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 ended March 31, 1995
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 April 30, 1995:
78,322,109 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
March 31, 1995 (Unaudited) and
December 31, 1994 3-4
Consolidated Income Statement
Three months ended March 31, 1995
and 1994 (Unaudited) 5
Consolidated Statement of Cash Flows
Three months ended March 31, 1995
and 1994 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
Computation of Earnings Per Share
(Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX TO EXHIBITS 13
2
PART I - FINANCIAL INFORMATION
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
MARCH 31, DECEMBER 31,
1995 1994
(UNAUDITED)
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1995-$120,935;
1994-$151,341) $ 311,214 $ 413,709
Marketable securities, at cost which
approximates market 32,751 27,893
Receivables (less allowance for doubtful
accounts: 1995-$22,385; 1994-$22,656) 1,933,717 2,072,764
Expenditures billable to clients 112,165 104,787
Prepaid expenses and other current assets 65,894 56,154
Total current assets 2,455,741 2,675,307
Other Assets:
Investment in unconsolidated affiliates 68,203 63,824
Deferred taxes on income 87,735 84,788
Other investments and miscellaneous assets 127,299 120,242
Total other assets 283,237 268,854
Fixed Assets, at cost:
Land and buildings 79,864 73,370
Furniture and equipment 334,680 320,164
414,544 393,534
Less accumulated depreciation 227,375 212,755
187,169 180,779
Unamortized leasehold improvements 73,793 67,348
Total fixed assets 260,962 248,127
Intangible Assets (less accumulated
amortization: 1995-$136,623;
1994-$130,045) 609,359 601,130
Total assets $3,609,299 $3,793,418
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
MARCH 31, DECEMBER 31,
1995 1994
(UNAUDITED)
Current Liabilities:
Payable to banks $ 143,376 $ 128,529
Accounts payable 1,859,467 2,090,406
Accrued expenses 279,519 292,436
Accrued income taxes 71,438 83,802
Total current liabilities 2,353,800 2,595,173
Noncurrent Liabilities:
Long-term debt 137,292 131,276
Convertible subordinated debentures 111,170 110,527
Deferred compensation and reserve
for termination allowances 225,536 215,893
Accrued postretirement benefits 45,751 45,751
Other noncurrent liabilities 27,600 32,886
Minority interests in consolidated
subsidiaries 13,120 12,485
Total noncurrent liabilities 560,469 548,818
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:
1995 - 88,442,499
1994 - 87,705,760 8,844 8,771
Additional paid-in capital 401,261 383,678
Retained earnings 624,167 619,627
Adjustment for minimum pension
liability (6,422) (6,422)
Cumulative translation adjustments (57,049) (97,587)
970,801 908,067
Less:
Treasury stock, at cost:
1995 - 10,353,550 shares
1994 - 10,001,680 shares 241,001 222,698
Unamortized expense of restricted
stock grants 34,770 35,942
Total stockholders' equity 695,030 649,427
Total Liabilities and Stockholders'
Equity 3,609,299 $3,793,418
See accompanying notes to consolidated financial statements.
4
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
1995 1994
Revenue $ 447,436 $ 404,313
Other income 12,984 16,649
Gross income 460,420 420,962
Costs and expenses:
Operating expenses 425,592 389,688
Interest 7,927 7,166
Total costs and expenses 433,519 396,854
Income before provision for income taxes
and effect of accounting change 26,901 24,108
Provision for income taxes:
United States - federal 5,941 5,880
- state and local 2,560 3,134
Foreign 3,066 1,353
Total provision for income taxes 11,567 10,367
Income of consolidated companies before
effect of accounting change 15,334 13,741
Income applicable to minority interests (788) (977)
Equity in net income of unconsolidated
affiliates 630 226
Income before effect of accounting change $ 15,176 $ 12,990
Effect of accounting change:
Postemployment benefits - (21,780)
Net income (loss) $ 15,176 $ (8,790)
Weighted average number of common shares 77,578,599 75,161,764
Per share Data:
Income before effect of accounting
change .20 .17
Effect of accounting change - (.29)
Net income (loss) $ .20 $ (.12)
Cash dividends per common share $ .14 $ .125
See accompanying notes to consolidated financial statements
5
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994
Net income (loss) after effect of
accounting change $ 15,176 $ (8,790)
Adjustments to reconcile net income (loss) to
cash used in operating activities:
Effect of accounting change 0 21,780
Depreciation and amortization of fixed assets 14,945 10,041
Amortization of intangible assets 6,578 5,449
Amortization of restricted stock awards 3,749 2,095
Equity in net income of unconsolidated affiliates (630) (226)
Income applicable to minority interests 788 977
Translation losses 952 7,102
Other (6,351) (6,031)
Changes in assets and liabilities, net of acquisitions:
Receivables 221,942 98,099
Expenditures billable to clients (4,247) (21,644)
Prepaid expenses and other assets (7,588) (9,411)
Accounts payable and accrued expenses (310,690) (120,384)
Accrued income taxes (13,655) (14,693)
Deferred income taxes (1,153) (20,306)
Deferred compensation and reserve for termination
allowances (838) 36,744
Net cash used in operating activities (81,022) (19,198)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (1,661) (3,240)
Capital expenditures (16,236) (6,900)
Proceeds from sales of assets (127) 121
Net purchases of marketable securities (1,533) (2,795)
Other investments and miscellaneous assets (2,643) 2,784
Unconsolidated affiliates (5,868) (724)
Net cash used in investing activities (28,068) (10,754)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 7,990 16,779
Proceeds from long-term debt 15,000 -
Payments of debt (13,486) (15,533)
Treasury stock acquired (18,303) (11,095)
Issuance of Common Stock 13,583 4,802
Cash Dividends (10,635) (9,127)
Net cash used in financing activities (5,851) (14,174)
Effect of exchange rates on cash and cash
equivalents 12,446 3,568
Decrease in cash and cash equivalents (102,495) (40,558)
Cash and cash equivalents at beginning of year 413,709 292,268
Cash and cash equivalents at end of quarter $311,214 $251,710
See accompanying notes to consolidated financial statements.
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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 March 31, 1995, the consolidated
income statement for the three months ended March 31, 1995 and 1994
and the consolidated statement of cash flows for the three months
ended March 31, 1995 and 1994, 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 March 31, 1995 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,
1994 annual report to stockholders.
(b) Statement of Financial Accounting Standards (SFAS) 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
$19.6 million and $21.1 million in the first three months of 1995 and
1994, respectively. Interest payments during the first three months
were approximately $6.1 million and $5.5 million in 1995 and 1994,
respectively.
(c) Effective January 1, 1994, the Company adopted SFAS 112 "Employers'
Accounting for Postemployment Benefits" and recorded a one-time pre-
tax charge of $39.6 million or $21.8 million after-tax. As of March
31, 1995 deferred compensation and reserve for termination allowances
includes approximately $36.8 million of postemployment benefits.
7
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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 March 31
Primary 1995 1994
Net income before effect of accounting
change $ 15,176 $ 12,990
Effect of accounting change - (21,780)
Add:
Dividends paid net of related income tax
applicable to restricted stock 93 80
Net income (loss), as adjusted $ 15,269 $ (8,710)
Weighted average number of common shares
outstanding 75,293,122 72,880,606
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,285,477 2,281,158
Total 77,578,599 75,161,764
Per share data:
Income before effect of accounting change .20 .17
Effect of accounting change - (.29)
Net income (loss) $ .20 $ (.12)
Three Months Ended March 31
Fully Diluted <F1> 1995 1994
Net income before effect of accounting
change $ 15,176 $ 12,990
Effect of accounting change - (21,780)
Add:
Dividends paid net of related income tax
applicable to restricted stock 106 83
Net income (loss), as adjusted $ 15,282 $ (8,707)
Weighted average number of common shares
outstanding 75,293,122 72,880,606
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,684,497 2,316,327
Total 77,977,619 75,196,933
Per share data:
Income before effect of accounting change .20 .17
Effect of accounting change - (.29)
Net income (loss) $ .20 $ (.12)
<F1> The effect of the assumed conversion of subordinated debentures has been
excluded as it is anti-dilutive.
8
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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 March 31, 1995 was $101.9 million, an increase of $21.8
million from December 31, 1994. The ratio of current assets to current
liabilities remained relatively unchanged from December 31, 1994 at
approximately 1.0 to 1.
During 1994, Interpublic Group of Companies, Inc. (the "Company") acquired
Western International Media Corporation and Ammirati & Puris Holding, Inc.
In April 1995, the Company along with the management of Campbell Mithun
Esty (CME) acquired substantially all of the assets of CME. The purchase
price for Interpublic's share was $20.0 million. The Company, together
with the management of Campbell Mithun Esty, will operate CME going forward
on a 50/50 basis.
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 three months
of 1995, the Company acquired 620,037 shares of its own stock for
approximately $20.8 million for the purposes of fulfilling the Company's
obligations under its various compensation plans.
9
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
1994
Total revenue for the three months ended March 31, 1995 increased $43.1
million, or 10.7%, to $447.4 million compared to the same period in 1994.
Domestic revenue increased 9.4% from 1994 levels. Foreign revenue
increased 9.4% during the first quarter of 1995 compared to 1994. Other
income decreased by $3.7 million during the first quarter of 1995.
Operating expenses increased $35.9 million or 9.2% during the three months
ended March 31, 1995 compared to the same period in 1994. Interest expense
increased by $.8 million during the first quarter of 1995, as compared to
the same period in 1994.
In the fourth quarter of 1994, the Company recorded restructuring charges
of $48.7 million in connection with the elimination of duplicate facilities
and excess personnel resulting primarily from the merger of Lintas New York
and Ammirati & Puris agencies and certain international offices. At March
31, 1995 the Company's liability related to these restructuring charges
totalled $25.0 million for severance. First quarter 1995 salary savings
realized from the restructuring amounted to approximately $3.0 million.
The Company expects to realize additional salary reductions from
restructuring of approximately $16.0 million during the remainder of 1995.
Net losses from exchange and translation of foreign currencies for the
three months ended March 31, 1995 were approximately $.8 million versus
$5.6 million for the same period in 1994. The decrease in 1995 is
primarily due to decreased translation losses in Brazil.
The effective tax rate for the three months ended March 31, 1995 and 1994
was 43.0%.
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.
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10(a) Credit Agreement, dated March 14, 1995,
between The Interpublic Group of
Companies, Inc. and Trust Company Bank.
Exhibit 10(b) Note, dated March 14, 1995, of
Registrant
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during
the quarter ended March 31, 1995.
11
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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, 1995 By /S/ PHILIP H. GEIER, JR
PHILIP H. GEIER, JR.
Chairman of the Board
President and Chief Executive
Officer
Date: May 12, 1995 By /S/ EUGENE P. BEARD
EUGENE P. BEARD
Executive Vice President -
Finance and Operations,
Chief Financial Officer
12
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 10(a) Credit Agreement, dated March 14, 1995,
between The Interpublic Group of
Companies, Inc. and Trust Company Bank.
Exhibit 10(b) Note, dated March 14, 1995 of Registrant
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
13