From Interpublic Group Earnings Release
The following excerpts are taken from the 4th quarter 2002 earnings release for Interpublic Group, issued this week:
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Restatement
In the fourth quarter, the company identified $135.8 million of pre-tax charges, primarily non-cash, relating to asset impairments and other operating expenses at Octagon Motor Sports. Because the events that triggered the impairment occurred in the third quarter, charges of $132.1 million were appropriately recorded by restating the third quarter of 2002. The remaining $3.7 million of charges relate to prior periods from 2001 and 2002.
As part of the company's broad-based review of its balance sheet, $29.9 million of pre-tax charges not related to Octagon Motor Sports were identified and recorded in prior periods in the years 1997-2002, principally reflecting adjustments to intangible asset amortization, purchase accounting and other items. While not material to any individual prior period, these charges would have been material in the aggregate if recognized in the fourth quarter of 2002 due to abnormally low earnings in the quarter.
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Octagon Motor Sports
In the fourth quarter, Octagon management completed an in-depth cash flow analysis of its motor sports assets and concluded that the book value of Octagon Motor Sports significantly exceeded its estimated fair market value. Accordingly, the company identified $135.8 million of primarily non-cash charges to reflect the impaired value of the assets and other adjustments. Because the events that triggered the impairment occurred in the third quarter, charges of $132.1 million were appropriately recorded by restating the third quarter of 2002. As a result, the company expects to file restated reports with the Securities and Exchange Commission for the appropriate periods.
Interpublic's new management has retained independent advisors to evaluate exit strategies relative to its motor sports assets. The remaining book value of long-lived assets relating to Octagon Motor Sports is approximately $70 million at December 31, 2002. This amount, as well as other substantial contractual obligations, may not be fully recoverable depending on the exit strategy the company ultimately chooses to pursue.