NEW YORK (AdAge.com) -- Interpublic Group of Cos. disclosed today that the Securities and Exchange Commission is investigating the company's planned restatement of results for the past five years.
IPG Postpones Full Third-Quarter Results
Boosts Restatement Estimate to $181 Million From $120 Million
McCann-Worldgroup Finance Exec Departs
Division at Center of Interpublic's Accounting Difficulties
Analysts Lose Faith as Interpublic Stock Tumbles
Shares Drop 30% Following $120 Million Earnings Restatement
Interpublic Slashes Profit Forecast
Nearly Doubles Earnings Restatement to $120 Million
Interpublic to Restate Five Years of Earnings
Discloses $68.5 Million in Improperly Expensed Charges
Interpublic Stock Plummets on Earnings Delay
Postponement Gives Audit Committee Time to Review Financials
In a press release reporting its third-quarter results, Interpublic said the SEC has informed the company it is "conducting an informal inquiry into the matter."
Interpublic said it is "cooperating fully with the inquiry."
Executives did not provide more detail on the investigation during a call with analysts. "We've been keeping the SEC informed as they make requests of us," Chief Financial Officer Sean Orr said.
Mr. Orr stressed the probe is an informal inquiry.
$181 million in charges
Interpublic had already reported revenue and earnings per share figures last week, but postponed a full report due to an ongoing restatement of results for the last five years. The restatement covers $181.3 million in charges, including $101 million in incorrectly accounted charges at McCann-Erickson Europe for work performed for other Interpublic advertising agencies and several other adjustments uncovered as a result of a companywide review started after the McCann situation came to light.
McCann-Erickson Europe is a division of McCann-Erickson WorldGroup, one of four silos or groupings of marketing services agencies within Interpublic.
Asked about his position as former chairman of McCann-Erickson WorldGroup, Interpublic Chairman-CEO John Dooner agreed he shares responsibility.
"I was at McCann during some of those events," he said. "It makes me more embarrassed and more humble and therefore more determined that this should not happen again."
|CEO John Dooner said he is 'embarrassed' about what has happened.
As expected, Interpublic reported disappointing third-quarter results, posting net income of $7.5 million, compared with a loss of $481.1 million in 2001, which included $592.8 million in restructuring charges. Factoring out accounting changes and restructuring charges, net income dropped 71.2% to $14.7 million, from $51 million a year ago.
Revenue dropped 7.4% for the quarter to $1.5 billion, or a drop of 5.2% on an organic basis, after factoring out acquisitions and currency fluctuations. Domestic revenue, 57% of the company's total, dropped 7.2% in the quarter to $851.7 million, while international revenue dropped 7.6% to $650.5 million, or a 4.6% drop adjusted for currency fluctuations.
Advertising and media revenue dropped 5.6% to $869.9 million, while marketing services revenue dropped 10.2% to $632.3 million, mainly due to declines in marketing communications and public relations revenue.
But Mr. Dooner dismissed reports of strife between himself and his successor at McCann, Jim Heekin. Several news reports in recent weeks have suggested Mr. Heekin could be ousted as a result of the restatement.
Those reports are greatly exaggerated, Mr. Dooner said.
"Our relationship is fine," he said. "I don't think there's anybody who needs to be worried about Jim. Period."
Interpublic is the parent company of advertising agencies including McCann-Erickson Worldwide, Foote, Cone & Belding Worldwide and Bozell.