IPG Earnings Restatement Drops a Half-Billion Dollars

Filing Cites Seven Instances of Employee Misconduct

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NEW YORK (AdAge.com) -- Following a six-month investigation of its books, Interpublic Group of Cos. this morning issued an earnings restatement that lopped off more than half-a-billion dollars over a period between 2000 and 2004.

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Interpublic, the third-largest ad agency holding company, also shed some long-awaited light on its more recent financial performance. In filings, it said that net losses for the first half of this year narrowed to $139 million from $182 million during the same period in 2004. Revenue grew 1.5% to $2.95 billion.

In 2004, revenue grew by 3.7% to $6.4 billion, while net losses widened to $558 million from $539 million in 2003.

Delayed by investigations
The company had delayed its Security and Exchange Commission filings because of its ongoing investigations.

Just under half of the amount of retained earnings that were reduced was attributed to problems with revenue recognition "as the company's review of more than 20,000 contracts found that some had been inconsistently followed, while others were unclear or did not exist." About $184 million had to do with vendor discounts. Adjustments for earn-outs made up about $70 million, while incorrect recognition of expenses and revenue for acquired business cost it $30 million in revenue.

Employee misconduct
About $56 million in reduction of earnings came as a result of an anti-fraud investigation. "Instances in which the company believes there was malfeasance do not involve current senior level employees at any of our operating units or within the corporate group," the filings said. "These cases took place primarily outside of the United States. Seven instances of employee misconduct account for approximately 80% of the adjustment in this category."

The company increased retained earnings for goodwill and investment impairment charges by about $145 million.

A conference call with analysts is planned this morning.

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