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By Adam Pasick
NEW YORK, Nov 19 (Reuters) - Interpublic Group of Cos , the world's No. 2 advertising company, said on Tuesday the Securities and Exchange Commission is conducting an informal inquiry into its earnings restatements, and that the breakdown in its financial controls had forced several amendments to its credit facilities.
The company also released the full details of its third-quarter results after providing only perfunctory earnings and revenues data last week. Its shares fell to $12 after hours from a close of $14.19 in regular trading.
Interpublic, home to agencies like McCann-Erickson and clients such as General Motors Corp. and Coca-Cola Co. , said the restatements ranged from 1996 to the second quarter of 2002.
"There are two new significant pieces of information, both on the negative side," said CIBC analyst David Doft. "The SEC informal inquiry can only be an incremental overhang to the stock, and the accounting issues and restatements are much more recent that we thought -- it's no longer a thing in the past."
After a costly investigation that included two law firms and two accounting firms, Interpublic said it had determined that $101 million in intercompany charges at McCann, mostly in Europe, were improperly expensed. The remainder of the restatements came from understated liabilities and other items at various Interpublic units.
Interpublic said Tuesday in a regulatory filing it had received waivers to its financial covenants and other provisions with Prudential Insurance Co. of America, including agreements for higher interest rates. The company also agreed to amend its credit facilities by Jan. 15, 2003 to include limitations on its ability to make capital expenditures, declare or pay dividends and repurchase shares or other debt securities.
Coming on the heels of Moody's Investor Service's downgrade of Interpublic's debt to one notch above "junk status," the potential amendments are worrying, Doft said.
"One of the things helping this stock is that the yield has been fairly attractive," he said. "If the dividend comes into play, that's just another overhang."
THIRD-QUARTER FIGURES
The company said its third-quarter profit totaled $7.5 million, or 2 cents per share, compared with a loss of $481.1 million or $1.30 per share in the year-earlier period. The year-ago loss was due to large charges for restructuring and impairment of goodwill.
Interpublic no longer expects to meet its previous earnings target of 85 to 90 cents per share for the full year, citing its "poor third-quarter performance, an uncertain revenue outlook" and higher operating costs at McCann.
Interpublic's third-quarter revenues fell to $1.50 billion from $1.62 billion a year ago. Domestic revenue fell 7.2 percent to $851.7 million, and international revenue fell 7.6 percent to $650.5 million.
The company's organic revenue growth, which excludes the effects of recent acquisitions, fell 5.2 percent. Interpublic's net new business wins, which includes newly won accounts and increased spending from existing clients, totaled $730.2 million.
Interpublic said it is assessing strategic alternatives for its troubled Octagon Motor Sports unit, which includes several racetracks and runs the British Formula One Grand Prix. The unit posted a loss of 6 cents per share in the third quarter, and Interpublic expects it to show a 15 cent to 20 cent per share loss for the full year.
Next up on the radar screen for Interpublic watchers is the company's naming of a new chief financial officer for its McCann-Erickson unit and a new chief operating officer for the entire firm.
"With all the layoffs on Wall Street, there a lot of good people available," said Doft.