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Interpublic Delays Release of Earnings Report

Cites 'Items That May Require Adjustments'

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NEW YORK ( -- Interpublic Group of Cos. is delaying the release of its annual report and may have to restate previous financial results, according to filings with the Securities and Exchange Commission today.

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March 31 deadline
The New York-based agency holding company, parent of McCann Erickson Worldwide, Foote Cone & Belding and Deutsch, said it would not be able to meet the March 31 deadline for reporting its earnings for the fourth quarter and full-year 2004. It also said its "has recently identified items that may require adjustments to prior period financial statements."

Standard & Poor's, the leading debt rating agency, this morning moved Interpublic's long-term credit rating deeper into junk status, cutting the rating two notches to "BB-," three steps below investment grade. S&P originally downgraded Interpublic to speculative or junk status in March 2003, one day after then-CEO David Bell vowed to focus on the balance sheet and get credit and liquidity concerns "off the table." Mr. Bell, now Interpublic's co-chairman, stepped down as CEO early this year.

Interpublic announced the news before the stock market opening this morning. The stock dropped to $11.98 from the yesterday's close of $12.35 before recovering to $12.21 in early morning trading.

An Interpublic representative failed to respond to repeated inquiries this week about the status of the company's financial report.

In midst of a turnaround
In the midst of a turnaround that could extend into 2006, Interpublic has been bothered by bookkeeping problems over the past few years and has taken extensive, expensive steps to improve its internal controls. The company has also been working to trim debt and jettison or improve underperforming assets.

Interpublic will update when it plans to release the annual report March 17.

The possible restatements could relate to acquisitions between 1996 and 2001. The company said a review has "identified preliminary amounts of approximately $145 million in revenue and $25 million of net income that may have been improperly recognized from 1996 to 2001."

"The actions we are taking are consistent with our stated desire to thoroughly address internal controls and move beyond our financial reporting issues," Chairman-CEO Michael Roth said in a statement. "These actions are not related to and should not impede the professional performance of our operating units, many of which continue to make great strides and deliver outstanding work and results to their clients."

Just this week McCann Worldgroup, the holding silo for McCann Erickson, picked up chip maker Intel's $300 million ad and media-buying account.

Three years of weak results
The market's muted reaction reflects that the stock already was beaten down by nearly three years of weak results, a string of financial restatements and a shifting crew of CEOs and CFOs.

Interpublic stock peaked in December 1999 at $58 a share as the ad market boomed and Interpublic devoured acquisition after acquisition. The stock tumbled in the ad recession, bottoming in 2001 at $19 in the aftermath of 9/11. It recovered to a post-recession peak of $35 in April 2002.

That year, Interpublic announced the first of a series of financial restatements. The stock plunged to a low of $11 in 2002 and hit bottom at $8 in March 2003 as Mr. Bell succeeded John J. Dooner Jr. as CEO. (Mr. Dooner now is CEO of Interpublic's flagship, McCann Worldgroup.) The stock rebounded to a February 2004 high of $17 as Interpublic appeared to be putting its accounting woes behind it.

Skeptical investors
It's been downhill since then. Over the past six months, Interpublic has struggled to gain traction with skeptical investors, trading in a fairly narrow range between $10.59 (in September) and $13.68 (in February).

Interpublic's stock market cap -- number of shares outstanding times stock price -- is barely above $5 billion, less than one third that of market leader Omnicom Group. Interpublic's enterprise value -- stock market cap plus debt minus cash -- is only $6.4 billion, effectively the price tag at the moment to buy what once was the crown jewel of Madison Avenue.

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