LOS ANGELES (AdAge.com) -- Interpublic Group of Cos. today said the Securities and Exchange Commission has widened its investigation of the embattled advertising firm. And in what has become an annual summer event, Interpublic announced the departure of another chief financial officer.
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Interpublic today said Robert Thompson, 52, resigned as executive vice president and chief financial officer. The company said it's reached a tentative agreement with a new CFO from the outside but can't identify him "for reasons having to do with that individual's current professional situation."
Michael Roth, Interpublic chairman-CEO, said in a press release: "Bob and I have independently come to the conclusion that the next steps in our company's progress will require new financial leadership. Bob came to me late last week to indicate his desire to leave. Separately, the company had begun the process of seeking new financial leadership and we have reached tentative agreement with an external candidate who we look forward to having join us in early August. That person has experience in senior finance roles in related industries. I look forward to having him as my new partner."
Mr. Thompson resigned June 22, according to an SEC filing today. He will remain acting CFO until his successor arrives.
Mr. Thompson's exit continues the tumult that began in August 2002 when Interpublic revealed what would be the first in a series of financial restatements to fix improper accounting.
Informal probe started in 2002
Interpublic today disclosed the SEC has widened an ongoing investigation, which started as an informal probe in November 2002 and expanded to a formal investigation in January 2003. "The scope of the investigation, including subpoenas requesting documents, has expanded to cover the potential restatement items" that the company disclosed in April, Interpublic said.
Those potential restatement items involve accounting for acquisitions from 1996-2001; accounting for leases; "numerous cases" where revenue was improperly recognized; payroll practices in Europe "for compensating certain executives"; internal investigations "of possible fraud or other misconduct"; accounting for deferred compensation, such as earn-outs, from past acquisitions; intercompany accounting; and additional issues related to "material weakness" in accounting.
Interpublic today said it is reviewing accounting for more than 400 acquisitions, leases at "approximately 370 entities," about 10,000 account reconciliations and more than 300,000 intercompany transactions. Interpublic also said it is "conducting forensic investigations at certain international locations" and is "hiring or replacing hundreds of temporary and permanent accountants and internal control specialists." Interpublic said work to fix material weaknesses "will extend into 2006."
Third CEO, fourth CFO
Interpublic is on its third CEO since its accounting trouble came to light two years. John J. Dooner Jr. stepped down as CEO in February 2003, moving back to chairman-CEO of Interpublic flagship McCann Erickson Worldgroup. He was succeeded by David Bell. Michael Roth, a one-time accountant who joined Interpublic as chairman last July, succeeded Mr. Bell as CEO in January. Mr. Bell now is co-chairman.
Press releases about new CFOs have been an early summer tradition at embattled Interpublic. The company announced its CFO changes on July 2, 2003; June 25, 2004; and today, June 28, 2005.
Sean Orr, who joined Interpublic from PepsiCo in June 1999, stepped down as CFO effective August 2003. He was replaced by Chris Coughlin, a Pharmacia Corp. financial chief who had joined Interpublic as chief operating officer in June 2003.
Mr. Thompson, a Pharmacia veteran who joined Interpublic as senior vice president for finance in October 2003, succeeded Mr. Coughlin as CFO in 2004; Mr. Coughlin continued as COO through the end of the year. In March of this year, he was named executive vice president and chief financial officer of another company recovering from financial tumult, Tyco International.
Revised borrowing terms with lenders
Along with Mr. Thompson's departure, Interpublic also announced it expects to file its annual report for 2004 and quarterly statements for the first half of 2005 by Sept. 30. The company said it had revised borrowing terms with lenders to avoid defaulting on its borrowings; default could have occurred, and lenders could have demanded early repayment, because Interpublic is late on filings.
Beyond accounting and management issues, Interpublic's business continues to be weak. The company today said its preliminary analysis shows "a moderate drop" in first-quarter revenue with "higher operating expenses" compared to the same period a year earlier.
Interpublic stock, which closed yesterday at $12.79, dropped to $12.15 in mid-afternoon trading, down 5%.
In a brief report, Merrill Lynch analyst Lauren Rich Fine termed today's disclosures "an overall negative" but said there were not major surprises. She noted there had been speculation for a month that Interpublic was seeking a new CFO.
Downgrade of stock possible
Two credit ratings services, Standard & Poor's and Fitch Ratings, today left Interpublic's debt rating on credit watch with the possibility of a downgrade. Interpublic already carries a junk-bond rating. S&P said: "A downgrade could result from further delays in filing financial statements beyond the anticipated Sept. 30, 2005, filing date, increased uncertainty about the reliability of Interpublic's financial reporting or if unanticipated adverse accounting or operating developments occur."
Interpublic today said its "extensive financial analysis and review process continues to be substantially manual and broad, in both accounting and geographic scope." Interpublic noted: "It is still possible that we will identify new matters that may require restatement, and we still expect new information to come to light."
Interpublic said it expects PricewaterhouseCoopers to include a "disclaimer of opinion" on the company's financial controls in the 2004 annual report. The firm has audited Interpublic since 1952.
Interpublic said the SEC could then decide that Interpublic is not in compliance with Sarbanes-Oxley and the New York Stock Exchange could move to delist the company.
In his press release, Mr. Roth expressed confidence about "getting Interpublic back on track."