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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1024020
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1271 Avenue of the Americas, New York, New York 10020
- ----------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 399-8000
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock outstanding at
April 28, 2000: 301,704,485 shares.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
I N D E X
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
March 31, 2000 (unaudited) and
December 31, 1999 3-4
Consolidated Income Statement
Three months ended March 31, 2000
and 1999 (unaudited) 5
Consolidated Statement of Comprehensive Income
Three months ended March 31, 2000
and 1999 (unaudited) 6
Consolidated Statement of Cash Flows
Three months ended March 31, 2000
and 1999 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
PART I - FINANCIAL INFORMATION
Item 1
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents (includes
certificates of deposit: 2000-$89,519;
1999-$150,343) $ 678,942 $ 981,448
Marketable securities, at cost which
approximates market 47,982 36,765
Receivables (net of allowance for doubtful
accounts: 2000-$58,916; 1999-$57,841) 4,243,159 4,309,589
Expenditures billable to clients 351,403 309,059
Prepaid expenses and other current assets 145,098 130,983
---------- ----------
Total current assets 5,466,584 5,767,844
---------- ----------
OTHER ASSETS:
Investment in unconsolidated affiliates 52,180 50,079
Deferred taxes on income 5,046 --
Other investments and miscellaneous assets 647,170 717,521
---------- ---------
Total other assets 704,396 767,600
---------- ---------
FIXED ASSETS, at cost:
Land and buildings 139,224 143,079
Furniture and equipment 738,700 732,115
---------- ---------
877,924 875,194
Less: accumulated depreciation 492,618 480,648
---------- ---------
385,306 394,546
Unamortized leasehold improvements 143,260 139,777
---------- ---------
Total fixed assets 528,566 534,323
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INTANGIBLE ASSETS (net of accumulated
amortization): 2000-$600,373;
1999-$579,067 1,700,599 1,657,488
---------- ----------
TOTAL ASSETS $8,400,145 $8,727,255
========== ==========
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
CURRENT LIABILITIES:
Payable to banks $ 381,810 $ 261,951
Accounts payable 4,292,303 4,541,669
Accrued expenses 618,581 675,596
Accrued income taxes 152,249 157,713
---------- ----------
Total current liabilities 5,444,943 5,636,929
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt 322,766 348,772
Convertible subordinated
debentures and notes 522,068 518,490
Deferred compensation and reserve
for termination allowances 351,804 343,606
Deferred taxes on income -- 41,429
Accrued postretirement benefits 48,730 48,730
Other noncurrent liabilities 85,739 82,585
Minority interests in
consolidated subsidiaries 79,857 78,643
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Total noncurrent liabilities 1,410,964 1,462,255
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value
shares authorized: 20,000,000
shares issued: none
Common Stock, $.10 par value
shares authorized: 550,000,000
shares issued:
2000 - 298,439,770
1999 - 297,137,345 29,844 29,714
Additional paid-in capital 772,327 738,953
Retained earnings 1,337,762 1,325,306
Accumulated other comprehensive income,
net of tax (167,013) (76,404)
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1,972,920 2,017,569
Less: Treasury stock, at cost:
2000 - 9,571,468 shares
1999 - 9,479,772 shares 338,222 312,463
Unamortized expense of restricted
stock grants 90,460 77,035
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TOTAL STOCKHOLDERS' EQUITY 1,544,238 1,628,071
---------- ----------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,400,145 $8,727,255
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31
(Amounts in Thousands Except Per Share Data)
(unaudited)
2000 1999
---- ----
Revenue $1,089,638 $908,081
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Salaries and related expenses 643,233 543,631
Office and general expenses 339,259 282,000
Restructuring and other merger
related costs 36,051 --
-------- --------
Total operating expenses 1,018,543 825,631
-------- --------
Income from operations 71,095 82,450
Interest expense (17,080) (13,945)
Other income, net 16,804 12,499
-------- --------
Income before provision for income taxes 70,819 81,004
Provision for income taxes 30,098 33,618
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Income of consolidated companies 40,721 47,386
Income applicable to minority interests (5,433) (3,599)
Equity in net income of unconsolidated
affiliates 1,057 998
------- --------
Net income $ 36,345 $ 44,785
======== ========
Earnings per share:
Basic $ .13 $ .16
Diluted $ .13 $ .16
Dividend per share - Interpublic $ .085 $ .075
Weighted average shares:
Basic 281,035 272,534
Diluted 291,288 283,350
The accompanying notes are an integral part of these consolidated financial
statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands)
(unaudited)
2000 1999
---- ----
Net Income $ 36,345 $ 44,785
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Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments (30,420) (60,467)
Net Unrealized Gains (Losses) on Securities (60,189) 22,773
--------- ---------
Other Comprehensive Income (90,609) (37,694)
--------- ---------
Comprehensive Income $ (54,264) $ 7,091
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands)
(unaudited)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 36,345 $ 44,785
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization of fixed assets 32,470 24,317
Amortization of intangible assets 21,306 14,728
Amortization of restricted stock awards 6,965 5,929
Equity in net income of unconsolidated
affiliates (1,057) (998)
Income applicable to minority interests 5,433 3,599
Translation losses 593 974
Net gain from sale of investments (5,596) (481)
Other 8,424 (9,692)
Restructuring charges, non-cash 15,781 --
Changes in assets and liabilities, net of acquisitions:
Receivables 32,030 (29,760)
Expenditures billable to clients (43,183) (51,014)
Prepaid expenses and other assets (14,789) (31,600)
Accounts payable and other liabilities (268,067) (158,581)
Accrued income taxes (5,279) (9,447)
Deferred income taxes (4,988) (2,963)
Deferred compensation and reserve for
termination allowances 11,857 3,936
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Net cash used in operating activities (171,755) (196,268)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net (56,931) (55,286)
Capital expenditures (30,721) (28,468)
Proceeds from sale of investments 7,700 1,436
Net purchases of marketable securities (12,872) (18,104)
Other investments and miscellaneous assets (49,644) (5,359)
Investments in unconsolidated affiliates -- 236
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Net cash used in investing activities (142,468) (105,545)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 115,417 209,956
Proceeds from long-term debt 2,184 52,721
Payments of long-term debt (16,802) (1,534)
Treasury stock acquired (64,305) (79,474)
Issuance of common stock 16,186 26,285
Cash dividends - Interpublic (23,890) (20,450)
-----------------------
Net cash provided by financing activities 28,790 187,504
Effect of exchange rates on cash and cash
equivalents (17,073) (29,080)
-----------------------
Decrease in cash and cash equivalents (302,506) (143,389)
Cash and cash equivalents at beginning of year 981,448 760,508
-----------------------
Cash and cash equivalents at end of period $ 678,942 $ 617,119
=======================
The accompanying notes are an integral part of these consolidated financial
statements
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(a) In the opinion of management, the consolidated balance sheet as of
March 31, 2000, the consolidated income statements for the three
months ended March 31, 2000 and 1999, the consolidated statement of
comprehensive income for the three months ended March 31, 2000 and
1999, and the consolidated statement of cash flows for the three
months ended March 31, 2000 and 1999, contain all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at March
31, 2000 and for all periods presented. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes thereto included in The Interpublic Group of
Companies, Inc.'s (the "Company") December 31, 1999 annual report to
stockholders.
Certain prior year amounts have been reclassified to conform with
current year presentation. See Note (f) for illustration of
reclassification of income statement amounts for 1999 by quarter.
(b) The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. Income tax cash payments
were approximately $19.6 million and $36.3 million in the first three
months of 2000 and 1999, respectively. Interest payments during the
first three months of 2000 and 1999 were approximately $10.6 million
and $5.6 million, respectively.
(c) In October 1999, the Company announced the merger of two of its
advertising networks. The networks affected, Lowe & Partners Worldwide
and Ammirati Puris Lintas were combined to form a new agency network
called Lowe Lintas & Partners Worldwide. The merger involves the
consolidation of operations in Lowe Lintas agencies in approximately
24 cities in 22 countries around the world. Once complete, the newly
merged agency network will have offices in over 80 countries around
the world.
Since the fourth quarter of 1999, the Company has been executing the
restructuring in connection with the merger. As of the current date,
substantially all of the restructuring activities in the U.S., the
U.K. and most European and Latin American countries have been
completed.
In the first quarter of 2000, the Company recognized pre-tax
restructuring costs of $36.1 million ($20.7 million net of tax). The
Company expects the remaining pre-tax costs to complete the
restructuring to approximate $50-$70 million, which is in line with
the Company's original plan. The remaining costs focus principally on
finalizing the restructuring in Germany and several smaller markets.
The total restructuring costs of $36.1 million include cash costs of
$20.3 million.
A summary of the components of the total restructuring and other
merger related costs is as follows:
(Dollars in millions)
1st Quarter 2000
---------------------------------
Balance Expense Cash Asset Balance
at 12/31/99 recognized Paid Write-offs at 3/31/00
----------- ------------- ---- ---------- ----------
TOTAL BY TYPE
Severance and
termination costs $43.6 $14.4 $ 9.6 -- $48.4
Fixed asset write-offs 11.1 5.4 -- 16.5 --
Lease termination costs 3.8 4.9 1.7 -- 7.0
Investment write-offs
and other 23.4 11.4 .3 32.6 1.9
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Total $81.9 $36.1 $11.6 $49.1 $57.3
======================================================
The severance and termination costs recorded in 2000 relate to
approximately 265 employees who have been terminated or notified that
they will be terminated. The employee groups affected include
management, administrative, account management, creative and media
production personnel, principally in the U.S. and several European
countries.
The fixed asset write-offs relate largely to the abandonment of
leasehold improvements as part of the merger. The amount recognized in
2000 relates to fixed asset write-offs in 3 offices, the largest of
which is in the U.K.
Lease termination costs relate to the offices vacated as part of the
merger. The lease terminations are expected to be completed by
mid-to-late 2000, with the cash portion to be paid out over a period
of up to five years.
The investment write-offs relate to the loss on sale or closing of
certain business units. In 2000, $9.3 million has been recorded as a
result of the decision to sell or abandon 2 businesses located in Asia
and Europe. In the aggregate, the businesses being sold or abandoned
represent an immaterial portion of the revenue and operations of Lowe
Lintas & Partners. The write-off amount was computed based upon the
difference between the estimated sales proceeds (if any) and the
carrying value of the related assets. These sales or closures are
expected to be completed by mid 2000.
(d) In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which had an initial adoption date of January 1, 2000. In June
1999, the FASB postponed the adoption date of SFAS 133 until January
1, 2001. SFAS 133 will require the Company to record all derivatives
on the balance sheet at fair value. Changes in derivative fair values
will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments
or, for forecasted transactions, deferred and later recognized in
earnings at the same time as the related hedged transactions. The
impact of SFAS 133 on the Company's financial statements will depend
on a variety of factors, including the future level of forecasted and
actual foreign currency transactions, the extent of the Company's
hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. However, the Company does not
believe the effect of adopting SFAS 133 will be material to its
financial condition or results of operations.
(e) On April 20, 2000, the Company completed the acquisition of NFO
Worldwide, Inc. ("NFO"). The acquisition will be accounted for as a
pooling of interests. In connection with the NFO acquisition, the
Company assumed approximately $180 million in debt. Additionally, on
April 20, 2000, the Company acquired substantial assets of the
Communications Division of Caribiner International, Inc. for
approximately $90 million in cash. The acquisition will be accounted
for as a purchase. As the acquisitions occurred subsequent to the end
of the first quarter, the financial statements presented in this Form
10-Q do not include the results of operations of the acquired
entities.
(f) As discussed in Note (a), prior year results have been reclassified to
conform with current year presentations. The changes include the
introduction of a new line item - "Income from operations." Amounts
previously included in "Other income, net" as part of "Gross Income"
are now included elsewhere in the Consolidated Income Statement. The
following table illustrates the reclassifications made to the income
statement for each of the quarters in 1999:
1ST QTR 1999 2ND QTR 1999 3RD QTR 1999 4TH QTR 1999 FULL YEAR 1999
-------------------- ---------------------- ---------------------- ---------------------- ---------------------
Prior Yr Current Yr Prior Yr Current Yr Prior Yr Current Yr Prior Yr Current Yr Prior Yr Current Yr
Format Format Format Format Format Format Format Format Format Format
-------------------- ---------------------- ---------------------- ---------------------- ---------------------
Revenue $908,081 $908,081 $1,096,621 $1,096,621 $1,021,357 $1,021,357 $1,401,244 $1,401,244 $4,427,303 $4,427,303
-------- ---------- ---------- ---------- ---------
Other
income, net 16,999 37,812 22,646 56,758 134,215
-------- ---------- ---------- ---------- ----------
Gross Income 925,080 1,134,433 1,044,003 1,458,002 4,561,518
-------- ---------- ---------- ---------- ----------
Operating
expenses 830,131 825,631 873,170 864,301 914,821 906,898 1,207,734 1,196,793 3,825,856 3,793,623
Restructuring and
other merger
related costs 84,183 84,183 84,183 84,183
Interest expense 13,945 16,497 17,478 18,502 66,422 --
------------------ ---------------------- ---------------------- ---------------------- ----------------------
Total costs 844,076 825,631 889,667 864,301 932,299 906,898 1,310,419 1,280,976 3,976,461 3,877,806
------------------ ---------------------- ---------------------- ---------------------- ----------------------
Income from
Operations 82,450 232,320 114,459 120,268 549,497
Interest expense (13,945) (16,497) (17,478) (18,502) -- (66,422)
Other income, net 12,499 28,943 14,723 45,817 -- 101,982
------------------ ---------------------- ---------------------- ---------------------- ----------------------
Income before
provision for
income taxes 81,004 81,004 244,766 244,766 111,704 111,704 147,583 147,583 585,057 585,057
Provision for
income taxes 33,618 33,618 98,878 98,878 47,698 47,698 56,147 56,147 236,341 236,341
------------------ ---------------------- ---------------------- ---------------------- ----------------------
Income of
consolidated
companies 47,386 47,386 145,888 145,888 64,006 64,006 91,436 91,436 348,716 348,716
Income applicable
to minority (3,599) (3,599) (8,905) (8,905) (5,981) (5,981) (14,939) (14,939) (33,424) (33,424)
Equity in net
income of
unconsolidated
affiliates 998 998 2,426 2,426 1,019 1,019 2,186 2,186 6,629 6,629
------------------ ---------------------- ---------------------- ---------------------- ----------------------
Net Income $44,785 $ 44,785 $ 139,409 $ 139,409 $ 59,044 $ 59,044 $ 78,683 $ 78,683 $ 321,921 $ 321,921
================== ====================== ====================== ====================== ======================
Item 2
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $36.3 million or $.13 diluted earnings per
share for the three months ended March 31, 2000. Excluding the impact of
restructuring and other merger related costs, which are discussed below, net
income was $57.1 million or $.20 diluted earnings per share, compared to $44.8
million or $.16 diluted earnings per share for the three months ended March 31,
1999.
Worldwide revenue for the three months ended March 31, 2000 increased $182
million, or 20%, to $1.1 billion compared to the same period in 1999. Domestic
revenue increased $129 million or 26% during the first quarter of 2000 compared
to 1999. International revenue increased $52 million or 12% during the first
quarter of 2000 compared to 1999. International revenue would have increased 19%
excluding the effect of the strengthening of the U.S. dollar. The increase in
worldwide revenue is a result of both new business growth and growth from
acquisitions. Exclusive of acquisitions, worldwide revenue on a constant dollar
basis increased 13% for the first quarter of 2000 compared to the prior year
quarter.
Revenue from other specialized marketing services, which include media buying,
market research, relationship (direct) marketing, sales promotion, public
relations, sports and event marketing, healthcare marketing and e-business
consulting and communications, comprised approximately 41% of the total
worldwide revenue for the three months ended March 31, 2000, compared to 36% for
the prior year quarter, and is expected to approach 50% for the full year 2000.
Worldwide operating expenses for the first quarter 2000, excluding restructuring
and other merger related costs were $982 million, an increase of 19% over the
prior year quarter. This increase is consistent with the 20% increase in revenue
for the same period. Salaries and related expenses were $643 million or 59% of
revenue for the first quarter of 2000 as compared to $544 million or 60% of
revenue for the first quarter of 1999. Office and general expenses were $339
million for the first quarter of 2000 compared to $282 million for the first
quarter of 1999.
Income from operations was $71 million for the first quarter of 2000. Excluding
restructuring and other merger related costs, income from operations was $107
million for the first quarter of 2000, compared to $82 million for the first
quarter of 1999, an increase of 30%. Amortization of goodwill was $21 million
for the first quarter of 2000, compared to $15 million for the first quarter of
1999. Exclusive of acquisitions, foreign exchange fluctuations and amortization
of goodwill, income from operations increased 22% for the first quarter of 2000
compared to the first quarter of 1999.
In October 1999, the Company announced the merger of two of its advertising
networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris
Lintas were combined to form a new agency network called Lowe Lintas & Partners
Worldwide. The merger involves the consolidation of operations in Lowe Lintas
agencies in approximately 24 cities in 22 countries around the world. Once
complete, the newly merged agency network will have offices in over 80 countries
around the world.
Since the fourth quarter of 1999, the Company has been executing the
restructuring in connection with the merger. As of the current date,
substantially all of the restructuring activities in the U.S., the U.K. and most
European and Latin American countries have been completed.
In the first quarter of 2000, the Company recognized pre-tax restructuring costs
of $36.1 million ($20.7 million net of tax). The Company expects the remaining
pre-tax costs to complete the restructuring to approximate $50-$70 million,
which is in line with the Company's original plan. The remaining costs focus
principally on finalizing the restructuring in Germany and several smaller
markets.
The total restructuring costs of $36.1 million include cash costs of $20.3
million.
A summary of the components of the total restructuring and other merger related
costs is as follows:
1st Quarter 2000
---------------------------------
Balance Expense Cash Asset Balance
at 12/31/99 recognized Paid Write-offs at 3/31/00
----------- ------------- ---- ---------- ----------
TOTAL BY TYPE
Severance and
termination costs $43.6 $14.4 $ 9.6 -- $48.4
Fixed asset write-offs 11.1 5.4 -- 16.5 --
Lease termination costs 3.8 4.9 1.7 -- 7.0
Investment write-offs
and other 23.4 11.4 .3 32.6 1.9
------------------------------------------------------
Total $81.9 $36.1 $11.6 $49.1 $57.3
======================================================
The severance and termination costs recorded in 2000 relate to approximately 265
employees who have been terminated or notified that they will be terminated. The
employee groups affected include management, administrative, account management,
creative and media production personnel, principally in the U.S. and several
European countries.
The fixed asset write-offs relate largely to the abandonment of leasehold
improvements as part of the merger. The amount recognized in 2000 relates to
fixed asset write-offs in 3 offices, the largest of which is in the U.K.
Lease termination costs relate to the offices vacated as part of the merger. The
lease terminations are expected to be completed by mid-to-late 2000, with the
cash portion to be paid out over a period of up to five years.
The investment write-offs relate to the loss on sale or closing of certain
business units. In 2000, $9.3 million has been recorded as a result of the
decision to sell or abandon 2 businesses located in Asia and Europe. In the
aggregate, the businesses being sold or abandoned represent an immaterial
portion of the revenue and operations of Lowe Lintas & Partners. The write-off
amount was computed based upon the difference between the estimated sales
proceeds (if any) and the carrying value of the related assets. These sales or
closures are expected to be completed by mid 2000.
Other income, net, consists of interest income, investment income and net gains
from equity investments, all of which have increased at comparable rates over
the prior year quarter.
The effective tax rate for the three months ended March 31, 2000 was 42.5%,
compared to 41.5% in 1999. The difference between the effective and statutory
rates is primarily due to foreign losses with no tax benefit, losses from
translation of foreign currencies which provided no tax benefit, state and local
taxes, foreign withholding taxes on dividends and nondeductible goodwill
expense.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 2000 was $22 million, a decrease of $109 million
from December 31, 1999. The decrease is partly due to expenditures for
additional strategic long-term investments and a net reduction in long-term debt
during the first quarter of 2000. The ratio of current assets to current
liabilities was slightly above 1 to 1 at March 31, 2000.
Historically, cash flow from operations has been the primary source of working
capital and management believes that it will continue to be so in the future.
Net cash used in operating activities was $172 million for the first quarter of
2000 and $196 million for the first quarter of 1999. The Company's working
capital is used primarily to provide for the operating needs of its
subsidiaries, which include payments for space or time purchased from various
media on behalf of its clients. The Company's practice is to bill and collect
from its clients in sufficient time to pay the amounts due media on a timely
basis. Other uses of working capital include the payment of cash dividends,
acquisitions, capital expenditures and the reduction of long-term debt. In
addition, during the first three months of 2000, the Company acquired 1,080,200
shares of its own stock for the purpose of fulfilling the Company's obligations
under its various compensation plans.
OTHER MATTERS
Acquisitions
- ------------
On April 20, 2000, the Company completed the acquisition of NFO Worldwide, Inc.
("NFO"). The acquisition will be accounted for as a pooling of interests. In
connection with the NFO acquisition, the Company assumed approximately $180
million in debt. Additionally, on April 20, 2000, the Company acquired
substantial assets of the Communications Division of Caribiner International,
Inc. for approximately $90 million in cash. The acquisition will be accounted
for as a purchase. As the acquisitions occurred subsequent to the end of the
first quarter, the financial statements presented in this Form 10-Q do not
include the results of operations of the acquired entities.
Year 2000 Issue
- ---------------
Subsequent to completion of the Company's Year 2000 compliance programs, the
Company has not experienced any significant Year 2000 disruptions to its
business nor has the Company been made aware of any significant disruptions
impacting its customers or critical suppliers.
Cautionary Statement
- --------------------
Statements by the Company in this document, that are not matters of historical
fact, are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements.
New Accounting Guidance
- -----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which had an initial adoption date of
January 1, 2000. In June 1999, the FASB postponed the adoption date of SFAS 133
until January 1, 2001. The Company does not believe the effect of adopting SFAS
133 will be material to its financial condition or results of operations.
Conversion to the Euro
- ----------------------
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (the "Euro"). The Company conducts business in member
countries. The transition period for the introduction of the Euro is between
January 1, 1999, and June 30, 2002. The Company is addressing the issues
involved with the introduction of the Euro. The major important issues facing
the Company include: converting information technology systems; reassessing
currency risk; negotiating and amending contracts; and processing tax and
accounting records.
Based upon progress to date, the Company believes that use of the Euro will not
have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the Euro has not, and is not expected to have a material effect on
the Company's financial condition or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's financial market risk arises from fluctuations in interest rates
and foreign currencies. Most of the Company's debt obligations are at fixed
interest rates. A 10% change in market interest rates would not have a material
effect on the Company's pre-tax earnings, cash flows or fair value. At March 31,
2000, the Company had an insignificant amount of foreign currency derivative
financial instruments in place. The Company does not hold any financial
instrument for trading purposes.
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
---------------------
(c) RECENT SALES OF UNREGISTERED SECURITIES
(1) On January 1, 2000, the Registrant issued a total of 43,068 shares
of Interpublic Common Stock, par value $.10 per share, (the "Interpublic Stock")
to shareholders of a foreign company as final payment of the purchase price for
100% of the capital stock of the foreign company. The Interpublic stock issued
had a market value of $2,389,704 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non-U.S.
persons" in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(2) On January 1, 2000 the Registrant issued 43,068 shares of
Interpublic Stock valued at $2,389,704 and paid $1,912,000 cash to the former
shareholders of the acquired company. This represented the final deferred
payment of the purchase price for the final 40% of the company required during
the first quarter of 1998.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non US persons"
in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(3) On January 4, 2000, a subsidiary of the Registrant acquired 100%
of the capital stock of a domestic company in consideration for which the
Registrant paid $4,862,360.09 in cash and issued a total of 94,287 shares of
Interpublic Stock to the security holders of the company. The shares of
Interpublic Stock had a market value of $4,862,313.77 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholders.
(4) On January 11, 2000, a subsidiary of the Registrant acquired 100%
of the capital stock of a domestic company in consideration for which the
Registrant paid $1,273,137.59 in cash and issued a total of 22,509 shares of
Interpublic Stock to the security holders of the acquired company. The shares of
Interpublic Stock had a market value of $1,273,137.59 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholders.
(5) On January 12, 2000, Registrant paid $1,373,626 in cash and on
January 13, 2000 issued 27,400 shares of Interpublic Stock to the former
shareholders of a foreign company which was acquired in the fourth quarter of
1998. This represented a deferred payment of the purchase price. The shares of
Interpublic Stock were valued at $1,438,500 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non-U.S.
persons" in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(6) On January 20, 2000 the Registrant issued 2,914 shares of
Interpublic Stock and paid US$ 125,000 in cash to the former shareholder of a
domestic company which was acquired in the second quarter of 1998. This
represented a deferred payment of the purchase price. The shares of Interpublic
Stock were valued at US$ 150,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholder.
(7) On January 21, 2000, the Registrant acquired 80% of the assets of
a domestic company in consideration for which the Registrant paid $10,500,000 in
cash and issued 86,207 shares of Interpublic Stock to the stockholders of the
selling company. The shares of Interpublic Stock were valued at $4,500,000 on
the date of issuance.
The share of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the stockholders of the selling company.
(8) On February 11, 2000, a subsidiary of the Registrant acquired
substantially all of the assets and assumed substantially all the liabilities of
a domestic company in consideration for which the Registrant paid $2,700,000 in
cash and issued a total of 6,129 shares of Interpublic Stock to the stockholder
of the selling company. The shares of Interpublic Stock had a market value of
$300,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the stockholder of the selling company.
(9) On February 7, 2000, a subsidiary of the Registrant acquired
certain of the assets and assumed certain of the liabilities of a domestic
company in consideration for which the Registrant paid $1,500,000 in cash and
issued 28,616 shares of Interpublic Stock to the selling company's stockholders.
The shares of Interpublic Stock had a market value of $1,375,000 on the date of
issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the stockholders of the selling company.
(10) On February 14, 2000, a subsidiary of the Registrant acquired
100% of the capital stock of two related companies in consideration for which
Registrant paid $4,364,392.10 in cash and issued 10,191 shares of Interpublic
Stock to the shareholders of the acquired companies. The shares of Interpublic
Stock were valued at $454,136.44 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non-U.S.
persons" in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(11) On February 22, 2000, Registrant paid $913,888 in cash and on
February 25, 2000 issued 18,803 shares of Interpublic Stock to the former
shareholders of a foreign company which was acquired in the first and third
quarters of 1999. This represented a deferred payment of the purchase price. The
shares of Interpublic Stock were valued at $720,390 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non-U.S.
persons" in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(12) On February 23, 2000 the Registrant issued a total of 3,888
shares of Interpublic Stock to the former shareholders of a company 49% of which
was acquired in the second quarter 1994, 31% of which was acquired in the first
quarter of 1998 and 6% of which was acquired in the first quarter of 2000. Of
the aggregate amount of shares issued on February 23, 2000, 1,555 of the shares
of Interpublic Stock together with a payment of US$ 150,000 represented a
deferred payment of the purchase price for the 31% of the company. Those shares
were valued at US$ 75,000 at the date of issuance. Of the aggregate number of
shares issued on February 23, 2000, 2,333 of the shares together with a payment
of US$ 450,000 represented the purchase price for the 6% of the company. Those
shares were valued at US$ 112,500 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in an "offshore transaction" and solely to "non US persons"
in reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(13) On March 1, 2000, a subsidiary of the Registrant acquired 55% of
the limited liability company interest units of a company in consideration for
which Registrant paid $13,000,000.00 in cash and issued 24,875 shares of
Interpublic Stock to the limited liability company interest unit holders of the
acquired company. The shares of Interpublic Stock were valued at $998,109.38 on
the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's limited liability company
interest unit holders.
(14) On March 1, 2000, the Registrant issued 3,104 shares of
Interpublic Stock and paid $350,000 in cash to the shareholder of a company
which was 80% acquired by the Registrant in the third quarter of 1999. This
represented a deferred payment of the purchase price. The shares of Interpublic
Stock were valued at $150,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's stockholder.
(15) On March 10, 2000, a subsidiary of the Registrant acquired 100%
of the issued and outstanding shares of a domestic company in consideration for
which the Registrant paid $962,500 in cash and issued 23,298 shares of
Interpublic Stock to the acquired company's stockholder. The shares of
Interpublic Stock had a market value of $962,500 on the date of issuance. In
addition, 11,649 shares of Interpublic Stock were "heldback" in escrow, to be
released upon the satisfaction of certain financial conditions.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) of the Securities Act, based on
the sophistication of the acquired company's former stockholder.
(16) On March 15, 2000, the Registrant issued 18,848 shares of
Interpublic Stock and paid $1,200,000 in cash to the shareholders of a company
which was 80% acquired by the Registrant in the second quarter of 1999. This
represented a deferred payment of the purchase price. The shares of Interpublic
Stock were valued at $800,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Rule 506 of Regulation D, based on the
accredited investor status or sophistication of the shareholders of the acquired
company.
(17) On March 29, 2000, the Registrant issued 43,855 shares of
Interpublic Stock to the former shareholders of a domestic company which was
acquired in the second quarter of 1999. This represented a deferred payment of
the purchase price. The shares of Interpublic Stock were valued at $1,736,452 on
the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholders.
(18) On March 31, 2000, the Registrant acquired a domestic company in
consideration for which the Registrant issued 527,640 shares of Interpublic
Stock to the stockholders of the acquired company. The shares of Interpublic
Stock were valued at $26,000,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholders.
(19) On March 31, 2000, the Registrant paid $4,420,251 in cash and
issued 36,071 shares of Interpublic Stock to the former shareholders of two
domestic companies which were acquired in the fourth quarter of 1998. This
represented a deferred payment of the purchase price. The shares of Interpublic
Stock were valued at $1,473,417 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant
without registration in reliance on Section 4(2) under the Securities Act, based
on the sophistication of the acquired company's former stockholders.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
--------
Exhibit 10(a) Amended and Restated Outside
Directors Stock Incentive Plan.
Exhibit 10(b) Supplemental Agreement, dated as of
April 1, 2000 to an Employment Agreement
between the Registrant and John J. Dooner, Jr.
Exhibit 10(c) Supplemental Agreement, dated as of
April 1, 2000 to an Employment Agreement
between the Registrant and Sean F. Orr.
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter
ended March 31, 2000:
(1) Report, dated January 24, 2000, Item 5 Other Events and Item
7 Exhibits - Press Release, dated January 23, 2000, that announced certain
restructuring charges expected to be incurred by the Registrant in connection
with the merger of two of its subsidiaries, Ammirati Puris Lintas and Lowe &
Partners Worldwide (the "Restructuring Charges").
(2) Report, dated February 25, 2000, Item 5 Other Events and Item
7 Exhibits - Two Press Releases, dated February 23, 2000 and February 24, 2000
respectively. The press release, dated February 23, 2000, included a
Consolidated Summary of Earnings for Twelve Months and Fourth Quarter Report
1999 and 1998 that showed the results of the Registrant before and after the
effects of the Restructuring Charges.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE INTERPUBLIC GROUP OF COMPANIES,
INC.
(Registrant)
Date: May 12, 2000 BY /S/ PHILIP H. GEIER, JR.
------------------------
PHILIP H. GEIER, JR.
Chairman of the Board
and Chief Executive
Officer
Date: May 12, 2000 BY /S/ SEAN F. ORR
------------------------
SEAN F. ORR
Executive Vice President
Chief Financial Officer
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 10(a) Amended and Restated Outside
Directors Stock Incentive Plan
Exhibit 10(b) Supplemental Agreement, dated as of
April 1, 2000 to an Employment Agreement between
the Registrant and John J. Dooner, Jr.
Exhibit 10(c) Supplemental Agreement, dated as of
April 1, 2000 to an Employment Agreement between
the Registrant and Sean F. Orr
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule