FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to________________
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)
(212) 399-8000
(Registrant's telephone number, including area code)
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 July 29, 1994: 75,437,853
shares.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
I N D E X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1994 (Unaudited) and
December 31, 1993 3-4
Consolidated Income Statement
Three months ended June 30, 1994
and 1993 (Unaudited) 5
Consolidated Income Statement
Six months ended June 30, 1994
and 1993 (Unaudited) 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1994
and 1993 (Unaudited) 7
Notes to Consolidated Financial Statements
(Unaudited) 8
Computation of Earnings Per Share
(Unaudited) 9 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of matters to a Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
2
PART I - FINANCIAL INFORMATION
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
JUNE 30, DECEMBER 31,
1994 1993
(UNAUDITED)
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1994-$67,919;
1993-$94,451) $ 226,687 $ 292,268
Marketable securities, at cost which
approximates market 30,002 30,106
Receivables (less allowance for doubtful
accounts: 1994-$15,380; 1993-$16,834) 1,745,307 1,525,717
Expenditures billable to clients 124,741 100,230
Prepaid expenses and other current assets 60,051 54,835
Total current assets 2,186,788 2,003,156
Other Assets:
Investment in unconsolidated affiliates 36,474 28,182
Deferred taxes on income 66,662 38,570
Other investments and miscellaneous assets 92,376 92,048
Total other assets 195,512 158,800
Fixed Assets, at cost:
Land and buildings 69,315 65,327
Furniture and equipment 290,361 268,387
359,676 333,714
Less accumulated depreciation 186,092 170,998
173,584 162,716
Unamortized leasehold improvements 52,802 53,975
Total fixed assets 226,386 216,691
Intangible Assets (less accumulated
amortization: 1994-$122,465;
1993-$111,710) 517,403 491,170
Total assets $3,126,089 $2,869,817
See accompanying notes to consolidated financial statements.
3
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
1994 1993
(UNAUDITED)
Current Liabilities:
Payable to banks $ 142,628 $ 147,075
Accounts payable 1,610,841 1,428,442
Accrued expenses 165,257 183,501
Accrued income taxes 86,526 76,963
Total current liabilities 2,005,252 1,835,981
Noncurrent Liabilities:
Long-term debt 126,138 118,088
Convertible subordinated debentures 109,241 107,997
Deferred compensation and reserve
for termination liabilities 195,834 146,774
Accrued postretirement benefits 44,480 44,480
Other noncurrent liabilities 32,838 39,274
Minority interests in consolidated
subsidiaries 9,884 13,208
Total noncurrent liabilities 518,415 469,821
Stockholders' Equity:
Preferred Stock, no par value
shares authorized: 20,000,000
shares issued:none
Common Stock, $.10 par value
shares authorized: 100,000,000
shares issued:
1994 - 87,244,893
1993 - 86,299,688 8,724 8,630
Additional paid-in capital 363,887 335,340
Retained earnings 596,223 570,267
Adjustment for minimum pension
liability (704) (704)
Cumulative translation adjustments (99,500) (116,432)
868,630 797,101
Less:
Treasury stock, at cost:
1994 - 11,917,760 shares
1993 - 11,449,031 shares 227,887 208,821
Unamortized expense of restricted
stock grants 38,321 24,265
Total stockholders' equity 602,422 564,015
Total Liabilities and Stockholders'
Equity $3,126,089 $2,869,817
See accompanying notes to consolidated financial statements.
4
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED JUNE 30
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
1994 1993
Revenue $ 480,796 $ 470,324
Other income 16,709 13,434
Gross income 497,505 483,758
Costs and expenses:
Operating expenses 396,331 377,990
Interest 8,899 9,094
Total costs and expenses 405,230 387,084
Income before provision for income taxes 92,275 96,674
Provision for income taxes:
United States - federal 11,503 10,211
- state and local 4,831 4,286
Foreign 22,934 30,395
Total provision for income taxes 39,268 44,892
Income of consolidated companies 53,007 51,782
Income applicable to minority interests 430 (2,815)
Equity in net income of unconsolidated
affiliates 662 20
Net income $ 54,099 $ 48,987
Weighted average number of common shares 74,821,374 75,250,928
Earnings per common and common equivalent
share $ .72 $ .65
Cash dividends per common share $ .140 $ .125
See accompanying notes to consolidated financial statements.
5
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
1994 1993
Revenue $ 885,109 $ 848,572
Other income 33,358 24,971
Gross income 918,467 873,543
Costs and expenses:
Operating expenses 786,019 738,721
Interest 16,065 16,815
Total costs and expenses 802,084 755,536
Income before provision for income taxes 116,383 118,007
Provision for income taxes:
United States - federal 17,383 16,814
- state and local 7,965 6,346
Foreign 24,287 31,750
Total provision for income taxes 49,635 54,910
Income of consolidated companies 66,748 63,097
Income applicable to minority interests (547) (3,447)
Equity in net income of unconsolidated
affiliates 888 362
Income before effect of accounting
changes 67,089 60,012
Effect of accounting changes:
Postemployment benefits (21,780) -
Income taxes - (512)
Net income $ 45,309 $ 59,500
Weighted average number of common shares 74,991,406 75,402,829
Per Share Data:
Income before effect of accounting changes $ .89 .80
Effect of accounting changes (.29) (.01)
Net income $ .60 $ .79
Cash dividends per common share $ .265 $ . 24
See accompanying notes to consolidated financial statements.
6
PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
(UNAUDITED)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993
Net income after effect of accounting changes $ 45,309 $ 59,500
Adjustments to reconcile net income to
cash (used in)/provided by operating activities:
Effect of accounting changes 21,780 512
Depreciation and amortization of fixed assets 20,263 19,300
Amortization of intangible assets 10,755 9,691
Amortization of restricted stock awards 5,454 4,458
Equity in net income of unconsolidated affiliates (888) (362)
Income applicable to minority interests 547 3,447
Translation losses 12,776 7,504
Other (11,096) (9,776)
Changes in assets and liabilities, net of acquisitions:
Receivables (191,251) (132,013)
Expenditures billable to clients (22,659) (21,433)
Prepaid expenses and other assets (2,579) (12,431)
Accounts payable and accrued expenses 89,845 77,806
Accrued income taxes 7,752 27,224
Deferred income taxes (26,888) -
Deferred compensation and reserve for termination
allowances 39,972 (11,415)
Net cash (used in)/provided by operating activities (908) 22,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (14,970) (4,103)
Capital expenditures (23,452) (53,994)
Proceeds from sales of assets 712 615
Net proceeds from/(purchases of)
marketable securities 2,607 (2,645)
Other investments and miscellaneous assets 5,890 (6,171)
Unconsolidated affiliates (3,892) (2,372)
Net cash used in investing activities (33,105) (68,670)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease)/increase in short-term borrowings (13,235) 39,311
Proceeds from long-term debt 25,000 44,742
Payments of debt (20,272) (14,170)
Treasury stock acquired (20,942) (12,301)
Issuance of Common Stock 7,835 10,768
Cash Dividends (19,353) (17,661)
Net cash (used in)/provided by financing activities (40,967) 50,689
Effect of exchange rates on cash and cash
equivalents 9,399 (12,329)
Decrease in cash and cash equivalents (65,581) (8,298)
Cash and cash equivalents at beginning of year 292,268 255,778
Cash and cash equivalents at end of quarter $226,687 $247,480
See accompanying notes to consolidated financial statements.
7PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Consolidated Financial Statements
(a) The consolidated balance sheet as of June 30, 1994, the consolidated
statements of income for the three months and six months ended June
30, 1994 and 1993 and the statement of cash flows for the six months
ended June 30, 1994 and 1993, are unaudited. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1994 and for all
periods presented have been made.
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,
1993 annual report to stockholders. The results of operations for the
period ended June 30, 1994 are not necessarily indicative of the
operating results for the full year.
(b) FAS No. 95 "Statement of Cash Flows" requires disclosures of specific
cash payments and noncash investing and financing activities. 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 $46.5 million and $29.4 million in the first six
months of 1994 and 1993, respectively. Interest payments during the
first six months of 1994 were approximately $10.0 million. Interest
payments during the comparable period of 1993 were not materially
different from interest expense.
(c) Effective January 1, 1993, the Company adopted FAS 109 "Accounting for
Income Taxes" and recorded a one-time charge of $512,000. This
statement requires the use of the liability method of accounting for
deferred income taxes.
(d) Effective January 1, 1994, the Company adopted FAS 112 "Employers'
Accounting for Postemployment Benefits" and recorded a one-time pre-
tax charge of $39.6 million or $21.8 million after-tax.
8
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Exhibit 11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
Three Months Ended June 30
Primary 1994 1993
Net income $ 54,099 $ 48,987
Add:
Dividends paid net of related income tax
applicable to restricted stock 91 107
Net income, as adjusted $ 54,190 $ 49,094
Weighted average number of common shares
outstanding 72,667,554 72,724,927
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,153,820 2,526,001
Total 74,821,374 75,250,928
Earnings per common and common equivalent
share $ .72 $ .65
Three Months Ended June 30
Fully Diluted 1994 1993
Net income $ 54,099 $ 48,987
Add:
After tax interest savings on assumed
conversion of subordinated debentures 1,527 1,462
Dividends paid net of related income tax
applicable to restricted stock 96 110
Net income, as adjusted $ 55,722 $ 50,559
Weighted average number of common shares
outstanding 72,667,554 72,724,927
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,227,462 2,567,885
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 77,897,146 78,294,942
Earnings per common and common equivalent
share $ .72 $ .65
9
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Exhibit 11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
Six Months Ended June 30
Primary 1994 1993
Net income before effect of accounting
changes $ 67,089 $ 60,012
Effect of accounting changes (21,780) (512)
Add:
Dividends paid net of related income tax
applicable to restricted stock 171 204
Net income, as adjusted $ 45,480 $ 59,704
Weighted average number of common shares
outstanding 72,773,492 72,689,124
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,217,914 2,713,705
Total 74,991,406 75,402,829
Per share data:
Income before effect of accounting changes .89 .80
Effect of accounting changes (.29) (.01)
Net Income $ .60 $ .79
Six Months Ended June 30
Fully Diluted 1994 1993
Net income before effect of accounting
changes $ 67,089 $ 60,012
Effect of accounting changes (21,780) (512)
Add:
After tax interest savings on assumed
conversion of subordinated debentures 3,020 2,923
Dividends paid net of related income tax
applicable to restricted stock 178 209
Net income, as adjusted $ 48,507 $ 62,632
Weighted average number of common shares
outstanding 72,773,492 72,689,124
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,272,021 2,753,005
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 78,047,643 78,444,259
Per share data:
Income before effect of accounting changes .90 .80
Effect of accounting changes (.28) (.01)
Net income $ .62 $ .79
10
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1994 was $181.5 million, an increase of $14.3
million from December 31, 1993. The ratio of current assets to current
liabilities remained relatively unchanged from December 31, 1993 at
approximately 1.1 to 1.
The principal use of the Company's working capital is to provide for the
operating needs of its advertising agencies, 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. 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 six months of
1994, the Company acquired 666,968 shares of its own stock for
approximately $21.0 million for the purposes of fulfilling the Company's
obligations under its various compensation plans.
11
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RESULTS OF OPERATIONS
Three Months Ended June 30, 1994 Compared to Three Months Ended June 30,
1993
Total revenue for the three months ended June 30, 1994 increased $10.5
million, or 2.2%, to $480.8 million compared to the same period in 1993.
Domestic revenue increased 9.9% from 1993 levels. Foreign revenue
decreased 1.5% during the second quarter of 1994 compared to 1993. Other
income increased by $3.3 million during the second quarter of 1994.
Operating expenses increased $18.3 million or 4.9% during the three months
ended June 30, 1994 compared to the same period in 1993. Interest expense
was flat as compared to the same period in 1993.
Net losses from exchange and translation of foreign currencies for the
three months ended June 30, 1994 were approximately $3.8 million versus
$2.9 million for the same period in 1993. The increase in 1994 is
primarily due to increased translation losses in Brazil.
The effective tax rate for the three months ended June 30, 1994 was 42.6%,
as compared to 46.4% in 1993. The decrease in the effective tax rate is
mainly due to the geographic mix of earnings.
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.
Six Months Ended June 30, 1994 Compared to Six Months Ended June 30, 1993
Total revenue for the six months ended June 30, 1994 increased $36.5
million, or 4.3%, to $885.1 million compared to the same period in 1993.
The U.S. dollar was slightly stronger during 1994 as compared to 1993,
which had a negligible impact on revenue. Domestic revenue increased 15.6%
from 1993 levels. Foreign revenue declined 1.2% during the six months of
1994 compared to 1993. Other income increased $8.4 million in the six
months of 1994 mainly due to increased interest income.
Operating expenses increased $47.3 million or 6.4% during the six months
ended June 30, 1994 compared to the same period in 1993. Interest expense
decreased 4.5% during the six months ended June 30, 1994 as compared to the
same six month period in 1993.
Net losses from exchange and translation of foreign currencies for the six
months ended June 30, 1994 were approximately $9.4 million versus $6.3
million for the same period in 1993. The increase in 1994 is primarily due
to increased translation losses in Brazil.
The effective tax rate for the six months ended June 30, 1994 was 42.6%, as
compared to 46.5% in 1993. The decrease in the effective tax rate is
mainly due to the geographic mix of earnings.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in Haight et.
al. v. The American Tobacco Company et. al., the case
wherein several tobacco companies and their advertising
agencies are defendants, since the description of this
case in the Company's report on Form 10-K for the year
ended December 31, 1993.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) This item is answered in respect of the Annual Meeting
of Stockholders held May 17, 1994.
(b) No response is required to Paragraph (b) because (i)
proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of
1934, as amended and (ii) there was no solicitation
in opposition to Management's nominees as listed in the
proxy statement and all such nominees were elected.
(c) At the Annual Meeting, the following number of shares
were cast with respect to each matter voted upon:
--Proposal to approve Management's nominees for
director as follows:
Nominee For Withheld
Eugene P. Beard 63,498,851 147,679
Lynne V. Cheney 63,508,243 138,287
Philip H. Geier, Jr. 63,504,689 141,841
Robert L. James 63,487,321 159,209
Frank B. Lowe 63,500,181 146,349
Leif H. Olsen 63,492,025 154,505
Kenneth L. Robbins 63,503,337 143,193
J. Phillip Samper 63,499,489 147,041
Joseph J. Sisco 63,480,267 166,263
Frank Stanton 63,450,614 195,916
Jacqueline G. Wexler 63,485,717 160,813
-- Proposal to approve Interpublic's Outside Directors'
Stock Option Plan
Broker
For Against Abstain Nonvotes
54,635,542 7,678,128 392,919 939,941
-- Proposal to appoint independent accountants.
For Against Abstain
63,455,850 82,741 107,939
(d) Not applicable.
13
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10A(i) Executive Special Benefit Agreement made
as of June 1, 1994 between Interpublic and
Eugene P. Beard.
Exhibit 10A(ii) Supplemental Agreement made as of June 1,
1994 between Interpublic and Eugene P. Beard
to an Employment Agreement made as of
January 1, 1983.
Exhibit 10B(i) The Interpublic Outside Directors' Stock
Option Plan.
Exhibit 10B(ii) The Interpublic Outside Directors' Pension
Plan.
Exhibit 10C(i) Note Purchase Agreement, dated as of May 26,
1994 between Interpublic and The Prudential
Insurance Company of America.
Exhibit 10C(ii) Note, dated May 26, 1994 of Interpublic.
Exhibit 10D Amendment No. 4 dated as of May 19, 1994 to
Note Purchase Agreement dated as of August
20, 1991 By and Among Interpublic, McCann-
Erickson Advertising of Canada Ltd.,
MacLaren Lintas Inc., The Prudential Insurance
Company of America and Prudential Property
and Casualty Insurance Company.
Exhibit 11 Computation of Earnings Per Share.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 1994.
14
PAGE
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: August 12, 1994 By /S/ Philip H. Geier, Jr.
Philip H. Geier, Jr.
Chairman of the Board,
President and Chief
Executive Officer
Date: August 12, 1994 By /S/ Eugene P. Beard
Eugene P. Beard
Executive Vice President -
Finance and Operations,
Chief Financial Officer
15
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 10A(i) Executive Special Benefit Agreement
made as of June 1, 1994 between
Interpublic and Eugene P. Beard
Exhibit 10A(ii) Supplemental Agreement made as of
June 1, 1994 between Interpublic and
Eugene P. Beard to an Employment
Agreement made as of January 1, 1983
Exhibit 10B(i) The Interpublic Outside Directors'
Stock Option Plan
Exhibit 10B(ii) The Interpublic Outside Directors'
Pension Plan
Exhibit 10C(i) Note Purchase Agreement, dated as of
May 26, 1994 between Interpublic and
The Prudential Insurance Company of
America
Exhibit 10C(ii) Note, dated May 26, 1994 of Interpublic
Exhibit 10D Amendment No. 4 dated as of May 19,
1994 to Note Purchase Agreement dated
as of August 20, 1991 By and Among
Interpublic, McCann-Erickson Advertising
of Canada Ltd., MacLaren Lintas Inc.,
The Prudential Insurance Company of
America and Prudential Property and
Casualty Insurance Company.
Exhibit 11 Computation of Earnings Per Share
16
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