income tax audits for years prior to 1997, state and
local income tax audits for years prior to 1999, or
non-U.S. income
tax audits for years prior to 2000.
|
|
Note 10:
|
Debt
and Credit Arrangements
|
Long-Term
Debt
A summary of the carrying amounts and fair values of our
long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Effective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Book
|
|
|
Fair
|
|
|
Book
|
|
|
Fair
|
|
|
|
Rate
(1)
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
5.40% Senior Unsecured Notes due 2009 (less unamortized
discount of $0.1)
|
|
|
5.43
|
%
|
|
$
|
249.9
|
|
|
$
|
238.8
|
|
|
$
|
249.8
|
|
|
$
|
245.0
|
|
Floating Rate Senior Unsecured Notes due 2010 (less unamortized
discount of $7.5)
|
|
|
8.65
|
%
|
|
|
242.5
|
|
|
|
235.0
|
|
|
|
239.9
|
|
|
|
253.8
|
|
7.25% Senior Unsecured Notes due 2011
|
|
|
7.25
|
%
|
|
|
499.5
|
|
|
|
475.0
|
|
|
|
499.3
|
|
|
|
500.0
|
|
6.25% Senior Unsecured Notes due 2014 (less unamortized
discount of $0.7)
|
|
|
6.29
|
%
|
|
|
350.2
|
|
|
|
290.5
|
|
|
|
350.2
|
|
|
|
322.0
|
|
4.75% Convertible Senior Notes due 2023 (plus unamortized
premium of $11.7)
|
|
|
3.50
|
%
|
|
|
211.7
|
|
|
|
204.2
|
|
|
|
|
|
|
|
|
|
4.50% Convertible Senior Notes due 2023
|
|
|
4.50
|
%
|
|
|
200.0
|
|
|
|
202.2
|
|
|
|
400.0
|
|
|
|
467.2
|
|
4.25% Convertible Senior Notes due 2023 (plus unamortized
premium of $60.7)
|
|
|
0.58
|
%
|
|
|
460.7
|
|
|
|
404.8
|
|
|
|
475.2
|
|
|
|
487.2
|
|
Other notes payable and capitalized leases at
interest rates from 1.2% to 19.5%
|
|
|
|
|
|
|
38.8
|
|
|
|
|
|
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
2,253.3
|
|
|
|
|
|
|
|
2,251.2
|
|
|
|
|
|
Less: current
portion(2)
|
|
|
|
|
|
|
209.2
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
$
|
2,044.1
|
|
|
|
|
|
|
$
|
2,248.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Annual maturities as of December 31, 2007 are scheduled as
follows:
|
|
|
|
|
2008(2)
|
|
$
|
9.2
|
|
2009
|
|
|
252.3
|
|
2010
|
|
|
244.1
|
|
2011
|
|
|
500.6
|
|
2012(3)
|
|
|
0.7
|
|
Thereafter
|
|
|
1,246.4
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
2,253.3
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the effect of related gains/losses on interest rate
swaps on our 5.40% and 6.25% Senior Unsecured Notes that
were terminated in May 2005. The net cash receipts of the swap
terminations of $1.1 will be recorded as an offset to interest
expense over the remaining life of the related debt. |
|
(2) |
|
Holders of our $200.0 4.50% Notes may require us to
repurchase their 4.50% Notes for cash at par in March 2008
and as such, starting with the first quarter of 2007, we have
included these Notes in short-term debt on our Consolidated
Balance Sheets. |
|
(3) |
|
Holders of our $400.0 4.25% Notes may require us to
repurchase their 4.25% Notes for cash at par in March 2012. |
Debt
Transactions
Floating
Rate Senior Unsecured Notes
In December 2006, we exchanged all of our $250.0 Floating Rate
Notes due 2008 for $250.0 aggregate principal amount Floating
Rate Notes due 2010. The new Floating Rate Notes mature on
November 15, 2010 and bear interest at a per annum rate
equal to three-month LIBOR plus 200 basis points,
125 basis points less than the interest rate on the old
Floating Rate Notes. In connection with the exchange, we made an
early participation payment of $41.25 (actual amount) in cash
per $1,000 (actual amount) principal amount of old Floating Rate
Notes for a total payment of $10.3.
In accordance with EITF Issue
No. 96-19,
Debtors Accounting for a Modification or Exchange of
Debt Instruments
(EITF 96-19),
this transaction was treated as an exchange of debt for
accounting purposes because the present value of the remaining
cash flows under the terms of the original instrument were not
substantially different from those of the new instrument. The
new Floating Rate Notes were reflected on our 2006 Consolidated
Balance Sheet net of the $10.3 early participation payment on
exchange, which is amortized over the life of the new Floating
Rate Notes as a discount, using an effective interest method and
recorded in interest expense. We amortized $2.6 and $0.2 of the
discount in interest expense during 2007 and 2006, respectively.
Direct fees associated with the exchange of $3.5 were reflected
in interest expense in the 2006 Consolidated Statement of
Operations.
Convertible
Senior Notes
In November 2007, we exchanged $200.0 of our
4.50% Convertible Senior Notes due 2023 (the
4.50% Notes) for $200.0 aggregate principal
amount of 4.75% Convertible Senior Notes due 2023 (the
4.75% Notes). In accordance with
EITF 96-19
and EITF Issue
No. 06-6,
Debtors Accounting for a Modification (or Exchange) of
Convertible Debt Instruments
(EITF 06-6),
this exchange was treated as an extinguishment of the
4.50% Notes and an issuance of 4.75% Notes for
accounting purposes because the fair value of the embedded
conversion option under the terms of the original instrument was
substantially different from that of the new instrument. As a
result, the 4.75% Notes were reflected on our 2007
Consolidated Balance Sheet at their fair value at issuance, or
$212.0. We recorded a non-cash charge in the fourth quarter of
68
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
2007 of $12.0 reflecting the difference between the fair value
of the new debt and the carrying value of the 4.50% Notes
exchanged. The difference between the fair value and carrying
value will be amortized through March 15, 2013, which is
the first date holders may require us to repurchase the
4.75% Notes, resulting in a reduction of interest expense
in future periods.
In November 2006, we exchanged $400.0 of our 4.50% Notes
for $400.0 aggregate principal amount of 4.25% Convertible
Senior Notes due 2023 (the 4.25% Notes). In
accordance with
EITF 96-19,
this exchange was treated as an extinguishment of the
4.50% Notes and an issuance of 4.25% Notes for
accounting purposes because the present value of the remaining
cash flows plus the fair value of the embedded conversion option
under the terms of the original instrument were substantially
different from those of the new instrument. As a result, the
4.25% Notes were reflected on our 2006 Consolidated Balance
Sheet at their fair value at issuance, or $477.0. We recorded a
non-cash charge in the fourth quarter of 2006 of $77.0
reflecting the difference between the fair value of the new debt
and the carrying value of the old debt. The difference between
the fair value and carrying value will be amortized through
March 15, 2012, which is the first date holders may require
us to repurchase the 4.25% Notes, resulting in a reduction
of interest expense in future periods. We amortized $14.4 and
$1.8 of the premium in interest expense during 2007 and 2006,
respectively.
Convertible
Senior Note Terms
Conversion
Features
Our 4.25%, 4.50% and 4.75% Notes (Convertible
Notes) are convertible into our common stock at a
conversion price of $12.42 per share, subject to adjustment in
specified circumstances including, for the 4.25% and
4.75% Notes, any payment of cash dividends on our common
stock. The conversion rates of our Convertible Notes are also
subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other
actions by us that modify our capital structure. The Convertible
Notes provide for an additional make-whole
adjustment to the conversion rate in the event of a change of
control meeting specified conditions.
Our Convertible Notes 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 of the conversion price; this percentage
was equal to 118.0% in 2007 and declines 0.5% each year until it
reaches 110% at maturity. Each series of our Convertible Notes
is also convertible, regardless of the price of our common
stock, if: (i) we call that series of Convertible 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 that
series of Convertible Notes by any two of Moodys Investors
Service, Standard & Poors and Fitch Ratings are
lower than Ba2, BB and BB, respectively, or that series of
Convertible Notes is no longer rated by at least two of these
ratings services. Because of our current credit ratings, all of
our Convertible Notes are currently convertible. Our 4.25% and
4.75% Notes are also convertible, whether or not the above
conditions are met, from February 15 to March 15, 2023.
Repurchase
/ Redemption Options
Holders of our Convertible Notes may require us to repurchase
the Notes on certain dates for cash only, and on other dates for
cash or our common stock or a combination of cash and common
stock, at our election. Additionally, investors may require us
to repurchase our Convertible Notes in the event of certain
change of control events that occur prior to certain dates, for
cash or our common stock or a combination of cash and common
stock, at our election. At our option, we may redeem our
Convertible Notes on or at any time after certain dates for
cash. The redemption price in each of these instances will be
100% of the principal amount
69
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
of the Convertible Notes being redeemed, plus accrued and unpaid
interest, if any. The following table details when the
repurchase and redemption options occur for each of our
Convertible Notes:
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4.25% Notes
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4.50% Notes
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4.75% Notes
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Repurchase options
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For cash
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3/15/2012
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3/15/2008
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For cash, common stock or combination
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1) 3/15/2015
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1) 3/15/2013
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1) 3/15/2013
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2) 3/15/2018
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2) 3/15/2018
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2) 3/15/2018
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Change of control events occuring prior to:
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3/15/2012
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3/15/2008
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3/15/2013
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Redemption options
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For cash
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3/15/2012
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9/15/2009
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3/15/2013
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Participating
Security Features
With respect to the 4.50% Notes, 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.
In accordance with
EITF 03-6,
the 4.25% Notes and 4.75% Notes are not considered
securities with participation rights in earnings available to
common stockholders as there are no features attached to these
securities that allow holders to participate in our
undistributed earnings. The 4.50% Notes are considered
securities with participation rights in earnings available to
common stockholders due to the feature of these securities that
allows investors to participate in cash dividends paid on our
common stock. For periods in which we generate net income, the
impact of these securities participation rights is
included in the calculation of earnings per share. For periods
in which we incur a net loss, the 4.50% Notes have no
impact on the calculation of earnings per share due to the fact
that the holders of these securities do not participate in our
losses.
Embedded
Derivatives
The terms of the 4.50% Notes include two embedded
derivative instruments and the terms of our 4.75% Notes and
4.25% Notes each include one embedded derivative
instrument. The fair value of these derivatives on
December 31, 2007 and 2006 was negligible.
Credit
Arrangements
We have a committed credit agreement and uncommitted credit
facilities with various banks that permit borrowings at variable
interest rates. As of December 31, 2007 and 2006, there
were no borrowings under our committed credit facility. However,
there were borrowings under the uncommitted facilities made by
several of our subsidiaries outside the U.S. 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
70
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
facilities as of December 31, 2007 and 2006 was
approximately 5% in each year. A summary of our credit
facilities is as follows:
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December 31,
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2007
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2006
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Total
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Amount
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Letters
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Total
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Total
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Amount
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Letters
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Total
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Facility
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Outstanding
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of Credit
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Available
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Facility
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Outstanding
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of Credit
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Available
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Committed
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Credit Agreement
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$
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750.0
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$
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$
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222.9
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$
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527.1
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$
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750.0
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$
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$
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219.9
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$
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530.1
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Uncommitted
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Non-U.S
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$
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537.4
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$
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95.9
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$
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1.1
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$
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440.4
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$
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518.9
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$
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80.3
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$
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1.1
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$
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437.5
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Our primary credit agreement is a $750.0 Three-Year Credit
Agreement, dated as of June 13, 2006 (the Credit
Agreement). Under the Credit Agreement, a special-purpose
entity called ELF Special Financing Ltd. (ELF) acts
as the lender and letter of credit issuer. ELF is obligated at
our request to make cash advances to us and to issue letters of
credit for our account, in an aggregate amount not to exceed
$750.0 outstanding at any time. The aggregate face amount of
letters of credit may not exceed $600.0 at any time. Our
obligations under the Credit Agreement are unsecured. The Credit
Agreement is a revolving facility, under which amounts borrowed
may be repaid and borrowed again, and the aggregate available
amount of letters of credit may decrease or increase, subject to
the overall limit of $750.0 and the $600.0 limit on letters of
credit. We are not subject to any financial or other material
restrictive covenants under the Credit Agreement.
We pay commitment fees on the undrawn amount, less the letters
of credit, under the Credit Agreement at 0.78% per annum, and we
pay commissions of 0.78% per annum on the amounts available to
be drawn under the letters of credit. In addition, we pay a
facility fee equal to 0.15% per annum on the undrawn amount,
including letters of credit, under the facility. If we draw
under the facility, interest is payable on any outstanding
advances under the Credit Agreement at
3-month
LIBOR plus 0.78% per annum. The Credit Agreement will expire on
June 15, 2009.
We entered into the Credit Agreement during the second quarter
of 2006 as part of a transaction we refer to as the ELF
Financing. ELF is a special-purpose entity incorporated in
the Cayman Islands, in which we have no equity or other interest
and which we do not consolidate for financial reporting
purposes. In the ELF Financing, institutional investors
purchased from ELF debt securities issued by ELF (the ELF
Notes) and warrants issued by us (refer to Note 11).
ELF received $750.0 in proceeds from these sales, which it used
to purchase AAA-rated liquid assets. It will hold the liquid
assets pending any request for borrowing from us or any drawing
on any letters of credit issued for our account under the Credit
Agreement, which ELF will fund by selling liquid assets. We are
not the issuer of the ELF Notes and are not party to the
indenture governing the ELF Notes. In conjunction with the ELF
Financing we paid $41.2 of issuance costs, with the offset
recorded in other assets. The issuance costs consist of
approximately $25.0 of underwriting commissions, legal and
accounting fees, printing costs and other fees or expenses, with
the balance in a fee to one of the initial purchasers for its
services as structuring agent for the offering. These costs will
be amortized through the exercise date of the warrants on a
straight-line basis as a component of interest expense. During
2007, we amortized $13.7 of issuance costs.
Under certain circumstances, including certain events of default
involving us or occurring under the ELF Notes, the commitment to
make advances and issue letters of credit under the Credit
Agreement may be terminated by ELF, acting on instruction of the
holders of the ELF Notes. We will be entitled, prior to any such
termination, to make a borrowing of up to the entire available
amount of the commitment under the Credit Agreement (regardless
of whether our obligations under the Credit Agreement have been
accelerated). Upon termination of the commitment, the holders of
the ELF Notes will automatically receive interests in the
outstanding loans in exchange for their ELF Notes. Thereafter we
will not be able to borrow or reborrow
71
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
additional funds under the Credit Agreement, but the advances
will remain outstanding as term loans maturing on June 15,
2009 (subject to the rights of the holders to accelerate the
loans upon an event of default).
Cash
Poolings
We aggregate our net domestic cash position on a daily basis.
Outside the U.S., we use cash pooling arrangements with banks to
help manage our liquidity requirements. In these pooling
arrangements, several Interpublic agencies agree with a single
bank that the cash balances of any of the agencies with the bank
will be subject to a full right of setoff against amounts the
other agencies owe the bank, and the bank provides overdrafts as
long as the net balance for all the agencies does not exceed an
agreed-upon
level. Typically each agency pays interest on outstanding
overdrafts and receives interest on cash balances. Our
Consolidated Balance Sheets reflect cash net of overdrafts for
each pooling arrangement. As of December 31, 2007 and 2006,
a gross amount of $1,295.7 and $1,052.5, respectively, in cash
was netted against an equal gross amount of overdrafts under
pooling arrangements.
As part of the ELF Financing completed during the second quarter
of 2006, we issued 67.9 warrants, consisting of 29.1 capped
warrants (Capped Warrants) and 38.8 uncapped
warrants (Uncapped Warrants). In accordance with
EITF Issue
No. 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
(EITF 00-19),
we recorded $63.4 of deferred warrant cost in other assets, with
the offset recorded to additional paid-in capital within
stockholders equity. This amount is a non-cash transaction
and represents the fair value of the warrants at the transaction
close date estimated using the Black-Scholes option-pricing
model, which requires reliance on variables including the price
volatility of the underlying stock. The deferred warrant cost
will be amortized through the exercise date of the warrants as
issuance costs on a straight-line basis as a non-cash element of
interest expense. During 2007 and 2006, we amortized $21.1 and
$11.4, respectively, in interest expense in the Consolidated
Statements of Operations.
The stated exercise date of the warrants is June 15, 2009.
Following the exercise of the warrants each warrant will entitle
the warrant holder to receive an amount in cash, shares of our
common stock, or a combination of cash and shares of our common
stock, at our option. The amount will be based, subject to
customary adjustments, on the difference between the market
price of one share of our common stock (calculated as the
average share price over 30 trading days following expiration)
and the stated exercise price of the warrant. For the Uncapped
Warrants, the exercise price is $11.91 per warrant. For the
Capped Warrants, the exercise price is $9.89 per warrant but the
amount deliverable upon exercise is capped so a holder will not
benefit from appreciation of the common stock above $12.36 per
share.
Concurrently with the issuance of the warrants described above,
we entered into call spread transactions with four different
counterparties to reduce the potential dilution or cash cost
upon exercise of the Uncapped Warrants. Each transaction gives
us the right to receive, upon expiration of the options
thereunder, an amount in cash, shares of our common stock, or a
combination of cash and shares of our common stock, at our
option. The amount will be based, subject to customary
adjustments, on the difference between the market price of one
share of our common stock (calculated as the average share price
over 30 trading days following expiration) and $11.91 per share,
the exercise price of the Uncapped Warrants. The amount
deliverable to us under the call spread transactions, however,
is capped so we will not receive any amount relating to
appreciation of our common stock above $14.38 per share, and we
will incur dilution or cash costs upon exercise of the Uncapped
Warrants to the extent our share price exceeds $14.38 per share
at that time. The four transactions cover an aggregate notional
amount of 38.8 shares, equivalent to the full number of the
Uncapped Warrants, and had an aggregate purchase price of $29.2.
In accordance with
EITF 00-19
the cost of the four transactions has been recorded as a
reduction to additional paid-in capital within
stockholders equity.
72
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
In accordance with
EITF 03-6,
the warrants are not considered securities with participation
rights in earnings available to common stockholders due to the
contingent nature of the exercise feature of these securities.
|
|
Note 12:
|
Convertible
Preferred Stock
|
Each share of our 5.25% Series B Cumulative Convertible
Perpetual Preferred Stock (Series B Preferred
Stock) has a liquidation preference of $1,000 per share
and is convertible at the option of the holder at any time into
73.1904 shares of our common stock, subject to adjustment
upon the occurrence of certain events, which represents a
conversion price of $13.66. On or after October 15, 2010,
each share of the Series B Preferred Stock may be converted
at our option if the closing price of our common stock
multiplied by the conversion rate then in effect equals or
exceeds 130% of the liquidation preference of $1,000 per share
for 20 trading days during any consecutive 30 trading day
period. Holders of the Series B Preferred Stock will be
entitled to an adjustment to the conversion rate if they convert
their shares in connection with a fundamental change meeting
certain specified conditions. The Series B Preferred Stock
is junior to all of our existing and future debt obligations and
senior to our common stock, with respect to payments of
dividends and rights upon liquidation, winding up or
dissolution, to the extent of the liquidation preference of
$1,000 per share.
The terms of the Series B Preferred Stock include an
embedded derivative instrument, the fair value of which as of
December 31, 2007 and 2006 was negligible.
In accordance with
EITF 03-6,
the Series B Preferred Stock is not considered a security
with participation rights in earnings available to common
stockholders due to the contingent nature of the conversion
feature of these securities.
Payment
of Dividends
The terms of our Series B Preferred Stock do not permit us
to pay dividends on our common stock unless all accumulated and
unpaid dividends on the Series B Preferred Stock have been
or contemporaneously are declared and paid, or provision for the
payment thereof has been made.
We paid dividends of $27.6, or $52.50 per share, on our
Series B Preferred Stock during 2007. Regular quarterly
dividends, if declared, are $6.9, or $13.125 per share.
Dividends on each share of Series B Preferred Stock are
payable quarterly in cash or, if certain conditions are met, in
common stock, at our option, on January 15, April 15,
July 15 and October 15 of each year. The dividend rate of the
Series B Preferred Stock will be increased by one
percentage point if we do not pay dividends on the Series B
Preferred Stock for six quarterly periods (whether consecutive
or not). The dividend rate will revert back to the original rate
once all unpaid dividends are paid in full.
Dividends on our Series B Preferred Stock are cumulative
from the date of issuance and are payable on each payment date
to the extent that we have assets that are legally available to
pay dividends and our Board of Directors or an authorized
committee of our Board declares a dividend payable. Pursuant to
the terms of the Series B Preferred Stock, if we do not pay
dividends on any series of our preferred stock for six quarterly
periods (whether consecutive or not), then holders of all series
of our preferred stock then outstanding will have the right to
elect two additional directors to the Board. These additional
directors will remain on the Board until all accumulated and
unpaid dividends on our cumulative preferred stock have been
paid in full, or to the extent any series of non-cumulative
preferred stock is outstanding, until non-cumulative dividends
have been paid regularly for at least one year.
73
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 13:
|
Employee
Benefits
|
Pension
Plans
We have a defined benefit pension plan (Domestic
Plan) which covers substantially all regular domestic
employees employed through March 31, 1998. This plan
features a traditional career pay benefit as well as a cash
balance benefit, which was added in 1992. Post-1992 participants
are eligible for the cash balance benefit only. For pre-1992
participants, the benefit is the greater of the cash balance
benefit or the career pay benefit formula. Participants are
eligible to receive their benefit in the form of a lump sum
payment or an annuity. Effective April 1, 1998, plan
participation and benefit accruals for the Domestic Plan were
frozen and participants with less than five years of service
became fully vested. As of December 31, 2007, there were
approximately 4,500 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 compensation arrangement, the
Supplemental Compensation Plan (described below).
Some of our agencies have additional domestic plans covering a
total of approximately 300 employees. These plans are also
closed to new participants.
We also have numerous plans outside the U.S., some of which are
funded, while others provide payments at the time of retirement
or termination under applicable labor laws or agreements. The
Interpublic Pension Plan in the U.K. (U.K. Pension
Plan) is the most material foreign pension plan in terms
of the benefit obligation and plan assets. This plan is a
defined benefit plan offering plan participants a final average
pay benefit. Effective November 1, 2002, the U.K. Pension
Plan was closed to new entrants, but existing participants may
continue to earn benefits under the plan. New employees after
November 1, 2002 may be eligible to join the industry
wide plan that operates on a defined contribution basis.
Effective July 1, 2007, certain remaining participants of
the U.K. Pension Plan chose to join a defined contribution plan
for future service. Benefits accrued through July 1, 2007
will continue to be linked to a final average pay benefit.
Postretirement
Benefit Plans
Some of our domestic subsidiaries provide postretirement health
benefits to eligible employees and their dependents and
postretirement life insurance to eligible employees. For
domestic employees to be eligible for postretirement health
benefits, an employee had to be hired prior to January 1,
1988 (June 22, 2001 for domestic employees of the former
True North Communications companies). To be eligible for life
insurance, an employee had to be hired prior to December 1,
1961 (June 22, 2001 for domestic employees of the former
True North Communications companies). Benefits are provided to
retirees before and after eligibility for Medicare, and our cost
is based on each participants retirement date and pre- and
post-Medicare eligibility. As of December 31, 2007, there
were approximately 3,600 participants in these plans.
Our postretirement health benefits plans are unfunded, and we
pay claims as presented by the plans administrator. The
postretirement life insurance plan is insured and we pay
premiums to the plan administrator.
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 postretirement health benefits plans that provide
a benefit that is at least actuarially equivalent to the
Medicare Part D benefit. The prescription drug benefit
provided to certain participants in the postretirement medical
plan is at least actuarially equivalent to the Medicare
Part D benefit, and, accordingly, we are entitled to a
subsidy. Our application for the subsidy for 2007 was accepted
by the Department of Health and Human Services. We elected to
prospectively recognize the effect of the Act during the third
quarter of 2004. The expected subsidy reduced the accumulated
postretirement benefit obligation by $5.0 at adoption, and the
net periodic cost by $1.0 for 2007, 2006 and 2005 compared to
the amount calculated without considering the effects of the
subsidy.
74
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Certain of our foreign subsidiaries provide postretirement
health benefits to eligible employees and their dependents.
Eligibility requirements and benefit provisions vary in each
country. As of December 31, 2007, the benefit obligation of
these plans was $1.5 and there were approximately 100
participants in these plans. The expense recognized during 2007
was $0.1.
Adoption
of SFAS 158
On September 29, 2006, the FASB issued SFAS 158.
SFAS 158 requires an employer to recognize an asset or
liability for the overfunded or underfunded status of their
pension and other postretirement benefit plans. For a pension
plan, the asset or liability is the difference between the fair
value of the plans assets and the projected benefit
obligation. For any other postretirement benefit plan, the asset
or liability is the difference between the fair value of the
plans assets and the accumulated postretirement benefit
obligation. SFAS 158 requires employers to recognize all
unrecognized transition obligations and assets, prior service
costs and credits and actuarial gains and losses in accumulated
other comprehensive loss, net of tax. Such amounts are adjusted
as they are subsequently recognized through the components of
net periodic benefit cost or income pursuant to the amortization
provisions.
The following table summarizes the effect of required changes in
the additional minimum liability (AML) as of December 31,
2006 prior to the adoption of SFAS 158 as well as the
impact of the initial adoption of SFAS 158 for domestic
plans, the principal foreign pension plans and the
postretirement benefit plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
December 31, 2006
|
|
|
|
|
|
2006
|
|
|
|
Prior to SFAS No.
|
|
|
|
|
|
Post SFAS No. 158
|
|
|
|
158 Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Pension assets
|
|
$
|
6.9
|
|
|
$
|
(0.7
|
)
|
|
$
|
6.2
|
|
Other assets
|
|
|
0.7
|
|
|
|
(0.7
|
)
|
|
|
|
|
Pension liabilities
|
|
|
187.6
|
|
|
|
37.6
|
|
|
|
225.2
|
|
Postretirement liabilities
|
|
|
49.1
|
|
|
|
20.8
|
|
|
|
69.9
|
|
Accumulated other comprehensive loss
|
|
|
(71.7
|
)
|
|
|
(42.6
|
)
|
|
|
(114.3
|
)
|
75
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
The following table summarizes the components and related tax
effects of accumulated other comprehensive loss for 2007
subsequent to the adoption of SFAS 158.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
|
|
|
Total Before
|
|
|
Tax (Expense)
|
|
|
Net After Tax
|
|
|
|
Pension Plans
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
Tax Amount
|
|
|
Benefit
|
|
|
Amount
|
|
|
Curtailments
|
|
$
|
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
0.7
|
|
Settlements
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Current year actuarial gain
|
|
|
11.4
|
|
|
|
30.1
|
|
|
|
6.0
|
|
|
|
47.5
|
|
|
|
(7.3
|
)
|
|
|
40.2
|
|
Amortization of actuarial loss
|
|
|
6.8
|
|
|
|
2.8
|
|
|
|
0.9
|
|
|
|
10.5
|
|
|
|
(3.2
|
)
|
|
|
7.3
|
|
Current year prior service cost
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
Amortization of prior service cost (credit)
|
|
|
|
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
Other
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
0.8
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in accumulated other comprehensive loss
|
|
$
|
18.2
|
|
|
$
|
31.1
|
|
|
$
|
7.0
|
|
|
$
|
56.3
|
|
|
$
|
(9.8
|
)
|
|
$
|
46.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in accumulated other comprehensive loss that are
expected to be recognized as components of net periodic benefit
cost during 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension
|
|
|
Foreign Pension
|
|
|
Postretirement
|
|
|
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Benefit Plans
|
|
|
Total
|
|
|
Actuarial loss
|
|
$
|
4.9
|
|
|
$
|
0.6
|
|
|
$
|
0.7
|
|
|
$
|
6.2
|
|
Prior service cost (credit)
|
|
|
|
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
0.3
|
|
Transition obligation
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
76
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Pension
and Postretirement Net Periodic Cost
The following table identifies the components of net periodic
cost for the domestic pension plans, the principal foreign
pension plans, and the postretirement benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension Plans
|
|
|
Foreign Pension
Plans(1)
|
|
|
Postretirement Benefit Plans
|
|
Years Ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
0.8
|
|
|
$
|
0.7
|
|
|
$
|
15.1
|
|
|
$
|
17.5
|
|
|
$
|
17.2
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
Interest cost
|
|
|
8.2
|
|
|
|
8.9
|
|
|
|
8.6
|
|
|
|
26.1
|
|
|
|
22.8
|
|
|
|
21.7
|
|
|
|
3.5
|
|
|
|
3.5
|
|
|
|
3.8
|
|
Expected return on plan assets
|
|
|
(10.3
|
)
|
|
|
(9.3
|
)
|
|
|
(9.4
|
)
|
|
|
(24.0
|
)
|
|
|
(19.8
|
)
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment gains
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(2.3
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement (gains) losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
0.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
1.4
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Prior service cost (credit)
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Unrecognized actuarial losses
|
|
|
6.8
|
|
|
|
7.0
|
|
|
|
6.3
|
|
|
|
2.8
|
|
|
|
6.5
|
|
|
|
6.7
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
0.9
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
$
|
4.7
|
|
|
$
|
7.4
|
|
|
$
|
6.0
|
|
|
$
|
19.3
|
|
|
$
|
25.4
|
|
|
$
|
37.1
|
|
|
$
|
5.0
|
|
|
$
|
4.7
|
|
|
$
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average assumptions used to determine the net
periodic cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefit
|
|
|
|
Domestic Pension Plans
|
|
|
Foreign Pension
Plans(1)
|
|
|
Plans
|
|
Years Ended December
31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.68
|
%
|
|
|
5.41
|
%
|
|
|
5.45
|
%
|
|
|
4.64
|
%
|
|
|
4.38
|
%
|
|
|
4.81
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.50
|
%
|
|
|
3.29
|
%
|
|
|
3.26
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected return on plan assets
|
|
|
8.16
|
%
|
|
|
8.17
|
%
|
|
|
8.63
|
%
|
|
|
6.83
|
%
|
|
|
6.52
|
%
|
|
|
6.28
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
We have excluded certain immaterial foreign plans and presented
only the principal foreign plans. |
77
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Pension
and Postretirement Benefit Obligation
The change in the benefit obligation, the change in plan assets,
the funded status and amounts recognized for the domestic
pension plans, the principal foreign pension plans, and the
postretirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Domestic Pension Plans
|
|
|
Foreign Pension
Plans(1)
|
|
|
Benefit Plans
|
|
December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1
|
|
$
|
156.4
|
|
|
$
|
169.0
|
|
|
$
|
508.4
|
|
|
$
|
497.1
|
|
|
$
|
69.9
|
|
|
$
|
73.2
|
|
Service cost
|
|
|
|
|
|
|
0.8
|
|
|
|
15.1
|
|
|
|
17.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Interest cost
|
|
|
8.2
|
|
|
|
9.0
|
|
|
|
26.1
|
|
|
|
22.7
|
|
|
|
3.5
|
|
|
|
3.5
|
|
Benefits paid
|
|
|
(13.6
|
)
|
|
|
(17.4
|
)
|
|
|
(23.1
|
)
|
|
|
(24.1
|
)
|
|
|
(6.0
|
)
|
|
|
(7.5
|
)
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
2.2
|
|
|
|
1.7
|
|
|
|
1.5
|
|
Plan amendments
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Actuarial gains
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
(30.2
|
)
|
|
|
(25.8
|
)
|
|
|
(6.0
|
)
|
|
|
(1.3
|
)
|
Curtailments
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
(0.7
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
(4.9
|
)
|
|
|
(34.8
|
)
|
|
|
|
|
|
|
|
|
Business acquisitions and divestitures
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency effect
|
|
|
|
|
|
|
|
|
|
|
20.4
|
|
|
|
49.3
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
0.8
|
|
|
|
19.1
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31
|
|
$
|
143.8
|
|
|
$
|
156.4
|
|
|
$
|
535.4
|
|
|
$
|
508.4
|
|
|
$
|
63.6
|
|
|
$
|
69.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
133.1
|
|
|
$
|
116.3
|
|
|
$
|
312.7
|
|
|
$
|
275.3
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
14.5
|
|
|
|
15.5
|
|
|
|
23.9
|
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
|
|
|
|
17.9
|
|
|
|
30.1
|
|
|
|
24.8
|
|
|
|
4.3
|
|
|
|
6.0
|
|
Plan participant contributions
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
2.2
|
|
|
|
1.7
|
|
|
|
1.5
|
|
Benefits paid
|
|
|
(13.6
|
)
|
|
|
(17.4
|
)
|
|
|
(23.1
|
)
|
|
|
(24.2
|
)
|
|
|
(6.0
|
)
|
|
|
(7.5
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
(35.6
|
)
|
|
|
|
|
|
|
|
|
Foreign currency effect
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
|
|
30.4
|
|
|
|
|
|
|
|
|
|
Business acquisitions and divestitures
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
0.8
|
|
|
|
13.2
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31
|
|
$
|
134.0
|
|
|
$
|
133.1
|
|
|
$
|
363.7
|
|
|
$
|
312.7
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
$
|
(9.8
|
)
|
|
$
|
(23.3
|
)
|
|
$
|
(171.7
|
)
|
|
$
|
(195.7
|
)
|
|
$
|
(63.6
|
)
|
|
$
|
(69.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Domestic Pension Plans
|
|
|
Foreign Pension
Plans(1)
|
|
|
Benefit Plans
|
|
December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Amounts recognized in consolidated balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset
|
|
$
|
3.5
|
|
|
$
|
1.8
|
|
|
$
|
6.5
|
|
|
$
|
4.4
|
|
|
$
|
|
|
|
$
|
|
|
Current liability
|
|
|
|
|
|
|
|
|
|
|
(7.2
|
)
|
|
|
(7.0
|
)
|
|
|
(5.7
|
)
|
|
|
(5.9
|
)
|
Non-current liability
|
|
|
(13.3
|
)
|
|
|
(25.1
|
)
|
|
|
(171.0
|
)
|
|
|
(193.1
|
)
|
|
|
(57.9
|
)
|
|
|
(64.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability recognized
|
|
$
|
(9.8
|
)
|
|
$
|
(23.3
|
)
|
|
$
|
(171.7
|
)
|
|
$
|
(195.7
|
)
|
|
$
|
(63.6
|
)
|
|
$
|
(69.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
143.8
|
|
|
$
|
156.4
|
|
|
$
|
493.0
|
|
|
$
|
462.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
40.8
|
|
|
$
|
59.0
|
|
|
$
|
44.1
|
|
|
$
|
76.4
|
|
|
$
|
13.8
|
|
|
$
|
20.8
|
|
Prior service cost (credit)
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
3.7
|
|
|
|
1.5
|
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized
|
|
$
|
41.0
|
|
|
$
|
59.2
|
|
|
$
|
48.7
|
|
|
$
|
78.8
|
|
|
$
|
13.8
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension Plans
|
|
|
Foreign Pension
Plans(1)
|
|
December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Plans with underfunded or unfunded accumulated benefit
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate projected benefit obligation
|
|
$
|
129.9
|
|
|
$
|
142.9
|
|
|
$
|
520.1
|
|
|
$
|
496.3
|
|
Aggregate accumulated benefit obligation
|
|
|
129.9
|
|
|
|
142.9
|
|
|
|
480.4
|
|
|
|
455.0
|
|
Aggregate fair value of plan assets
|
|
|
116.6
|
|
|
|
117.7
|
|
|
|
342.1
|
|
|
|
296.3
|
|
|
|
|
(1) |
|
We have excluded certain immaterial foreign plans and presented
only the principal foreign plans. |
Differences between the aggregate balance sheet amounts listed
above and the totals reported in our Consolidated Balance Sheets
and our Consolidated Statements of Stockholders Equity and
Comprehensive Income (Loss) relate to the non-material foreign
plans.
The weighted-average assumptions used in determining the
actuarial present value of our benefit obligations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Pension
Plans(1)
|
|
|
Benefit Plans
|
|
December 31,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
5.89
|
%
|
|
|
5.68
|
%
|
|
|
5.33
|
%
|
|
|
4.82
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
Healthcare cost trend rate assumed for next year Initial rate
(weighted-average)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.00
|
%
|
|
|
9.50
|
%
|
Year ultimate rate is reached
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
2015
|
|
Ultimate rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.50
|
%
|
|
|
5.50
|
%
|
|
|
|
(1) |
|
We have excluded certain immaterial foreign plans and presented
only the principal foreign plans. |
79
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Determination
of Discount Rates
For the domestic pension and postretirement benefit plans, we
determine our discount rate based on the estimated rate at which
annuity contracts could be purchased to effectively settle the
respective benefit obligations. In determining the discount
rate, we utilize a yield curve based on Moodys Aa-rated
corporate non-callable bonds. Each plans projected cash
flow is matched to this yield curve and a present value is
developed, which is then used to develop a single equivalent
discount rate. The average duration of our domestic pension and
postretirement health care obligations was 10 years as of
December 31, 2007.
For the foreign pension plans, we determine a discount rate by
referencing market yields on high quality corporate bonds in the
local markets with the appropriate term as of December 31,
2007.
Determination
of the Expected Return on Assets
For the Domestic Plan, we develop the long-term expected rate of
return assumptions which we use to model and determine overall
asset allocations. Our rate of return analyses factor in
historical trends, current market conditions, risk premiums
associated with asset classes and long-term inflation rates. We
determine both a short-term (5-7 year) and long-term
(30 year) view and then attempt to select a long-term rate
of return assumption that matches the duration of our
liabilities. Factors included in the analysis of returns include
historical trends of asset class index returns over various
market cycles and economic conditions.
The U.K. Pension Plan makes up 86% of the foreign plan assets.
The U.K. Pension Plans statement of investment principles
specifies benchmark allocations by asset category for each
investment manager employed, with specified ranges around the
central benchmark allocation. For the U.K. Pension Plan, we
determine the expected rate of return by utilizing a weighted
average approach based on the current long-term expected rates
of return for each asset category. The long-term expected rate
of return for the equity category is based on the current
long-term rates of return available on government bonds and
applying suitable risk premiums that consider historical market
returns and current market expectations.
Asset
Allocation
The primary investment goal for our plans 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.
As of December 31, 2007 our domestic and foreign (primarily
the U.K.) pension plans target asset allocations for 2008,
as well as the actual asset allocations as of December 31,
2007 and 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at December 31,
|
|
|
|
2008 Target Allocation
|
|
|
Domestic
|
|
|
Foreign
|
|
Asset category
|
|
Domestic
|
|
|
Foreign
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
50
|
%
|
|
|
65
|
%
|
|
|
49
|
%
|
|
|
52
|
%
|
|
|
65
|
%
|
|
|
66
|
%
|
Fixed income securities
|
|
|
25
|
%
|
|
|
23
|
%
|
|
|
26
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
22
|
%
|
Real estate
|
|
|
10
|
%
|
|
|
3
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
Other
|
|
|
15
|
%
|
|
|
9
|
%
|
|
|
17
|
%
|
|
|
19
|
%
|
|
|
9
|
%
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of our own stock held as investment for our
domestic and foreign pension funds is considered negligible
relative to the total fund assets.
80
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Healthcare
Cost Trend
Assumed healthcare cost trend rates have a moderate effect on
the amounts reported for the postretirement benefit plans. We
develop our healthcare cost trend rate assumptions based on data
collected on recent trends and forecasts. A one percentage point
change in assumed healthcare cost trend rates would have the
following effects:
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
Effect of a one percentage point change in assumed healthcare
cost trend
|
|
|
|
|
|
|
|
|
on total service and interest cost components
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
on postretirement benefit obligation
|
|
|
1.4
|
|
|
|
(1.2
|
)
|
Cash
Flows
Contributions For 2008, we do not expect to
contribute to our domestic pension plans, and we expect to
contribute $24.7 to our foreign pension plans. During 2007, we
did not contribute to our domestic pension plans and we
contributed $30.1 to our foreign pension plans.
Estimated Future Payments The following
estimated future payments, which reflect future service, as
appropriate, are expected to be paid in the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
|
|
Years
|
|
Pension Plans
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
2008
|
|
$
|
13.0
|
|
|
$
|
23.1
|
|
|
$
|
6.3
|
|
2009
|
|
|
12.6
|
|
|
|
22.8
|
|
|
|
6.4
|
|
2010
|
|
|
11.8
|
|
|
|
21.1
|
|
|
|
6.5
|
|
2011
|
|
|
11.4
|
|
|
|
22.5
|
|
|
|
6.5
|
|
2012
|
|
|
11.7
|
|
|
|
25.8
|
|
|
|
6.5
|
|
2013 - 2017
|
|
|
52.9
|
|
|
|
145.6
|
|
|
|
30.2
|
|
The estimated future 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 $0.6 in 2008 to $0.9 in 2012 and are estimated to be $5.0
for the period
2013-2017.
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 this 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. Payments began in 2003 and are scheduled to end
in 2008. As of December 31, 2007 and 2006, the Supplemental
Compensation Plan liability recorded was $3.0 and $5.4,
respectively. Amounts (reversed) expensed for the Supplemental
Compensation Plan in 2007, 2006 and 2005 were $(0.1), $0.6 and
$1.0, respectively.
Savings
Plans
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 $32.5, $31.2 and $29.9 to the Savings Plan in 2007,
2006 and 2005, respectively. During 2007, we used approximately
$6.0 of participant forfeitures to
81
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
offset our Savings Plan contributions. We contributed $8.1 to
the Savings Plan during 2007 for the performance-based
discretionary match for 2006 and during 2008, we expect to
contribute $4.9 for 2007. In addition, we maintain defined
contribution plans in various foreign countries and contributed
$26.7, $11.8 and $5.3 to these plans in 2007, 2006 and 2005,
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) require us
to contribute an amount to the participants 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, 2007 and 2006, the deferred compensation
liability balance was $137.6 and $143.9, respectively. Amounts
expensed for deferred compensation arrangements in 2007, 2006
and 2005 were $11.9, $10.3 and $10.2, respectively.
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
participants employment has terminated. The deferred
benefit liability was $164.5 and $157.9 as of December 31,
2007 and 2006, respectively. Amounts expensed for deferred
benefit arrangements in 2007, 2006 and 2005 were $15.5, $13.7
and $30.9, respectively.
A significant assumption used to estimate certain deferred
benefit liabilities is a participants retirement age. For
one of our more significant deferred benefit arrangements,
during the fourth quarter of 2005, based on an analysis of
recent trends, we determined most eligible participants were
retiring and beginning to collect their deferred benefits at
age 60. This compares to previous periods which used an
assumed retirement of age 65 within the related deferred
benefit liability calculation. This change in estimate, recorded
during the fourth quarter of 2005, resulted in a $14.8 charge to
salaries and related expenses, with a corresponding increase to
the deferred benefit liability.
We have purchased life insurance policies on participants
lives to assist in the funding of the related deferred
compensation and deferred benefit liabilities. As of
December 31, 2007 and 2006, the cash surrender value of
these policies was $109.7 and $117.0, respectively. In addition
to the life insurance policies, certain investments are held for
the purpose of paying the deferred compensation and deferred
benefit liabilities. These investments, along with the life
insurance policies, are held in a separate revocable trust for
the purpose of paying the deferred compensation and the deferred
benefit arrangement liabilities. As of December 31, 2007
and 2006, the value of such investments in the trust was $93.5
and $88.5, respectively. The short-term investments, long-term
investments and cash surrender value of the policies in the
trust are included in cash and cash equivalents, investments and
other assets, respectively.
Long-term
Disability Plan
We have a Long-term Disability (LTD) plan which
provides income replacement benefits to eligible participants
who are unable to perform their job duties during the first
24 months of disability. Benefits are continued thereafter
if the participant is unable to perform any job related to his
or her education, training or experience, provided the
participants receive disability benefits from Social Security.
As all income replacement benefits are fully insured, no related
obligation is required as of December 31, 2007 and 2006. In
addition to income replacement benefits, LTD participants may
remain covered for certain health and life insurance benefits up
to age 65 (subject to minimum periods depending on the
participants age at time of disability). We have recorded
an obligation of $7.1 and $6.9 as of December 31, 2007 and
2006, respectively, related to medical, dental benefits and life
insurance benefits for LTD participants.
82
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 14:
|
Stock-Based
Compensation
|
2006
Performance Incentive Plan
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. In May
2006, our shareholders approved the 2006 Performance Incentive
Plan (the 2006 PIP). Under the 2006 PIP, up to
6.0 shares of common stock may be used for granting stock
options and stock appreciation rights and up to 33.0 shares
of common stock may be used for granting performance-based
awards and other stock-based awards. Subject to the terms of the
2006 PIP, additional awards may be granted from shares available
for issuance under previous plans and in other limited
circumstances. Only a certain number of shares are available for
each type of award under the 2006 PIP, and there are limits on
the number of shares that may be awarded to any one participant.
The vesting period of awards granted is generally commensurate
with the requisite service period. We generally issue new shares
to satisfy the exercise of stock options or the distribution of
other stock-based awards. We granted awards under the 2006 PIP
for 2007 and 2006.
The following table summarizes stock-based compensation expense
included in salaries and related expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Stock-based compensation expense
|
|
$
|
85.9
|
|
|
$
|
72.3
|
|
|
$
|
46.1
|
|
Tax benefit
|
|
|
33.1
|
|
|
|
24.4
|
|
|
|
15.9
|
|
In addition, stock-based compensation expense of $4.9 is
included in other reorganization-related charges for the year
ended December 31, 2006. Stock-based compensation expense
included in other reorganization-related charges was negligible
for the year ended December 31, 2007.
The following table illustrates the pro forma effect on net loss
applicable to common stockholders and loss per share if we had
applied the fair value recognition provisions of SFAS 123
and SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
An Amendment of FASB No. 123 to all stock-based
employee compensation, net of forfeitures for our stock option
and ESPP plans for the year ended December 31, 2005:
|
|
|
|
|
As reported, net loss
|
|
$
|
(262.9
|
)
|
Dividends on preferred stock
|
|
|
26.3
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(289.2
|
)
|
Add back:
|
|
|
|
|
Stock-based employee compensation expense included in net loss
applicable to common stockholders, net of tax
|
|
|
30.2
|
|
Less:
|
|
|
|
|
Total fair value of stock-based employee compensation expense,
net of tax
|
|
|
(62.6
|
)
|
|
|
|
|
|
Pro forma net loss applicable to common stockholders
|
|
$
|
(321.6
|
)
|
|
|
|
|
|
Loss per share basic and diluted
|
|
|
|
|
As reported
|
|
$
|
(0.68
|
)
|
Pro forma
|
|
$
|
(0.76
|
)
|
83
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Employee
Stock Purchase Plans
The Interpublic Group of Companies Employee Stock Purchase Plan
(2006) (the 2006 Plan) became active April 1,
2007. Under the 2006 Plan, eligible employees may purchase our
common stock through payroll deductions not exceeding 10% of
their eligible compensation or 900 (actual number) shares each
offering period. The price an employee pays for a share of
common stock under the 2006 Plan is 90% of the lesser of the
average market price of a share on the first business day of the
offering period or the average market price of a share on the
last business day of the offering period of three months. An
aggregate of 15.0 shares are reserved for issuance under
the 2006 Plan, of which 0.3 shares were issued for the year
ended December 31, 2007. Total compensation expense
associated with the issued shares was $0.6 for the year ended
December 31, 2007.
Stock
Options
Stock options are granted with the exercise price equal to the
fair market value of our common stock on the grant date, are
generally exercisable between two and four years from the grant
date and expire ten years from the grant date (or earlier in the
case of certain terminations of employment).
The following tables are a summary of stock option activity
during 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Contractual Term
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
Stock options outstanding as of January 1, 2007
|
|
|
32.6
|
|
|
$
|
23.94
|
|
|
|
|
|
Granted
|
|
|
2.6
|
|
|
|
11.68
|
|
|
|
|
|
Exercised
|
|
|
(0.3
|
)
|
|
|
9.66
|
|
|
|
|
|
Cancelled/expired
|
|
|
(6.5
|
)
|
|
|
29.76
|
|
|
|
|
|
Forfeited
|
|
|
(0.1
|
)
|
|
|
10.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding as of December 31, 2007
|
|
|
28.3
|
|
|
|
21.73
|
|
|
|
5.0
|
|
Stock options vested and expected to vest as of
December 31, 2007
|
|
|
26.8
|
|
|
|
22.37
|
|
|
|
4.8
|
|
Stock options exercisable at December 31, 2007
|
|
|
20.5
|
|
|
|
25.92
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
Remaining
|
|
|
|
|
|
|
Fair Value
|
|
|
Contractual Term
|
|
|
|
Options
|
|
|
(per option)
|
|
|
(in years)
|
|
|
Non-vested as of January 1, 2007
|
|
|
6.3
|
|
|
$
|
4.80
|
|
|
|
|
|
Granted
|
|
|
2.6
|
|
|
|
4.89
|
|
|
|
|
|
Vested
|
|
|
(1.0
|
)
|
|
|
5.62
|
|
|
|
|
|
Forfeited
|
|
|
(0.1
|
)
|
|
|
4.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2007
|
|
|
7.8
|
|
|
|
4.73
|
|
|
|
8.5
|
|
There were 0.3, 0.1 and 0.2 stock options exercised during 2007,
2006 and 2005, respectively. The total intrinsic value of stock
options exercised during 2007, 2006 and 2005 was $0.9, $0.2, and
$0.4, respectively. Accordingly, the related excess tax benefit
classified as an inflow on the Consolidated Statements of Cash
Flows was $0.3 and $0.1 in 2007 and 2006, respectively. The cash
received from the stock options exercised
84
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
in 2007, 2006 and 2005 was $3.0, $0.9 and $0.2, respectively. As
of December 31, 2007 there was $23.4 of total unrecognized
compensation expense related to non-vested stock options
granted, which is expected to be recognized over a
weighted-average period of 2.4 years. As of
December 31, 2007, the aggregate intrinsic value for stock
options outstanding, vested and expected to vest, exercisable
and non-vested is zero.
We use the Black-Scholes option-pricing model to estimate the
fair value of options granted, which requires the input of
subjective assumptions including the options expected term
and the price volatility of the underlying stock. Changes in the
assumptions can materially affect the estimate of fair value and
our results of operations could be materially impacted.
The fair value of each option grant has been estimated with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected
volatility(1)
|
|
|
34.6
|
%
|
|
|
38.9
|
%
|
|
|
41.0
|
%
|
Expected term
(years)(2)
|
|
|
6.0
|
|
|
|
5.9
|
|
|
|
5.8
|
|
Risk free interest
rate(3)
|
|
|
4.8
|
%
|
|
|
5.1
|
%
|
|
|
4.0
|
%
|
Expected dividend
yield(4)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Option grant price
|
|
$
|
11.68
|
|
|
$
|
8.73
|
|
|
$
|
12.39
|
|
Option grant-date fair value
|
|
$
|
4.89
|
|
|
$
|
3.91
|
|
|
$
|
5.62
|
|
|
|
|
(1) |
|
The expected volatility for the second half of 2005 and the
twelve months ended December 31, 2007 and 2006 used to
estimate the fair value of stock options awarded is based on a
blend of: (i) historical volatility of our common stock for
periods equal to the expected term of our stock options and
(ii) implied volatility of tradable forward put and call
options to purchase and sell shares of our common stock. For the
first half of 2005, the expected volatility factor was based on
historical volatility of our common stock over the most recent
period commensurate with the estimated expected term of our
stock options. |
|
(2) |
|
The estimate of our expected term for the second half of 2005
and the twelve months ended December 31, 2007 and 2006 is
based on the average of (i) an assumption that all
outstanding options are exercised upon achieving their full
vesting date and (ii) an assumption that all outstanding
options will be exercised at the midpoint between the current
date (i.e., the date awards have ratably vested through) and
their full contractual term. In determining the estimate, we
considered several factors, including the historical option
exercise behavior of our employees and the terms and vesting
periods of the options. For the first half of 2005, our estimate
of expected term was based on the historical patterns of
exercises. |
|
(3) |
|
The risk free rate is determined using the implied yield
currently available for zero-coupon U.S. government issuers with
a remaining term equal to the expected term of the options. |
|
(4) |
|
No dividend yield was assumed because we currently do not pay
cash dividends on our common stock and have no current plans to
reinstate a dividend. |
Stock-Settled
Awards
Stock-settled awards include restricted stock and restricted
stock units expected to be settled in stock. They are granted to
certain key employees and are subject to certain restrictions
and vesting requirements as determined by the Compensation
Committee. The vesting period is generally three years. No
monetary consideration is paid by a recipient for a
stock-settled award, and the fair value of the shares on the
grant date is amortized over the vesting period.
During 2007, 2006 and 2005, we awarded 5.0, 5.3 and
4.6 shares of stock-settled awards with a weighted-average
grant-date fair value of $11.68, $8.77 and $11.98 per award,
respectively. The total fair value of vested stock-settled
awards that were distributed to participants during 2007, 2006
and 2005 was $41.5, $11.0 and $19.8, respectively.
85
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Cash-Settled
Awards
Cash-settled awards include restricted stock units expected to
be settled in cash. These awards are granted to certain key
employees and generally vest over three years. Upon completion
of the vesting period, the grantee is entitled, at the
Compensation Committees discretion, 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. The
holder of the cash-settled awards has no ownership interest in
the underlying shares of common stock until the awards vest and
the shares of common stock are issued. No monetary consideration
is paid by a recipient for a cash-settled award. The fair value
of cash-settled awards is adjusted at the end of each quarter
based on our share price. We amortize stock-based compensation
expense related to these awards over the vesting period based
upon the quarterly-adjusted fair value.
During 2007, 2006 and 2005, we awarded 0.9, 2.2 and 1.6
cash-settled awards with a weighted-average grant-date fair
value of $11.44, $8.88 and $12.09 per award, respectively. The
total fair value of cash in respect of cash-settled awards
distributed to participants during 2007, 2006 and 2005 was $6.7,
$0.2 and $0.1, respectively.
Performance-Based
Awards
Performance-based awards have been granted to certain key
employees subject to certain restrictions and vesting
requirements as determined by the Compensation Committee.
Performance-based awards are a form of stock-based compensation
in which the number of shares or units ultimately received by
the participant depends on Company
and/or
individual performance against specific performance targets and
can be settled in cash or shares. The awards generally vest over
a three-year period subject to the participants continuing
employment and the achievement of certain performance
objectives. The final number of shares or units that could
ultimately be received by a participant ranges from 0% to 200%
of the target amount of shares originally granted. The holder of
a performance-based award has no ownership interest in the
underlying shares of common stock until the award vests and
shares of common stock are issued. We amortize stock-based
compensation expense for the estimated number of
performance-based awards that we expect to vest over the vesting
period using the grant-date fair value of the shares. No
monetary consideration is paid by a participant for a
performance-based award.
During 2007, 2006 and 2005 we awarded 2.9, 9.9 and
2.9 shares of performance-based stock, at target, with a
weighted-average grant-date fair value of $11.69, $9.68 and
$12.35 per award, respectively. The total fair value of
performance-based awards distributed to participants during 2007
and 2006 was $1.4 and $0.1, respectively. No performance-based
stock awards were distributed during 2005.
Certain stock-based compensation awards expected to be settled
in cash have been classified as liabilities in the Consolidated
Balance Sheets as of December 31, 2007 and 2006.
86
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
A summary of the activity of our non-vested stock-settled
awards, cash-settled awards, and performance-based awards during
2007 is presented below (performance-based awards are shown at
100% of the shares originally granted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Settled Awards
|
|
|
Cash-Settled Awards
|
|
|
Performance-Based Awards
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date Fair
|
|
|
|
|
|
Grant-Date Fair
|
|
|
|
|
|
Grant-Date Fair
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
Value
|
|
|
|
|
|
Value
|
|
|
|
Awards
|
|
|
(per award)
|
|
|
Awards
|
|
|
(per award)
|
|
|
Awards
|
|
|
(per award)
|
|
|
Non-vested as of January 1, 2007
|
|
|
12.6
|
|
|
$
|
12.16
|
|
|
|
4.1
|
|
|
$
|
10.61
|
|
|
|
11.8
|
|
|
$
|
10.21
|
|
Granted
|
|
|
5.0
|
|
|
|
11.68
|
|
|
|
0.9
|
|
|
|
11.44
|
|
|
|
2.9
|
|
|
|
11.69
|
|
Vested
|
|
|
(3.7
|
)
|
|
|
16.83
|
|
|
|
(0.6
|
)
|
|
|
13.13
|
|
|
|
(0.1
|
)
|
|
|
9.19
|
|
Forfeited
|
|
|
(1.3
|
)
|
|
|
10.99
|
|
|
|
(0.7
|
)
|
|
|
10.84
|
|
|
|
(1.3
|
)
|
|
|
10.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2007
|
|
|
12.6
|
|
|
$
|
10.73
|
|
|
|
3.7
|
|
|
$
|
10.33
|
|
|
|
13.3
|
|
|
$
|
10.49
|
|
Total unrecognized compensation expense remaining
|
|
$
|
68.7
|
|
|
|
|
|
|
$
|
14.6
|
|
|
|
|
|
|
$
|
57.7
|
|
|
|
|
|
Weighted-average years expected to be recognized over
|
|
|
1.6
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
Share
Appreciation Performance-Based Units
In August 2005, we granted Michael I. Roth, Chairman of the
Board and Chief Executive Officer, 0.3 share appreciation
performance-based units (SAPUs) based on a
weighted-average grant-date stock price of $12.17. At the
Compensation Committees discretion, Mr. Roth is
entitled to receive a payment in cash or shares of common stock
upon completion of a four-year vesting period. Mr. Roth has
no ownership interest in the underlying shares of common stock
until the SAPUs vest and the shares of common stock are issued.
The fair value of the SAPUs is estimated using the Black-Scholes
valuation model, using assumptions similar to those used for
stock options. For 2007, we recorded a credit to stock-based
compensation expense for SAPUs of $(0.4). The compensation
expense recorded in 2006 for SAPUs was $0.6. There was no
compensation expense recorded in 2005 for SAPUs, as the exercise
price exceeded the market price. As of December 31, 2007,
there was $0.1 of total unrecognized compensation expense
related to non-vested SAPUs that is expected to be recognized
over a weighted-average period of 1.6 years. We amortize
stock-based compensation expense related to these awards over
the vesting period based upon the quarterly-adjusted fair value.
|
|
Note 15:
|
Segment
Information
|
As of December 31, 2007, we have two reportable segments:
IAN, which is comprised of Draftfcb, Lowe, McCann Worldgroup,
our media agencies and our leading stand-alone agencies, and
CMG, which is comprised of the bulk of our specialist marketing
service offerings. We also report for the Corporate and
other group. As of December 31, 2005, we had an
additional segment, Motorsports, which was sold during 2004 and
had immaterial residual operating results in 2005. Future
changes to our organizational structure may result in changes to
the reportable segment disclosure.
Within IAN, our agencies provide a comprehensive array of global
communications and marketing services, each offering a
distinctive range of solutions for our clients. In addition, our
stand-alone agencies, including Campbell-Ewald, Hill Holliday,
Deutsch and Mullen, provide a full range of advertising,
marketing
87
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
communications services
and/or
marketing services and partner with our global operating
divisions as needed. IANs operating divisions share
similar economic characteristics and are similar in other areas,
specifically related to the nature of their services, the manner
in which the services are provided and the similarity of their
respective customers.
CMG, which includes Weber Shandwick, MWW Group, FutureBrand,
DeVries, GolinHarris, Jack Morton, and Octagon Worldwide,
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
with service lines offered by IAN, however, CMGs
businesses, on an aggregate basis, have a higher proportion of
arrangements for which they act as principal, a different
distribution model than IAN and different margin structure.
The profitability measure employed by our chief operating
decision maker for allocating resources to operating divisions
and assessing operating division performance is operating income
(loss), excluding the impact of restructuring and other
reorganization-related charges (reversals) and long-lived asset
impairment charges. With the exception of excluding these
amounts from reportable segment operating income (loss), all
segments follow the same accounting policies as those described
in Note 1.
Certain Corporate and other charges are reported as a separate
line item within total segment operating income (loss) and
include corporate office expenses and shared service center
expenses, as well as certain other centrally managed expenses
that are not fully allocated to operating divisions. Salaries
and related expenses include salaries, long-term incentives,
bonus, and other miscellaneous benefits for corporate office
employees. In addition, salaries and related expenses include
long-term incentive award accruals for a one-time
performance-based equity award granted in 2006 to a limited
number of senior executives across the Company. Office and
general expenses primarily includes professional fees related to
internal control compliance, financial statement audits, legal,
information technology and other consulting services, which are
engaged and managed through the corporate office. In addition,
office and general expenses also includes rental expense and
depreciation of leasehold improvements for properties occupied
by corporate office employees. Offsetting these expenses are
amounts we allocate to operating divisions based on a formula
that uses the revenues of each of the operating units. Amounts
allocated also include specific charges for information
technology-related projects, which are allocated based on
utilization.
88
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Summarized financial information concerning our reportable
segments is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
5,505.7
|
|
|
$
|
5,230.6
|
|
|
$
|
5,327.8
|
|
CMG
|
|
|
1,048.5
|
|
|
|
960.2
|
|
|
|
944.2
|
|
Motorsports
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,554.2
|
|
|
$
|
6,190.8
|
|
|
$
|
6,274.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
528.2
|
|
|
$
|
391.4
|
|
|
$
|
249.7
|
|
CMG
|
|
|
57.9
|
|
|
|
51.6
|
|
|
|
53.0
|
|
Motorsports
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Corporate and other
|
|
|
(215.9
|
)
|
|
|
(275.3
|
)
|
|
|
(316.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
370.2
|
|
|
|
167.7
|
|
|
|
(12.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other reorganization-related (charges)
reversals
|
|
|
(25.9
|
)
|
|
|
(34.5
|
)
|
|
|
7.3
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
(27.2
|
)
|
|
|
(98.6
|
)
|
Interest expense
|
|
|
(236.7
|
)
|
|
|
(218.7
|
)
|
|
|
(181.9
|
)
|
Interest income
|
|
|
119.6
|
|
|
|
113.3
|
|
|
|
80.0
|
|
Other income (expense)
|
|
|
8.5
|
|
|
|
(5.6
|
)
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
$
|
235.7
|
|
|
$
|
(5.0
|
)
|
|
$
|
(186.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets and intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
127.4
|
|
|
$
|
126.1
|
|
|
$
|
135.3
|
|
CMG
|
|
|
22.9
|
|
|
|
19.2
|
|
|
|
18.3
|
|
Corporate and other
|
|
|
26.9
|
|
|
|
28.3
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
177.2
|
|
|
$
|
173.6
|
|
|
$
|
168.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
IAN
|
|
$
|
119.9
|
|
|
$
|
92.8
|
|
|
$
|
89.7
|
|
CMG
|
|
|
12.4
|
|
|
|
11.4
|
|
|
|
14.8
|
|
Corporate and other
|
|
|
15.3
|
|
|
|
23.6
|
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
147.6
|
|
|
$
|
127.8
|
|
|
$
|
140.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Total assets:
|
|
2007
|
|
|
2006
|
|
|
IAN
|
|
$
|
10,211.9
|
|
|
$
|
9,359.5
|
|
CMG
|
|
|
961.2
|
|
|
|
908.3
|
|
Corporate and other
|
|
|
1,285.0
|
|
|
|
1,596.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,458.1
|
|
|
$
|
11,864.1
|
|
|
|
|
|
|
|
|
|
|
89
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Revenue and long-lived assets are presented below by major
geographic area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Long-Lived Assets
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
U.S
|
|
$
|
3,650.0
|
|
|
$
|
3,441.2
|
|
|
$
|
3,461.1
|
|
|
$
|
2,797.1
|
|
|
$
|
2,818.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
589.1
|
|
|
|
565.6
|
|
|
|
619.9
|
|
|
|
295.3
|
|
|
|
306.8
|
|
Continental Europe
|
|
|
1,084.7
|
|
|
|
1,043.0
|
|
|
|
1,135.5
|
|
|
|
609.2
|
|
|
|
606.0
|
|
Latin America
|
|
|
314.1
|
|
|
|
303.4
|
|
|
|
259.7
|
|
|
|
130.6
|
|
|
|
109.4
|
|
Asia Pacific
|
|
|
581.3
|
|
|
|
512.0
|
|
|
|
473.5
|
|
|
|
203.6
|
|
|
|
122.4
|
|
Other
|
|
|
335.0
|
|
|
|
325.6
|
|
|
|
324.6
|
|
|
|
256.7
|
|
|
|
216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total international
|
|
|
2,904.2
|
|
|
|
2,749.6
|
|
|
|
2,813.2
|
|
|
|
1,495.4
|
|
|
|
1,360.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
6,554.2
|
|
|
$
|
6,190.8
|
|
|
$
|
6,274.3
|
|
|
$
|
4,292.5
|
|
|
$
|
4,178.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue is attributed to geographic areas based on where the
services are performed. Furniture, equipment and leasehold
improvements are allocated based upon physical location.
Intangible assets, other assets and investments are allocated
based on the location of the related operations.
|
|
Note 16:
|
Financial
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable securities
|
|
$
|
22.5
|
|
|
$
|
22.5
|
|
|
$
|
1.4
|
|
|
$
|
1.4
|
|
Long-term investments
|
|
|
40.4
|
|
|
|
64.1
|
|
|
|
73.0
|
|
|
|
91.2
|
|
Long-term debt
|
|
|
(2,214.5
|
)
|
|
|
(2,050.5
|
)
|
|
|
(2,214.4
|
)
|
|
|
(2,275.2
|
)
|
Financial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other forward contracts
|
|
|
(18.8
|
)
|
|
|
(18.8
|
)
|
|
|
(13.7
|
)
|
|
|
(13.7
|
)
|
The carrying amounts reflected in our Consolidated Balance
Sheets for cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and short-term borrowings
approximated their respective fair values as of
December 31, 2007 and 2006.
Investment
Securities
Short-term marketable securities consist primarily of
available-for-sale debt and equity securities that are publicly
traded. Long-term investments consist primarily of public and
non-public available-for-sale equity securities. These are
mostly equity interests of less than 20% that we have in various
agencies and are accounted for under the cost method.
Gross unrealized gains on our investments were $2.0, $7.2 and
$22.6 for the years ended December 31, 2007, 2006 and 2005,
respectively. Gross unrealized losses on our investments were
$6.0, $13.5 and $0.2 for the years ended December 31, 2007,
2006 and 2005, respectively. Unrealized gains and losses are
reported as a component of other comprehensive income (loss).
Gross realized gains on our investments were $4.8, $19.2 and
$0.6 for the years ended December 31, 2007, 2006 and 2005,
respectively. Gross realized losses on our investments were
$5.8, $0.0 and $0.2 for the
90
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
years ended December 31, 2007, 2006 and 2005, respectively.
Realized gains and losses are reported in other income (expense).
In July 2007, we purchased $12.5 of asset-backed, AAA-rated
auction rate securities, representing our total investment in
auction rate securities. These securities are purchased and sold
through an auction process that allows us to either roll over
our holdings, whereby we would continue to own our respective
interest in the auction rate security, or sell our interests at
par to gain immediate liquidity.
Our auction rate securities have failed to trade at recent
auctions due to insufficient bids from buyers. Furthermore,
based on recent market conditions we believe that it is
uncertain that auctions will be successful and the market will
recover in the foreseeable future. As such, we have determined
that there has been an other-than-temporary decline in the fair
value of these securities and have recognized an impairment
charge of $5.8 to other income (expense). If future auctions are
unsuccessful and the market continues to deteriorate, we may be
required to further adjust the carrying value of these
securities and realize an additional impairment charge for an
other-than-temporary decline in fair value.
Long-Term
Debt
Long-term debt includes variable and fixed rate debt. The fair
value of our long-term debt instruments is based on market
prices for debt instruments with similar terms and maturities.
Financial
Commitments
Financial commitments include other forward contracts relating
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 as of December 31, 2007 and 2006.
Changes in the fair value of the obligation have been recorded
as interest expense or income in the Consolidated Statements of
Operations.
|
|
Note 17:
|
Commitments
and Contingencies
|
Leases
We lease office premises 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Gross rent expense
|
|
$
|
389.9
|
|
|
$
|
389.9
|
|
|
$
|
404.4
|
|
Third-party sublease rental income
|
|
|
(23.5
|
)
|
|
|
(20.7
|
)
|
|
|
(25.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net rent expense
|
|
$
|
366.4
|
|
|
$
|
369.2
|
|
|
$
|
379.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease
|
|
|
|
|
|
|
|
|
|
Rental
|
|
|
|
|
Period
|
|
Rent Obligations
|
|
|
Income
|
|
|
Net Rent
|
|
|
2008
|
|
$
|
323.9
|
|
|
$
|
(40.9
|
)
|
|
$
|
283.0
|
|
2009
|
|
|
300.9
|
|
|
|
(37.5
|
)
|
|
|
263.4
|
|
2010
|
|
|
267.7
|
|
|
|
(31.0
|
)
|
|
|
236.7
|
|
2011
|
|
|
233.7
|
|
|
|
(25.7
|
)
|
|
|
208.0
|
|
2012
|
|
|
197.9
|
|
|
|
(20.2
|
)
|
|
|
177.7
|
|
2013 and thereafter
|
|
|
871.0
|
|
|
|
(33.1
|
)
|
|
|
837.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,195.1
|
|
|
$
|
(188.4
|
)
|
|
$
|
2,006.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
We have certain contingent obligations under guarantees of
certain of our subsidiaries (parent company
guarantees) relating principally to credit facilities,
guarantees of certain media payables and operating leases. The
amount of such parent company guarantees was $327.1 and $327.9
as of December 31, 2007 and 2006, respectively. In the
event of non-payment by the applicable subsidiary of the
obligations covered by a guarantee, we would be obligated to pay
the amounts covered by that guarantee. As of December 31,
2007, there are no material assets pledged as security for such
parent company guarantees.
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. We
have not recorded a liability for these items since the
definitive amounts payable are not determinable or
distributable. When the contingent acquisition obligations have
been met and consideration is determinable and distributable, we
record the fair value of this consideration as an additional
cost of the acquired entity. However, 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. Compensation
expense is determined based on 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 and
is amortized over the required employment terms of the former
owners.
The following table details the estimated liability with respect
to our contingent acquisition obligations and the estimated
amount that would be paid under the options, in the event of
exercise at the earliest exercise date. All payments are
contingent upon achieving projected operating performance
targets and satisfying other
92
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
conditions specified in the related agreements and are subject
to revisions as the earn-out periods progress. As of
December 31, 2007, our estimated future contingent
acquisition obligations payable in cash are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Deferred acquisition payments
|
|
$
|
6.7
|
|
|
$
|
15.2
|
|
|
$
|
8.2
|
|
|
$
|
3.5
|
|
|
$
|
3.5
|
|
|
$
|
|
|
|
$
|
37.1
|
|
Put options with consolidated
affiliates(1)
|
|
|
44.8
|
|
|
|
8.5
|
|
|
|
36.9
|
|
|
|
13.6
|
|
|
|
6.5
|
|
|
|
3.5
|
|
|
|
113.8
|
|
Put options with unconsolidated affiliates
|
|
|
8.0
|
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
Call options with consolidated affiliates
|
|
|
0.9
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contingent acquisition payments
|
|
|
60.4(2
|
)
|
|
|
26.4
|
|
|
|
49.8
|
|
|
|
17.1
|
|
|
|
10.0
|
|
|
|
3.5
|
|
|
|
167.2
|
|
Less cash compensation expense included above
|
|
|
1.9
|
|
|
|
1.2
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58.5
|
|
|
$
|
25.2
|
|
|
$
|
49.1
|
|
|
$
|
16.9
|
|
|
$
|
9.8
|
|
|
$
|
3.3
|
|
|
$
|
162.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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. |
|
(2) |
|
In addition, we have an obligation for a put option with a
consolidated affiliate payable in stock at $0.9. |
We maintain certain put options with consolidated affiliates
that are exercisable at the discretion of the minority owners as
of December 31, 2007. These put options are assumed to be
exercised in the earliest possible period subsequent to
December 31, 2007. Therefore, the related estimated
acquisition payments of $43.5 have been included within the
total payments expected to be made in 2008 in the table above.
These payments, if not made in 2008, will continue to
carry-forward into 2009 or beyond until they are exercised or
expire.
Legal
Matters
SEC Investigation Since January 2003 the SEC
has been conducting a formal investigation in response to the
restatement we first announced in August 2002, and in 2005 the
investigation expanded to encompass the 2004 Restatement. We
have also responded to inquiries from the SEC staff (the
Staff) concerning the restatement of the first three
quarters of 2005 that we made in our 2005 Annual Report on
Form 10-K.
We continue to cooperate with the investigation. We expect that
the investigation will result in monetary liability, but as
settlement discussions have not yet commenced, we cannot
reasonably estimate the amount, range of amounts or timing of a
resolution. Accordingly, we have not yet established any
provision relating to these matters.
The Staff has informed us that it intends to seek approval from
the Commission to enter into settlement discussions with us or,
failing a settlement, to litigate an action charging the Company
with various violations of the federal securities laws. In that
connection, and as previously disclosed by the Company in a
current report on
Form 8-K
filed June 14, 2007, the Staff sent the Company a
Wells notice, which invited us to make a responsive
submission before the Staff makes a final determination
concerning its recommendation to the Commission. We expect to
discuss settlement with the Staff once the Commission authorizes
the Staff to engage in such discussions. We cannot at this time
predict what the Commission will authorize or the outcome of any
settlement negotiations.
93
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Other Legal Matters We are or have been
involved in other legal and administrative proceedings of
various types. While any litigation contains an element of
uncertainty, we do not believe that the outcome of such
proceedings or claims will have a material adverse effect on our
financial condition.
|
|
Note 18:
|
Recent
Accounting Standards
|
In December 2007, the FASB issued SFAS No. 141
(revised), Business Combinations
(SFAS 141R), which replaces
SFAS No. 141, Business Combinations. Under the
standard, an acquiring entity is required to record assets
acquired and liabilities assumed in a business combination at
fair value on the date of acquisition. Earn-out payments and
other forms of contingent consideration will also be recorded at
fair value on the acquisition date. The standard also requires
fair value measurements to be used when recording
non-controlling interests and contingent liabilities. In
addition, the standard requires all costs associated with the
business combination, including restructuring costs, to be
expensed as incurred. For the Company, SFAS 141R is
effective prospectively for business combinations having an
acquisition date on or after January 1, 2009, with the
exception of the accounting for valuation allowances on deferred
taxes and acquired contingencies. SFAS 141R amends
SFAS 109 such that adjustments made to valuation allowances
on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to January 1, 2009 would
also apply the provisions of SFAS 141R. We are currently
evaluating the potential impact of SFAS 141R on our
Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160), which amends ARB
No. 51, Consolidated Financial Statements. This
standard requires a noncontrolling interest in a subsidiary to
be reported in equity on the consolidated financial statements
separate from the parents equity. The standard also
requires transactions that do not impact a parents
controlling ownership and do not result in the deconsolidation
of the subsidiary to be recorded as equity transactions, while
those transactions that do result in a change in ownership and a
deconsolidation of the subsidiary to be recorded in net income
(loss) with the gain or loss measured at fair value. For the
Company, SFAS 160 is effective January 1, 2009 and
should be applied prospectively with the exception of the
presentation and disclosure requirements which shall be applied
retrospectively for all periods presented. We are currently
evaluating the potential impact of SFAS 160 on our
Consolidated Financial Statements.
In June 2007, the EITF ratified EITF Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
Under
EITF 06-11
a realized tax benefit from dividends or dividend equivalents
that are charged to retained earnings and paid to employees for
equity classified non-vested equity shares, non-vested equity
share units, and outstanding share options should be recognized
as an increase to additional
paid-in-capital.
For the Company,
EITF 06-11
is effective, prospectively, as of January 1, 2008. We do
not expect the adoption of
EITF 06-11
to have a material impact on our Consolidated Financial
Statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), which permits an entity to
measure certain financial assets and financial liabilities at
fair value. Under SFAS 159, entities that elect the fair
value option will report unrealized gains and losses in earnings
at each subsequent reporting date. For the Company,
SFAS 159 is effective as of January 1, 2008, but we do
not intend to measure any additional financial instruments at
fair value as a result of this statement. Therefore, we do not
expect the adoption of SFAS 159 to have an impact on our
Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which defines fair value, establishes a framework for measuring
fair value in U.S. GAAP, and expands disclosures about fair
value measurements. Under the standard, fair value refers to the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity
operates. The standard clarifies the principle that fair value
should be based on the
94
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
assumptions market participants would use when pricing the asset
or liability. In support of this principle, the standard
establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. The fair value
hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for
example, the reporting entitys own data. Under the
standard, fair value measurements would be separately disclosed
by level within the fair value hierarchy. For the Company,
SFAS 157 is effective as of January 1, 2008. In
February 2008, the FASB issued Staff Positions
No. 157-1
and
No. 157-2
which partially defer the effective date of SFAS 157 for
one year for certain nonfinancial assets and liabilities and
remove certain leasing transactions from its scope. We do not
expect the adoption of SFAS 157 to have a material impact
on our Consolidated Financial Statements.
|
|
Note 19:
|
Out-of-Period
Adjustments
|
During 2006, we recorded adjustments to certain vendor discounts
and credits, contractual liabilities, foreign exchange, tax and
other miscellaneous items which related to prior periods.
Because these changes are not material to our consolidated
financial statements for the periods prior to 2006, for the
quarters of 2006 or for 2006 as a whole, we recorded these
out-of-period amounts in their respective quarters of 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Loss from
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
before
|
|
|
Loss from
|
|
|
|
|
|
|
Operating
|
|
|
provision for
|
|
|
continuing
|
|
|
|
Revenue
|
|
|
income
|
|
|
income taxes
|
|
|
operations
|
|
|
As reported
|
|
$
|
6,190.8
|
|
|
$
|
106.0
|
|
|
$
|
(5.0
|
)
|
|
$
|
(36.7
|
)
|
Favorable/(unfavorable) adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vendor discounts and credits
|
|
|
4.5
|
|
|
|
4.5
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
Contractual liabilities
|
|
|
|
|
|
|
4.4
|
|
|
|
4.4
|
|
|
|
4.4
|
|
Foreign exchange adjustments
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
4.8
|
|
Other adjustments
|
|
|
1.6
|
|
|
|
(3.5
|
)
|
|
|
(6.5
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax adjustments
|
|
|
6.1
|
|
|
|
5.4
|
|
|
|
2.1
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock basic and
diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
of Out-of-Period Adjustments:
Vendor Discounts and Credits In connection
with our 2004 Restatement certain liabilities were recorded that
were determined at that time to be a contractual obligation to
clients. The revenue adjustment primarily relates to obtaining
certain evidence in the fourth quarter of 2006 indicating that
no actual contractual obligation existed in regard to those
clients. The loss from continuing operations adjustment also
includes a concession payment to a certain client.
95
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
Contractual Liabilities As part of our
remediation efforts for accounting for purchase business
combinations we mandated a procedure whereby compensatory
earn-out liabilities should be evaluated quarterly to ensure
that the amount being accrued is still appropriate. As a result,
we identified an instance where the earn-out liability was
overstated and should have been adjusted in prior periods based
on the future financial performance projections for that
respective acquired entity.
Foreign Exchange Adjustments We recorded
adjustments related to the cumulative translation adjustment
balances that remained on our books and records subsequent to
the sale of certain agencies. In accordance with
SFAS No. 52, Foreign Currency Translation,
these amounts should have been reported as part of the gain or
loss on sale or liquidation of the respective agency during the
period in which that transaction occurred.
Other Adjustments Primarily relates to an
adjustment to one of our cost investments of $3.2 which had been
inappropriately marked to market.
Tax Adjustments Includes the tax effect of
the adjustments noted above and the correction of certain
deferred tax assets and liabilities.
|
|
Note 20:
|
2006
Review of Stock Option Practices
|
In 2006 we reviewed our practices for stock option grants. Under
applicable accounting standards prior to January 1, 2006
(APB No. 25), compensation expense should reflect the
difference, if any, between an options exercise price and
the market price of the Companys stock at the measurement
date, the point at which the terms and the recipients of the
option grant are determined with finality. In some instances, we
incorrectly determined the measurement date for accounting
purposes to be the date as of which the exercise price was set
rather than the date the grants were finalized. As a result,
compensation expense in the pretax amount of $40.6 should have
been recorded over the years 1996 through 2003.
In accordance with SAB No. 108, the materiality of
these newly-identified errors was assessed against prior periods
using the Companys pre-SAB No. 108 policy
(iron-curtain method) for quantifying materiality.
After considering all of the quantitative and qualitative
factors, these errors were not considered to be material to
prior periods. Given that the effect of correcting these errors
during 2006 would have caused our 2006 financial statements to
be materially misstated, the Company concluded that the
cumulative effect adjustment method of initially applying the
guidance in SAB No. 108 was appropriate. The impact of
the cumulative effect adjustment was a $26.4 charge to
accumulated deficit, a $23.3 credit to additional paid-in
capital and a $3.1 credit to other non-current liabilities to
reflect certain taxes payable effective January 1, 2006.
96
Notes to
Consolidated Financial
Statements (Continued)
(Amounts in Millions, Except Per Share Amounts)
|
|
Note 21:
|
Results
by Quarter (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
(1)
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
1,359.1
|
|
|
$
|
1,327.0
|
|
|
$
|
1,652.7
|
|
|
$
|
1,532.9
|
|
|
$
|
1,559.9
|
|
|
$
|
1,453.8
|
|
|
$
|
1,982.5
|
|
|
$
|
1,877.1
|
|
Salaries and related expenses
|
|
|
988.8
|
|
|
|
950.7
|
|
|
|
1,009.7
|
|
|
|
945.1
|
|
|
|
1,034.7
|
|
|
|
960.7
|
|
|
|
1,106.0
|
|
|
|
1,087.6
|
|
Office and general expenses
|
|
|
495.1
|
|
|
|
535.5
|
|
|
|
502.6
|
|
|
|
504.6
|
|
|
|
468.9
|
|
|
|
466.0
|
|
|
|
578.2
|
|
|
|
572.9
|
|
Restructuring and other reorganization-related (reversals)
charges
|
|
|
(0.6
|
)
|
|
|
0.4
|
|
|
|
(5.2
|
)
|
|
|
6.3
|
|
|
|
5.2
|
|
|
|
6.2
|
|
|
|
26.5
|
|
|
|
21.6
|
|
Long-lived asset impairment and other charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.2
|
|
Operating (loss) income
|
|
|
(124.2
|
)
|
|
|
(159.6
|
)
|
|
|
145.6
|
|
|
|
76.9
|
|
|
|
51.1
|
|
|
|
20.9
|
|
|
|
271.8
|
|
|
|
167.8
|
|
Other (expense) income
|
|
|
(1.5
|
)
|
|
|
0.6
|
|
|
|
8.0
|
|
|
|
24.3
|
|
|
|
(4.8
|
)
|
|
|
22.6
|
|
|
|
6.8
|
|
|
|
(53.1
|
)
|
Total (expenses) and other income
|
|
|
(28.0
|
)
|
|
|
(19.6
|
)
|
|
|
(20.8
|
)
|
|
|
(1.3
|
)
|
|
|
(34.7
|
)
|
|
|
(9.3
|
)
|
|
|
(25.1
|
)
|
|
|
(80.8
|
)
|
(Benefit of) provision for income taxes
|
|
|
(25.7
|
)
|
|
|
(8.8
|
)
|
|
|
(11.4
|
)
|
|
|
5.0
|
|
|
|
35.8
|
|
|
|
10.5
|
|
|
|
60.2
|
|
|
|
12.0
|
|
(Loss) income from continuing operations
|
|
|
(125.9
|
)
|
|
|
(170.2
|
)
|
|
|
137.0
|
|
|
|
65.7
|
|
|
|
(21.9
|
)
|
|
|
(1.3
|
)
|
|
|
178.4
|
|
|
|
69.1
|
|
Net (loss) income
|
|
|
(125.9
|
)
|
|
|
(170.2
|
)
|
|
|
137.0
|
|
|
|
65.7
|
|
|
|
(21.9
|
)
|
|
|
3.7
|
|
|
|
178.4
|
|
|
|
69.1
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(132.8
|
)
|
|
$
|
(182.1
|
)
|
|
$
|
121.5
|
|
|
$
|
44.2
|
|
|
$
|
(28.8
|
)
|
|
$
|
(8.2
|
)
|
|
$
|
162.7
|
|
|
$
|
49.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.27
|
|
|
$
|
0.10
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.35
|
|
|
$
|
0.11
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.29
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.27
|
|
|
$
|
0.10
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.35
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.29
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.24
|
|
|
$
|
0.10
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(0.29
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.24
|
|
|
$
|
0.10
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.31
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As discussed in Note 19, during 2006 we recorded
adjustments to certain vendor discounts and credits, contractual
liabilities, foreign exchange, tax and other miscellaneous items
which related to prior periods. For the fourth quarter of 2006,
these adjustments resulted in a net favorable impact to revenue
of $8.3, net favorable impact to salaries and related expenses
of $4.2, net unfavorable impact to office and general expenses
of $2.8 and a net favorable impact to net income of $11.9. |
97
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Managements Report on Internal Control over Financial
Reporting located in Item 8 is incorporated by reference
herein.
Evaluation
of disclosure controls and procedures
In connection with the preparation of this Annual Report on
Form 10-K
for the year ended December 31, 2007 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 such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded
(1) that the disclosure controls and procedures were
effective as of December 31, 2007 to provide reasonable
assurance that information required to be disclosed in reports
that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms and (2) that the
disclosure controls and procedures were effective as of
December 31, 2007 to provide reasonable assurance that
information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated
to our management, including the principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives.
Remediation
of Previously Disclosed Material Weaknesses
As previously disclosed in our Annual Report on
Form 10-K
for the year ended December 31, 2006, we identified
material weaknesses in our internal control over financial
reporting as of December 31, 2006. A material weakness is a
deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected
on a timely basis. The seven material weaknesses we reported as
of December 31, 2006 are summarized as follows:
|
|
|
|
1.
|
Control Environment The Company did not
maintain an effective control environment. Specifically, the
Company did not maintain a sufficient complement of personnel
throughout its worldwide offices with an appropriate level of
accounting knowledge, experience and training in the application
of GAAP commensurate with the Companys financial reporting
requirements. In addition, the Company did not maintain
effective controls over the monitoring of its existing internal
control activities over financial reporting and, instead, placed
heavy reliance on manual procedures without sufficient review.
|
|
|
2.
|
Revenue Recognition The Company did not
maintain effective controls over the accuracy, presentation and
disclosure in recording revenue.
|
|
|
3.
|
Financial Statement Transactions and Journal Entries
The Company did not maintain effective controls
to ensure that certain financial statement transactions and
journal entries, both recurring and non-recurring, were
appropriately initiated, authorized, processed, documented,
accurately recorded and reviewed.
|
|
|
4.
|
Income Taxes The Company did not maintain
effective controls over (1) the accounting for income taxes
to ensure amounts were accurately recorded in accordance with
GAAP and (2) the reporting of income tax in the statutory
accounts or income tax returns for operations outside of the U.S.
|
98
|
|
|
|
5.
|
Payroll and Compensation-Related Liabilities
The Company did not maintain effective controls
relating to the completeness and accuracy of local payroll and
compensation-related liabilities in certain operations.
|
|
|
6.
|
Safeguarding of Assets The Company did not
maintain effective controls over the safeguarding of assets.
Controls were not designed and in place to segregate
responsibility and authority between initiating, processing and
recording transactions.
|
|
|
7.
|
Financial Applications and Data The Company
did not maintain effective controls over access and changes to
the Companys financial applications and data, and controls
over spreadsheets used in the Companys financial reporting
process.
|
We made improvements in our internal control over financial
reporting throughout 2006 and 2007, and in the fourth quarter of
2007 management concluded that the improved controls had been
operating for a sufficient period of time to allow the
effectiveness of the remediation measures to be validated. After
reviewing the results of its testing in the fourth quarter of
2007, management concluded that controls related to the
remediation of the material weaknesses previously disclosed in
the 2006 Annual Report on
Form 10-K
were designed, in place and operating effectively for a
sufficient period of time for management to determine that each
of the material weaknesses was remediated as of
December 31, 2007. The key changes in internal control and
remedial actions taken related to these previously reported
material weaknesses are discussed below.
1. Control Environment
|
|
|
|
|
Assessed and trained the accounting and finance personnel
Company-wide and where appropriate either replaced personnel or
hired additional, more competent resources.
|
|
|
|
Formalized reporting relationships of all financial personnel
Company-wide with accounting and control-related
responsibilities to the Corporate Controller.
|
|
|
|
Standardized and formalized a set of worldwide key controls and
processes that comprise the Companys internal control over
financial reporting, including how each control is executed,
evidenced, monitored and tested.
|
|
|
|
Created new standard global documentation and testing
requirements of internal controls over financial reporting to
ensure consistency in the overall evaluation of the design and
operating effectiveness of internal controls within our
operating units.
|
|
|
|
Held regularly scheduled meetings with management of our
financial and operating units to ensure their understanding of
the required procedures prior to executing internal management
certification letters to accompany the financial statements they
submit.
|
|
|
|
Ensured all employees with responsibility for the Companys
financial reporting, as well as other key personnel across the
Company, completed a Code of Conduct course by the end of the
fourth quarter of 2007 detailing the standards of conduct that
are expected of all our employees in their day-to-day activities
and in their relationships with our business partners and
confirmed the employees understanding and commitment to
adhere to these standards via a Company-wide certification
process.
|
|
|
|
Created financial teams organized by region, reporting directly
to the Corporate Controller, through which financial data and
the corresponding control infrastructure at each entity is
monitored and reviewed regularly. These teams execute formalized
agency review programs and provide accounting advice and
oversight of control-related procedures directly to agency
financial personnel.
|
|
|
|
Reviewed, updated and communicated enhanced policies and
procedures in several areas.
|
99
2. Revenue Recognition
|
|
|
|
|
Reviewed, updated and communicated an enhanced revenue
recognition policy, which more clearly identifies the factors
most relevant in determining the appropriate revenue recognition
method to be used.
|
|
|
|
Implemented a global web-based revenue recognition platform that:
|
|
|
|
|
o
|
Documents the existence of persuasive evidence of the
arrangement, whether the price is fixed or determinable and how
collectibility is determined.
|
|
|
o
|
Documents the responses to a formalized series of questions
focused on the significant terms and conditions of the contract
to guide the determination of the appropriate revenue
recognition method and timing on a consistent worldwide basis.
|
|
|
o
|
Requires varying levels of contract review and approval based on
the contract value.
|
|
|
o
|
Facilitates the reconciliation between the revenue calculated
using the data within the revenue recognition platform and the
revenue recognized as reflected in the general ledger.
|
|
|
|
|
|
Established a central electronic repository for all
documentation supporting significant client arrangements.
|
|
|
|
Developed and provided an intensive worldwide training program
on revenue recognition principles and the use of the revenue
recognition platform.
|
3. Financial Statement Transactions and Journal
Entries
|
|
|
|
|
Continued the development and implementation of a shared
services model to further consolidate various financial
functions to attain efficiencies and to improve controls
surrounding these activities.
|
|
|
|
Implemented a new global consolidation
system. This system allows for improved financial
reporting across the Company and provides enhanced control
features related to the accumulation and reporting of financial
data submitted by the Companys operating units, as well as
required approvals and system security.
|
|
|
|
In the fourth quarter of 2007, implemented improved policies and
procedures combined with a comprehensive training program
emphasizing the importance of transaction-related controls.
|
|
|
|
Increased focus on monitoring and detective controls,
particularly with the creation of the regional finance teams.
|
|
|
|
Established procedures, reporting and appropriate monitoring to
identify, evaluate and properly address potential issues around
segregation of incompatible financial duties.
|
4. Income Taxes
|
|
|
|
|
Implemented revised periodic reporting for tax accounts, updated
and enhanced related policies and procedures and increased tax
training at regional and local levels.
|
|
|
|
Hired additional personnel to ensure that tax reporting
information is being provided timely and accurately.
|
|
|
|
Centralized and implemented many income tax internal controls at
the Corporate level and, in the fourth quarter of 2007, executed
those controls for the first time.
|
|
|
|
Engaged outside professional tax advisors to review the local
income tax returns of
non-U.S. subsidiaries
prior to filing to ensure that the tax returns are filed on a
timely basis and are prepared in accordance with local law and
regulations.
|
|
|
|
Implemented a global tax compliance tool to track
non-U.S. tax
return compliance.
|
100
5. Payroll and Compensation-Related Liabilities
|
|
|
|
|
Formed a corporate compensation committee and process whereby
written approval is required for any non-traditional employment
arrangement or compensation practice. This committee consists of
senior representatives of the accounting, human resources,
legal, tax and treasury departments. Determinations are made for
all such arrangements with due consideration of local law and
practice as well as Company policies and procedures.
|
6. Safeguarding of Assets
|
|
|
|
|
In the fourth quarter of 2007, established a standard set of
requirements and implemented a standard process across the
Company to identify, evaluate and address potential issues
around segregation of incompatible financial duties.
|
|
|
|
The regional financial teams conduct regular site reviews, of
which a component is devoted to assessing appropriate
segregation of duties. The frequency of the site reviews is
based on, among other things, the sufficiency of each
sites segregation of duties.
|
|
|
|
Established 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. We have
communicated to all our locations that an anonymous alert line
is in place for use by employees who do not feel comfortable
communicating with local management.
|
|
|
|
Provided training on business ethics and whistleblowing to
ensure that employees apply proper protocol as defined by our
policies.
|
|
|
|
Increased focus on monitoring and detective controls,
particularly with the creation of the regional finance teams.
|
7. Financial Applications and Data
|
|
|
|
|
Developed and implemented standard information security policies
and procedures across the Company to support appropriate user
access controls over financial systems.
|
|
|
|
Improved awareness of the importance of information security and
communication across the Company, including training information
technology groups and members of the financial organization to
ensure the effectiveness of user access controls over financial
systems.
|
|
|
|
Developed and implemented standard system development and
program change controls to ensure that changes to significant
financial systems are properly requested, authorized and tested
prior to implementing the changes in the live production
environment.
|
|
|
|
Implemented a standard policy and procedures to ensure the
effectiveness of controls over key spreadsheets utilized in the
Companys financial reporting process.
|
Changes
in Internal Control Over Financial Reporting
There were changes in our internal control over financial
reporting during the quarter ended December 31, 2007 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting as follows:
|
|
|
|
|
Centralized and implemented income tax internal controls at the
Corporate level.
|
|
|
|
Established a standard set of requirements and implemented a
standard process across the Company to identify, evaluate and
address potential issues around segregation of incompatible
financial duties.
|
|
|
|
Implemented improved policies and procedures combined with a
comprehensive training program emphasizing the importance of
transaction-related controls.
|
|
|
|
Enhanced certain aspects of the controls around proportional
performance revenue arrangements.
|
|
|
Item 9B.
|
Other
Information
|
Not applicable.
101
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item is incorporated by
reference to the Election of Directors section, the
Director Selection Process section, the Code
of Conduct section, the Principal Committees of the
Board of Directors section, the Audit
Committee section and the Section 16(a)
Beneficial Ownership Reporting Compliance section of the
Proxy Statement, except for the description of the
Companys Executive Officers, which appears in Part I
of this Report on
Form 10-K
under the heading Executive Officers of Interpublic.
NYSE
Certification
In 2007, 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.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated by
reference to the Compensation of Executive Officers
section, the Non-Management Director Compensation
section, the Compensation Discussion and Analysis
section and the Compensation Committee Report
section of the Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated by
reference to the Outstanding Shares section of the
Proxy Statement, except for information regarding the shares of
Common Stock to be issued or which may be issued under our
equity compensation plans, which is provided in the following
table:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining
|
|
|
|
Number of Shares of
|
|
|
|
|
|
Available for Future
|
|
|
|
Common Stock to be
|
|
|
Weighted-Average
|
|
|
Issuance Under
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Stock
|
|
|
(Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Options
|
|
|
Reflected in Column (a))
|
|
Plan Category
|
|
(a)(1)(2)
|
|
|
(b)
|
|
|
(c)(3)
|
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
44,246,508
|
|
|
$
|
21.59
|
|
|
|
39,246,111
|
|
Equity Compensation Plans Not Approved by Security
Holders(4)
|
|
|
656,500
|
|
|
$
|
27.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
44,903,008
|
|
|
$
|
21.68
|
|
|
|
39,246,111
|
|
|
|
|
(1) |
|
Includes a total of 11,873,104 performance-based share awards
made under the 2004 and 2006 Performance Incentive Plan
representing the target number of shares to be issued to
employees following the completion of the
2005-2007
performance period (the 2007 LTIP Share Awards), the
2006-2008
performance period (the 2008 LTIP Share Awards) and
the
2007-2009
performance period (the 2009 LTIP Share Awards),
respectively. The computation of the weighted-average exercise
price in column (b) of this table does not take the 2007
LTIP Share Awards, the 2008 LTIP Share Awards or the 2009 LTIP
Share Awards into account. |
|
(2) |
|
Includes a total of 4,690,322 restricted share unit and
performance-based awards (Share Unit Awards) which
may be settled in shares or cash. The computation of the
weighted-average exercise price in column (b) of this table
does not take the Share Unit Awards into account. Each Share
Unit Award actually settled in cash will increase the number of
shares of Common Stock available for issuance shown in column
(c). |
102
|
|
|
(3) |
|
Includes 14,688,597 shares of our common stock available
for issuance under the Employee Stock Purchase Plan (2006) (the
2006 Stock Purchase Plan) as of December 31,
2007. |
|
(4) |
|
Consists of special stock option grants awarded to certain True
North executives following our acquisition of True North (the
True North Options). The True North Options have an
exercise price equal to the fair market value of
Interpublics common stock on the date of the grant. The
terms and conditions of these stock option awards are governed
by Interpublics 1997 Performance Incentive Plan.
Generally, the options become exercisable between two and five
years after the date of the grant and expire ten years from the
grant date. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated by
reference to the Review and Approval of Transactions with
Related Persons section and the Director
Independence section of the Proxy Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated by
reference to the Appointment of Independent Registered
Public Accounting Firm section of the Proxy Statement.
103
PART IV
|
|
Item 15.
|
Exhibits,
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, 2007, 2006 and 2005
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
Consolidated Statements of Stockholders Equity and
Comprehensive Income (Loss) for the years ended
December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All financial statement schedules are omitted because they are
either not applicable or the required information is otherwise
provided.
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.
|
|
Description
|
|
3(i)
|
|
Restated Certificate of Incorporation of the Registrant, as
amended through October 24, 2005, is incorporated by
reference to Exhibit 3(i) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005 filed with the SEC
on November 9, 2005.
|
3(ii)
|
|
By-Laws of the Registrant, as amended and restated through
March 23, 2006, are incorporated by reference to
Exhibit 3(ii) to the Registrants Current Report on
Form 8-K
filed with the SEC on March 29, 2006.
|
4(iii)(A)
|
|
Certificate of Designations of 5.25% Series B Cumulative
Convertible Perpetual Preferred Stock of the Registrant, as
filed with the Delaware Secretary of State on October 24,
2005 is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 24, 2005.
|
4(iii)(B)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on October 24, 2000.
|
4(iii)(C)
|
|
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 Registrants Registration Statement
on
Form S-4
filed with the SEC on December 4, 2001.
|
4(iii)(D)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on March 18, 2003.
|
104
|
|
|
Exhibit No.
|
|
Description
|
|
4(iii)(E)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(F)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(G)
|
|
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% Convertible Senior Notes due 2023
is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on August 15, 2005.
|
4(iii)(H)
|
|
Senior Debt Indenture dated as of November 12, 2004 (the
2004 Indenture), between the Registrant and Suntrust
Bank, as trustee, is incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on November 15, 2004.
|
4(iii)(I)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on November 19, 2004.
|
4(iii)(J)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on November 19, 2004.
|
4(iii)(K)
|
|
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 Registrants
Current Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(L)
|
|
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 Registrants
Current Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(M)
|
|
Sixth Supplemental Indenture, dated as of December 8, 2006,
to the 2004 Indenture, with respect to the Floating Rate Notes
due 2010 is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on December 8, 2006.
|
4(iii)(N)
|
|
Senior Debt Indenture, dated as of November 15, 2006 (the
2006 Indenture), between the Registrant and The Bank
of New York, as trustee, is incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
4(iii)(O)
|
|
First Supplemental Indenture, dated as of November 15,
2006, to the 2006 Indenture, with respect to the
4.25% Convertible Senior Notes Due 2023 is incorporated by
reference to Exhibit 4.2 to the Registrants Current
Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
4(iii)(P)
|
|
Second Supplemental Indenture, dated as of November 20,
2007, to the 2006 Indenture, with respect to the
4.75% Convertible Senior Notes due 2023 is incorporated by
reference to Exhibit 4.1 to the Registrants Current
Report on
Form 8-K
filed with the SEC on November 21, 2007.
|
4(iii)(Q)
|
|
Warrant Agreement, dated as of June 13, 2006, between the
Registrant and LaSalle Bank National Association, as Warrant
Agent, is incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
105
|
|
|
Exhibit No.
|
|
Description
|
|
10(i)(A)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and UBS AG, London Branch, is incorporated by
reference to Exhibit 10.4 to the Registrants Current
Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(B)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and Morgan Stanley & Co. International
Limited, is incorporated by reference to Exhibit 10.3 to
the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(C)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and JP Morgan Chase Bank, National Association,
London Branch, is incorporated by reference to Exhibit 10.2
to the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(D)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and Citibank, N.A., is incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(E)
|
|
L/C Issuance Agreement, dated as of June 13, 2006, between
the Registrant, as Account Party, and Morgan Stanley Capital
Services, Inc., as L/C Issuer, is incorporated by reference to
Exhibit 10.4 to the Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(F)
|
|
Letter of Credit Agreement, dated as of June 13, 2006,
between the Registrant and Citibank, N.A., is incorporated by
reference to Exhibit 10.3 to the Registrants Current
Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(G)
|
|
3-Year
Credit Agreement, dated as of June 13, 2006, among the
Registrant, as Borrower, ELF Special Financing Ltd., as Initial
Lender and L/C Issuer, and Morgan Stanley Capital Services,
Inc., as Administrative Agent and L/C Administrator, is
incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(H)
|
|
Registration Rights Agreement, dated as of November 15,
2006, is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
10(i)(I)
|
|
Registration Rights Agreement, dated as of November 20,
2007 is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on November 21, 2007.
|
(i) Michael I. Roth
|
10(iii)(A)(1)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004.*
|
10(iii)(A)(2)
|
|
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
Registrants Current Report on
Form 8-K
filed with the SEC on January 21, 2005.*
|
10(iii)(A)(3)
|
|
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
Registrants Current Report on
Form 8-K
filed with the SEC on February 17, 2005.*
|
10(iii)(A)(4)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 13, 2004, between the Registrant
and Michael I. Roth, is incorporated by reference to
Exhibit 10(iii)(A)(7) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(5)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Michael I. Roth, is incorporated by reference to
Exhibit 10(iii)(A)(8) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
106
|
|
|
Exhibit No.
|
|
Description
|
|
(ii) Philippe Krakowsky
|
10(iii)(A)(6)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(7)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(8)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(9)
|
|
Employment Agreement, made as of January 1, 2006 and
executed on March 20, 2006, by and between the Registrant
and Philippe Krakowsky, is incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on March 24, 2006.*
|
10(iii)(A)(10)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of January 1, 2006, between the
Registrant and Philippe Krakowsky, is incorporated by reference
to Exhibit 10(iii)(A)(13) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(11)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(14) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(12)
|
|
Amendment, dated September 12, 2007, to an Executive
Special Benefit Agreement, dated February 1, 2002, between
the Registrant and Philippe Krakowsky, is incorporated by
reference to Exhibit 10(iii)(A)(15) to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(iii) Frank Mergenthaler
|
10(iii)(A)(13)
|
|
Employment Agreement, made as of July 13, 2005, between the
Registrant and Frank Mergenthaler is incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on July 19, 2005.*
|
10(iii)(A)(14)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 18, 2005, between the Registrant
and Frank Mergenthaler, is incorporated by reference to
Exhibit 10(iii)(A)(9) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(15)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Registrant and Frank
Mergenthaler, is incorporated by reference to
Exhibit 10(iii)(A)(10) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
107
|
|
|
Exhibit No.
|
|
Description
|
|
(iv) Timothy A. Sompolski
|
10(iii)(A)(16)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(17)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 6, 2004, between Interpublic and
Timothy A. Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(16) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(18)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Timothy A. Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(17) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(v) John J. Dooner, Jr.
|
10(iii)(A)(19)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(20)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(21)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(22)
|
|
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 Registrants Annual
Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(23)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(24)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2000.*
|
10(iii)(A)(25)
|
|
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 Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(26)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(27)
|
|
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 Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(28)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2003.*
|
108
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(29)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2003.*
|
10(iii)(A)(30)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and John
J. Dooner, is incorporated by reference to
Exhibit 10(iii)(A)(11) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(vi) Stephen Gatfield
|
10(iii)(A)(31)
|
|
Employment Agreement, made as of February 2, 2004, by and
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(32)
|
|
Participation Agreement under The Interpublic Senior Executive
Retirement Income Plan, dated as of January 30, 2004,
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10(iii)(A)(2) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(33)
|
|
Supplemental Agreement, dated as of February 24, 2006,
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K/A
filed with the SEC on March 3, 2006.*
|
10(iii)(A)(34)
|
|
Letter Agreement, dated March 15, 2006, by and between the
Registrant and Stephen Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2006.*
|
10(iii)(A)(35)
|
|
Executive Change of Control Agreement, dated as of
September 30, 2007, by and between the Registrant and Steve
Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(12) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(x) Jill M. Considine
|
10(iii)(A)(36)
|
|
Deferred Compensation Agreement, dated as of April 1, 2002,
between the Registrant and Jill M. Considine, is incorporated by
reference to Exhibit 10(iii)(A)(i) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002.*
|
10(iii)(A)(37)
|
|
Letter, dated November 2, 2006, from Jill M. Considine to
the Registrant, is incorporated by reference to
Exhibit 10(iii)(B) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006.*
|
(xi) Richard A. Goldstein
|
10(iii)(A)(38)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2001.*
|
10(iii)(A)(39)
|
|
Letter, dated July 24, 2006, from Richard A. Goldstein to
the Registrant, is incorporated by reference to
Exhibit 10(iii)(A) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006.*
|
Compensation Plans and Arrangements:
|
10(iii)(A)(40)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1990.*
|
10(iii)(A)(41)
|
|
The 1997 Performance Incentive Plan of the Registrant is
incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 1997.*
|
109
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(42)
|
|
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).*
|
10(iii)(A)(43)
|
|
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).*
|
10(iii)(A)(44)
|
|
True North Communications Inc. Deferred Compensation Plan is
incorporated by reference to Exhibit(c)(xiv) of the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(45)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(46)
|
|
The 2002 Performance Incentive Plan of the Registrant is
incorporated by reference to Appendix A to the
Registrants Proxy Statement on Schedule 14A, filed
April 17, 2002.*
|
10(iii)(A)(47)
|
|
The Interpublic Senior Executive Retirement Income Plan (the
SERIP) is incorporated by reference to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(48)
|
|
The Interpublic Capital Accumulation Plan (the CAP)
is incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(49)
|
|
The Interpublic Outside Directors Stock Incentive Plan of the
Registrant, as amended through August 1, 2003, is
incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(50)
|
|
The Interpublic 2004 Performance Incentive Plan (the 2004
PIP) is incorporated by reference to Appendix B to
the Registrants Proxy Statement on Schedule 14A,
filed with the SEC on April 23, 2004.*
|
10(iii)(A)(51)
|
|
The Interpublic Non-Management Directors Stock Incentive
Plan (the Non-Management Directors Plan) is
incorporated by reference to Appendix C to the
Registrants Proxy Statement on Schedule 14A, filed
with the SEC on April 23, 2004.*
|
10(iii)(A)(52)
|
|
2004 PIP Form of Option Certificate is
incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(53)
|
|
2004 PIP Form of Instrument of Restricted Stock
is incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(54)
|
|
2004 PIP Form of Instrument of Restricted Stock
Units is incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(55)
|
|
Non-Management Directors Plan Form of
Plan Option Certificate is incorporated by reference to
Exhibit 10.4 of the Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(56)
|
|
Non-Management Directors Plan Form of
Instrument of Restricted Shares is incorporated by reference to
Exhibit 10.5 to the Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(57)
|
|
Non-Management Directors Plan Form of
Instrument of Restricted Share Units is incorporated by
reference to Exhibit 10.6 of the Registrants Current
Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
110
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(58)
|
|
The SERIP Form of Participation Agreement is
incorporated by reference to Exhibit 10.7 of the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(59)
|
|
The CAP Form of Participation Agreement is
incorporated by reference to Exhibit 10.8 of the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(60)
|
|
The Employee Stock Purchase Plan (2006) of the Registrant
is incorporated by reference to Appendix B to the
Registrants Proxy Statement on Schedule 14A, filed
with the SEC on October 21, 2005.*
|
10(iii)(A)(61)
|
|
The Interpublic 2006 Performance Incentive Plan (the 2006
PIP) is incorporated by reference to Appendix A to
the Registrants Definitive Proxy Statement on
Schedule 14A filed with the SEC on April 27, 2006.*
|
10(iii)(A)(62)
|
|
2006 PIP Form of Instrument of Performance
Shares, is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(63)
|
|
2006 PIP Form of Instrument of Performance
Units is incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(64)
|
|
2006 PIP Form of Instrument of Restricted
Stock, is incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(65)
|
|
2006 PIP Form of Instrument of Restricted Stock
Units, is incorporated by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(66)
|
|
2006 PIP Form of Instrument of Nonstatutory
Stock Options, is incorporated by reference to Exhibit 10.5
to the Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(67)
|
|
Interpublic Executive Severance Plan, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007.*
|
10(iii)(A)(68)
|
|
The SERIP, Amended and Restated (the Restated
SERIP), effective January 1, 2007, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(69)
|
|
The CAP, Amended and Restated (the Restated CAP),
effective January 1, 2007, is incorporated by reference to
Exhibit 10(iii)(A)(4) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(70)
|
|
Restated SERIP Form of Restated Participation
Agreement, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(71)
|
|
Restated SERIP Form of Participation Agreement
(Form For New Participants), is incorporated by reference
to Exhibit 10(iii)(A)(3) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(72)
|
|
Restated CAP Form of Restated Participation
Agreement, is incorporated by reference to
Exhibit 10(iii)(A)(5) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(73)
|
|
Restated CAP Form of Participation Agreement
(Form For New Participants), is incorporated by reference
to Exhibit 10(iii)(A)(6) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
111
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(74)
|
|
Description of the Change in Compensation for Non-Management
Directors, is incorporated by reference to
Exhibit 10(iii)(A)(91) to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2007.*
|
12
|
|
Supplemental Calculation of Ratio of Earnings to Fixed Charges.
|
21
|
|
Subsidiaries of the Registrant.
|
23
|
|
Consent of PricewaterhouseCoopers LLP.
|
24
|
|
Power of Attorney to sign
Form 10-K
and resolution of Board of Directors re Power of Attorney.
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
32
|
|
Certification of the Chief Executive Officer and the Chief
Financial Officer furnished pursuant to 18 U.S.C.
Section 1350 and
Rule 13a-14(b)
under the Securities Exchange Act of 1934, as amended.
|
|
|
|
* |
|
Management contracts and compensation plans and arrangements. |
112
SIGNATURES
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.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Registrant)
Michael I. Roth
Chairman of the Board
and Chief Executive Officer
February 29, 2008
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
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
I. Roth
Michael
I. Roth
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Frank
Mergenthaler
Frank
Mergenthaler
|
|
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Christopher
F. Carroll
Christopher
F. Carroll
|
|
Senior Vice President,
Controller and Chief Accounting Officer
(Principal Accounting Officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Frank
J. Borelli
Frank
J. Borelli
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Reginald
K. Brack
Reginald
K. Brack
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Jocelyn
Carter-Miller
Jocelyn
Carter-Miller
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Jill
M. Considine
Jill
M. Considine
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Richard
A Goldstein
Richard
A. Goldstein
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ H.
John Greeniaus
H.
John Greeniaus
|
|
Director
|
|
February 29, 2008
|
113
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Mary
J. Steele Guilfoile
Mary
J. Steele Guilfoile
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ William
T. Kerr
William
T. Kerr
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ J.
Phillip Samper
J.
Phillip Samper
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ David
M. Thomas
David
M. Thomas
|
|
Director
|
|
February 29, 2008
|
114
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Description
|
|
3(i)
|
|
Restated Certificate of Incorporation of the Registrant, as
amended through October 24, 2005, is incorporated by
reference to Exhibit 3(i) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2005 filed with the SEC
on November 9, 2005.
|
3(ii)
|
|
By-Laws of the Registrant, as amended and restated through
March 23, 2006, are incorporated by reference to
Exhibit 3(ii) to the Registrants Current Report on
Form 8-K
filed with the SEC on March 29, 2006.
|
4(iii)(A)
|
|
Certificate of Designations of 5.25% Series B Cumulative
Convertible Perpetual Preferred Stock of the Registrant, as
filed with the Delaware Secretary of State on October 24,
2005 is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 24, 2005.
|
4(iii)(B)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on October 24, 2000.
|
4(iii)(C)
|
|
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 Registrants Registration Statement
on
Form S-4
filed with the SEC on December 4, 2001.
|
4(iii)(D)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on March 18, 2003.
|
4(iii)(E)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(F)
|
|
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 Registrants Current
Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(G)
|
|
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% Convertible Senior Notes due 2023
is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on August 15, 2005.
|
4(iii)(H)
|
|
Senior Debt Indenture dated as of November 12, 2004 (the
2004 Indenture), between the Registrant and Suntrust
Bank, as trustee, is incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on November 15, 2004.
|
4(iii)(I)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on November 19, 2004.
|
4(iii)(J)
|
|
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 Registrants Current Report on
Form 8-K
filed with the SEC on November 19, 2004.
|
4(iii)(K)
|
|
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 Registrants
Current Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
115
|
|
|
Exhibit No.
|
|
Description
|
|
4(iii)(L)
|
|
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 Registrants
Current Report on
Form 8-K
filed with the SEC on April 1, 2005.
|
4(iii)(M)
|
|
Sixth Supplemental Indenture, dated as of December 8, 2006,
to the 2004 Indenture, with respect to the Floating Rate Notes
due 2010 is incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on December 8, 2006.
|
4(iii)(N)
|
|
Senior Debt Indenture, dated as of November 15, 2006 (the
2006 Indenture), between the Registrant and The Bank
of New York, as trustee, is incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
4(iii)(O)
|
|
First Supplemental Indenture, dated as of November 15,
2006, to the 2006 Indenture, with respect to the
4.25% Convertible Senior Notes Due 2023 is incorporated by
reference to Exhibit 4.2 to the Registrants Current
Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
4(iii)(P)
|
|
Second Supplemental Indenture, dated as of November 20,
2007, to the 2006 Indenture, with respect to the
4.75% Convertible Senior Notes due 2023 is incorporated by
reference to Exhibit 4.1 to the Registrants Current
Report on
Form 8-K
filed with the SEC on November 21, 2007.
|
4(iii)(Q)
|
|
Warrant Agreement, dated as of June 13, 2006, between the
Registrant and LaSalle Bank National Association, as Warrant
Agent, is incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(A)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and UBS AG, London Branch, is incorporated by
reference to Exhibit 10.4 to the Registrants Current
Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(B)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and Morgan Stanley & Co. International
Limited, is incorporated by reference to Exhibit 10.3 to
the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(C)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and JP Morgan Chase Bank, National Association,
London Branch, is incorporated by reference to Exhibit 10.2
to the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(D)
|
|
Call Option Agreement, dated as of June 6, 2006, between
the Registrant and Citibank, N.A., is incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on June 12, 2006.
|
10(i)(E)
|
|
L/C Issuance Agreement, dated as of June 13, 2006, between
the Registrant, as Account Party, and Morgan Stanley Capital
Services, Inc., as L/C Issuer, is incorporated by reference to
Exhibit 10.4 to the Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(F)
|
|
Letter of Credit Agreement, dated as of June 13, 2006,
between the Registrant and Citibank, N.A., is incorporated by
reference to Exhibit 10.3 to the Registrants Current
Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
10(i)(G)
|
|
3-Year
Credit Agreement, dated as of June 13, 2006, among the
Registrant, as Borrower, ELF Special Financing Ltd., as Initial
Lender and L/C Issuer, and Morgan Stanley Capital Services,
Inc., as Administrative Agent and L/C Administrator, is
incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 19, 2006.
|
116
|
|
|
Exhibit No.
|
|
Description
|
|
10(i)(H)
|
|
Registration Rights Agreement, dated as of November 15,
2006, is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on November 17, 2006.
|
10(i)(I)
|
|
Registration Rights Agreement, dated as of November 20,
2007 is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on November 21, 2007.
|
(i) Michael I. Roth
|
10(iii)(A)(1)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2004.*
|
10(iii)(A)(2)
|
|
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
Registrants Current Report on
Form 8-K
filed with the SEC on January 21, 2005.*
|
10(iii)(A)(3)
|
|
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
Registrants Current Report on
Form 8-K
filed with the SEC on February 17, 2005.*
|
10(iii)(A)(4)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 13, 2004, between the Registrant
and Michael I. Roth, is incorporated by reference to
Exhibit 10(iii)(A)(7) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(5)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Michael I. Roth, is incorporated by reference to
Exhibit 10(iii)(A)(8) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(ii) Philippe Krakowsky
|
10(iii)(A)(6)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(7)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(8)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2002.*
|
10(iii)(A)(9)
|
|
Employment Agreement, made as of January 1, 2006 and
executed on March 20, 2006, by and between the Registrant
and Philippe Krakowsky, is incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on March 24, 2006.*
|
10(iii)(A)(10)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of January 1, 2006, between the
Registrant and Philippe Krakowsky, is incorporated by reference
to Exhibit 10(iii)(A)(13) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
117
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(11)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Philippe Krakowsky, is incorporated by reference to
Exhibit 10(iii)(A)(14) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(12)
|
|
Amendment, dated September 12, 2007, to an Executive
Special Benefit Agreement, dated February 1, 2002, between
the Registrant and Philippe Krakowsky, is incorporated by
reference to Exhibit 10(iii)(A)(15) to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(iii) Frank Mergenthaler
|
10(iii)(A)(13)
|
|
Employment Agreement, made as of July 13, 2005, between the
Registrant and Frank Mergenthaler is incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed with the SEC on July 19, 2005.*
|
10(iii)(A)(14)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 18, 2005, between the Registrant
and Frank Mergenthaler, is incorporated by reference to
Exhibit 10(iii)(A)(9) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(15)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between Registrant and Frank
Mergenthaler, is incorporated by reference to
Exhibit 10(iii)(A)(10) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(iv) Timothy A. Sompolski
|
10(iii)(A)(16)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(17)
|
|
Amendment, made as of September 12, 2007, to an Employment
Agreement, made as of July 6, 2004, between Interpublic and
Timothy A. Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(16) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(18)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and
Timothy A. Sompolski, is incorporated by reference to
Exhibit 10(iii)(A)(17) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(v) John J. Dooner, Jr.
|
10(iii)(A)(19)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(20)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(21)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(22)
|
|
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 Registrants Annual
Report on
Form 10-K
for the year ended December 31, 1995.*
|
10(iii)(A)(23)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1995.*
|
118
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(24)
|
|
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
Registrants Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2000.*
|
10(iii)(A)(25)
|
|
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 Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(26)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(27)
|
|
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 Registrants Annual Report
on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(28)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2003.*
|
10(iii)(A)(29)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2003.*
|
10(iii)(A)(30)
|
|
Executive Change of Control Agreement, dated as of
September 12, 2007, by and between the Registrant and John
J. Dooner, is incorporated by reference to
Exhibit 10(iii)(A)(11) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
(vi) Stephen Gatfield
|
10(iii)(A)(31)
|
|
Employment Agreement, made as of February 2, 2004, by and
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(32)
|
|
Participation Agreement under The Interpublic Senior Executive
Retirement Income Plan, dated as of January 30, 2004,
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10(iii)(A)(2) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2004.*
|
10(iii)(A)(33)
|
|
Supplemental Agreement, dated as of February 24, 2006,
between the Registrant and Stephen Gatfield, is incorporated by
reference to Exhibit 10.1 to the Registrants Current
Report on
Form 8-K/A
filed with the SEC on March 3, 2006.*
|
10(iii)(A)(34)
|
|
Letter Agreement, dated March 15, 2006, by and between the
Registrant and Stephen Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2006.*
|
10(iii)(A)(35)
|
|
Executive Change of Control Agreement, dated as of
September 30, 2007, by and between the Registrant and Steve
Gatfield, is incorporated by reference to
Exhibit 10(iii)(A)(12) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
119
|
|
|
Exhibit No.
|
|
Description
|
|
(x) Jill M. Considine
|
10(iii)(A)(36)
|
|
Deferred Compensation Agreement, dated as of April 1, 2002,
between the Registrant and Jill M. Considine, is incorporated by
reference to Exhibit 10(iii)(A)(i) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2002.*
|
10(iii)(A)(37)
|
|
Letter, dated November 2, 2006, from Jill M. Considine to
the Registrant, is incorporated by reference to
Exhibit 10(iii)(B) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006.*
|
(xi) Richard A. Goldstein
|
10(iii)(A)(38)
|
|
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 Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2001.*
|
10(iii)(A)(39)
|
|
Letter, dated July 24, 2006, from Richard A. Goldstein to
the Registrant, is incorporated by reference to
Exhibit 10(iii)(A) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2006.*
|
Compensation Plans and Arrangements:
|
10(iii)(A)(40)
|
|
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
Registrants Annual Report on
Form 10-K
for the year ended December 31, 1990.*
|
10(iii)(A)(41)
|
|
The 1997 Performance Incentive Plan of the Registrant is
incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 1997.*
|
10(iii)(A)(42)
|
|
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).*
|
10(iii)(A)(43)
|
|
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).*
|
10(iii)(A)(44)
|
|
True North Communications Inc. Deferred Compensation Plan is
incorporated by reference to Exhibit(c)(xiv) of the
Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(45)
|
|
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 Registrants Annual Report on
Form 10-K
for the year ended December 31, 2002.*
|
10(iii)(A)(46)
|
|
The 2002 Performance Incentive Plan of the Registrant is
incorporated by reference to Appendix A to the
Registrants Proxy Statement on Schedule 14A, filed
April 17, 2002.*
|
10(iii)(A)(47)
|
|
The Interpublic Senior Executive Retirement Income Plan (the
SERIP) is incorporated by reference to the
Registrants Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(48)
|
|
The Interpublic Capital Accumulation Plan (the CAP)
is incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(49)
|
|
The Interpublic Outside Directors Stock Incentive Plan of the
Registrant, as amended through August 1, 2003, is
incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2003.*
|
10(iii)(A)(50)
|
|
The Interpublic 2004 Performance Incentive Plan (the 2004
PIP) is incorporated by reference to Appendix B to
the Registrants Proxy Statement on Schedule 14A,
filed with the SEC on April 23, 2004.*
|
120
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(51)
|
|
The Interpublic Non-Management Directors Stock Incentive
Plan (the Non-Management Directors Plan) is
incorporated by reference to Appendix C to the
Registrants Proxy Statement on Schedule 14A, filed
with the SEC on April 23, 2004.*
|
10(iii)(A)(52)
|
|
2004 PIP Form of Option Certificate is incorporated
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(53)
|
|
2004 PIP Form of Instrument of Restricted Stock is
incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(54)
|
|
2004 PIP Form of Instrument of Restricted Stock
Units is incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(55)
|
|
Non-Management Directors Plan Form of Plan
Option Certificate is incorporated by reference to
Exhibit 10.4 of the Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(56)
|
|
Non-Management Directors Plan Form of
Instrument of Restricted Shares is incorporated by reference to
Exhibit 10.5 to the Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(57)
|
|
Non-Management Directors Plan Form of
Instrument of Restricted Share Units is incorporated by
reference to Exhibit 10.6 of the Registrants Current
Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(58)
|
|
The SERIP Form of Participation Agreement is
incorporated by reference to Exhibit 10.7 of the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(59)
|
|
The CAP Form of Participation Agreement is
incorporated by reference to Exhibit 10.8 of the
Registrants Current Report on
Form 8-K
filed with the SEC on October 27, 2004.*
|
10(iii)(A)(60)
|
|
The Employee Stock Purchase Plan (2006) of the Registrant
is incorporated by reference to Appendix B to the
Registrants Proxy Statement on Schedule 14A, filed
with the SEC on October 21, 2005.*
|
10(iii)(A)(61)
|
|
The Interpublic 2006 Performance Incentive Plan (the 2006
PIP) is incorporated by reference to Appendix A to
the Registrants Definitive Proxy Statement on
Schedule 14A filed with the SEC on April 27, 2006.*
|
10(iii)(A)(62)
|
|
2006 PIP Form of Instrument of Performance Shares,
is incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(63)
|
|
2006 PIP Form of Instrument of Performance Units is
incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(64)
|
|
2006 PIP Form of Instrument of Restricted Stock, is
incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(65)
|
|
2006 PIP Form of Instrument of Restricted Stock
Units, is incorporated by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
10(iii)(A)(66)
|
|
2006 PIP Form of Instrument of Nonstatutory Stock
Options, is incorporated by reference to Exhibit 10.5 to
the Registrants Current Report on
Form 8-K
filed with the SEC on June 21, 2006.*
|
121
|
|
|
Exhibit No.
|
|
Description
|
|
10(iii)(A)(67)
|
|
Interpublic Executive Severance Plan, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007.*
|
10(iii)(A)(68)
|
|
The SERIP, Amended and Restated (the Restated
SERIP), effective January 1, 2007, is incorporated by
reference to Exhibit 10(iii)(A)(1) to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(69)
|
|
The CAP, Amended and Restated (the Restated CAP),
effective January 1, 2007, is incorporated by reference to
Exhibit 10(iii)(A)(4) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(70)
|
|
Restated SERIP Form of Restated Participation
Agreement, is incorporated by reference to
Exhibit 10(iii)(A)(2) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(71)
|
|
Restated SERIP Form of Participation Agreement
(Form For New Participants), is incorporated by reference
to Exhibit 10(iii)(A)(3) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(72)
|
|
Restated CAP Form of Restated Participation
Agreement, is incorporated by reference to
Exhibit 10(iii)(A)(5) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(73)
|
|
Restated CAP Form of Participation Agreement
(Form For New Participants), is incorporated by reference
to Exhibit 10(iii)(A)(6) to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007.*
|
10(iii)(A)(74)
|
|
Description of the Change in Compensation for Non-Management
Directors, is incorporated by reference to
Exhibit 10(iii)(A)(91) to the Registrants Annual
Report on
Form 10-K
for the year ended December 31, 2007.*
|
12
|
|
Supplemental Calculation of Ratio of Earnings to Fixed Charges.
|
21
|
|
Subsidiaries of the Registrant.
|
23
|
|
Consent of PricewaterhouseCoopers LLP.
|
24
|
|
Power of Attorney to sign
Form 10-K
and resolution of Board of Directors re Power of Attorney.
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended.
|
32
|
|
Certification of the Chief Executive Officer and the Chief
Financial Officer furnished pursuant to 18 U.S.C.
Section 1350 and
Rule 13a-14(b)
under the Securities Exchange Act of 1934, as amended.
|
|
|
|
* |
|
Management contracts and compensation plans and arrangements. |
122