Interpublic to Restate Five Years of Earnings

Discloses $68.5 Million in Improperly Expensed Charges

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NEW YORK (AdAge.com) -- Interpublic Group of Cos. late today said it was restating results for the past five years after overstating profits because of improper accounting.

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The disclosure came as Interpublic reported second-quarter results below analysts' expectations and warned full-year revenue will be down.

Interpublic restated results for the last five years to reflect $68.5 million in improperly expensed charges at its McCann-Erickson Europe unit. The restatement reduced earnings per share for each year from 1997 through 2001 by one to two cents per share.

Analyst call
In a conference call with analysts, management said the charges were the result of imbalances in intracompany accounts incurred when an office does work on behalf of another. The imbalances were uncovered as part of a 16-month-old review process and have been corrected.

"We found this ourselves. ... This wasn't found because the auditors had to come and tell us something," said Sean Orr, Interpublic's chief financial officer. PricewaterhouseCoopers has audited Interpublic since 1952.

The accounting issue had caused Interpublic to delay the release of its quarterly income statement from last week, resulting in a 24% drop in its stock on the day it announced the delay. The company last week said it was delaying results to give its board's audit committee more time to review results.

The rescheduling was "unfortunate but absolutely right," Chairman-CEO John J. Dooner Jr. said.

SEC rules
Messrs. Dooner and Orr are required to certify the veracity of financial statements under a Securities and Exchange Commission rule that takes effect Aug. 14. Management said it will certify the results.

In its presentation to analysts, management said the accounting restatement has been completed but that it is continuing to review personnel and procedures. "Further personnel or procedural changes, if necessary," will be made when the review is done, Interpublic said. The company said it has had new management in place at McCann in Europe since January.

Mr. Dooner has been chairman-CEO since December 2000. Prior to that, he was president-chief operating officer under Chairman-CEO Philip H. Geier Jr. Mr. Dooner was chairman-CEO of McCann-Erickson WorldGroup from 1995 to early 2000.

$1.5 billion in value lost
Interpublic disclosed its results after the market closed. The stock closed today at $15.78, down 87 cents. It slumped below $14.50 in after-market trading before rebounding to $15.79 in evening trading. The stock traded at nearly $20 before the sell-off last week after the company announced it was delaying earnings. The stock has lost about $1.5 billion in value since the company announced it was delaying its earnings release.

For the second quarter, Interpublic reported net income of $117 million, or 31 cents per share, compared to a loss of $113.1 million in 2001. That was in spite of an 8.4% decrease in revenue to $1.6 billion, or a drop of 9.5% after factoring out currency effects and acquisitions. Domestic revenue dropped 12.3% for the quarter, while international revenue dropped 6.1% mainly due to drops of 7.4% in Europe and 4.1% in Asia.

Earnings were below the 39 cents a share analysts had projected. But analysts had been bracing for the likelihood that Interpublic would miss its earnings or issue a pessimistic second-half forecast.

Backed down
Interpublic's management lowered its outlook for the year, saying full-year revenue will be down 6% to 7% due to continued weakness in the advertising market. Management had told analysts earlier this year that it could deliver 15% growth in earnings per share even if revenue was flat for the year, but had backed down from the flat-revenue scenario in recent weeks.

The "swing item" in revenue will be results at Octagon, the company's sports marketing unit, and particularly Octagon Motorsports, which has posted weak results during the traditionally strong summer season, Mr. Orr said.

Octagon's revenue was down 18.1% from the same quarter last year and showed a net loss of $17.1 million, which reduced Interpublic's earnings per share by 5 cents. New management at the unit is evaluating strategy at the motorsports unit to correct the revenue shortfall.

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