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, 1996
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 31, 1995:
90,578,140 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, 1996 and
December 31, 1995 3-4
Consolidated Income Statement
Three months ended June 30, 1996
and 1995 5
Consolidated Income Statement
Six months ended June 30, 1996
and 1995 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1996
and 1995 7
Notes to Consolidated Financial Statements 8
Computation of Earnings Per Share 9 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 13
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security
Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
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,
1996 1995
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1996-$92,860;
1995-$114,182) $ 415,898 $ 418,448
Marketable securities, at cost which
approximates market 41,502 38,926
Receivables (less allowance for doubtful
accounts: 1996-$24,246; 1995-$21,941) 2,467,895 2,320,248
Expenditures billable to clients 142,913 108,165
Prepaid expenses and other current assets 91,056 88,611
Total current assets 3,159,264 2,974,398
Other Assets:
Investment in unconsolidated affiliates 96,498 119,473
Deferred taxes on income 101,653 103,497
Other investments and miscellaneous assets 172,683 144,963
Total other assets 370,834 367,933
Fixed Assets, at cost:
Land and buildings 75,279 76,813
Furniture and equipment 386,487 360,653
461,766 437,466
Less accumulated depreciation 255,199 240,274
206,567 197,192
Unamortized leasehold improvements 83,273 82,075
Total fixed assets 289,840 279,267
Intangible Assets (less accumulated
amortization: 1996-$176,039;
1995-$157,673) 690,749 638,168
Total assets $4,510,687 $4,259,766
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,
1996 1995
Current Liabilities:
Payable to banks $ 178,082 $ 162,524
Accounts payable 2,455,293 2,291,208
Accrued expenses 219,346 256,408
Accrued income taxes 148,023 116,557
Total current liabilities 3,000,744 2,826,697
Noncurrent Liabilities:
Long-term debt 192,911 170,262
Convertible subordinated debentures 114,651 113,235
Deferred compensation and reserve
for termination liabilities 229,082 235,325
Accrued postretirement benefits 47,680 46,461
Other noncurrent liabilities 95,621 102,909
Minority interests in consolidated
subsidiaries 18,946 15,171
Total noncurrent liabilities 698,891 683,363
Stockholders' Equity:
Preferred Stock, no par value
shares authorized: 20,000,000
shares issued:none
Common Stock, $.10 par value
shares authorized: 150,000,000
shares issued:
1996 - 90,393,121
1995 - 89,630,568 9,039 8,963
Additional paid-in capital 457,440 446,931
Retained earnings 782,807 704,946
Adjustment for minimum pension
liability (9,088) (9,088)
Cumulative translation adjustments (99,822) (93,436)
1,140,376 1,058,316
Less:
Treasury stock, at cost:
1996 - 9,086,595 shares
1995 - 10,002,567 shares 283,519 268,946
Unamortized expense of restricted
stock grants 45,805 39,664
Total stockholders' equity 811,052 749,706
Total liabilities and stockholders'
equity $4,510,687 $4,259,766
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
(Dollars in Thousands Except Per Share Data)
1996 1995
Revenue $ 631,585 $ 534,427
Other income 43,760 22,727
Gross income 675,345 557,154
Costs and expenses:
Operating expenses 521,568 435,588
Interest 9,665 9,803
Total costs and expenses 531,233 445,391
Income before provision for income taxes 144,112 111,763
Provision for income taxes:
United States - federal 25,971 16,960
- state and local 5,714 7,058
Foreign 29,563 23,372
Total provision for income taxes 61,248 47,390
Income of consolidated companies 82,864 64,373
Loss applicable to minority interests (3,017) (2,083)
Equity in net income of unconsolidated
affiliates 3,081 1,478
Net income $ 82,928 $ 63,768
Weighted average number of common shares 79,772,757 78,106,874
Earnings per common and common equivalent
share $ 1.04 $ .82
Cash dividends per common share $ .170 $ .155
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
(Dollars in Thousands Except Per Share Data)
1996 1995
Revenue $ 1,123,793 $ 981,863
Other income 57,711 35,711
Gross income 1,181,504 1,017,574
Costs and expenses:
Operating expenses 987,677 861,180
Interest 19,190 17,730
Total costs and expenses 1,006,867 878,910
Income before provision for income taxes 174,637 138,664
Provision for income taxes:
United States - federal 34,389 22,901
- state and local 7,798 9,618
Foreign 32,187 26,438
Total provision for income taxes 74,374 58,957
Income of consolidated companies 100,263 79,707
Loss applicable to minority interests (4,845) (2,871)
Equity in net income of unconsolidated
affiliates 5,341 2,108
Net income $ 100,759 $ 78,944
Weighted average number of common shares 79,537,347 77,836,723
Earnings per common and common equivalent
share $ 1.27 $ 1.02
Cash dividends per common share $ .325 $ .295
See accompanying notes to consolidated financial statements.
6
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net income $100,759 $ 78,944
Adjustments to reconcile net income to cash
provided by/(used in) operating activities:
Depreciation and amortization of fixed assets 28,311 26,813
Amortization of intangible assets 13,366 12,960
Amortization of restricted stock awards 7,188 6,788
Equity in net income of unconsolidated
affiliates (5,341) (2,108)
Income applicable to minority interests 4,845 2,871
Translation losses 1,100 1,733
Net gain from sale of investments (8,100) -
Other (2,827) (5,999)
Changes in assets and liabilities, net of acquisitions:
Receivables (95,395) (11,061)
Expenditures billable to clients (31,598) (34,083)
Prepaid expenses and other assets (11,067) (17,322)
Accounts payable and accrued expenses 68,929 (126,262)
Accrued income taxes 25,737 19,064
Deferred income taxes (5,856) (3,133)
Deferred compensation and reserve for termination
allowances (4,347) 1,369
Net cash provided by/(used in) operating
activities 85,704 (49,426)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (41,603) (31,230)
Proceeds from sale of investments 37,578 -
Capital expenditures (33,494) (29,109)
Net purchases of marketable securities (4,844) (8,080)
Other investments and miscellaneous assets (19,893) (2,583)
Investments in unconsolidated affiliates (6,278) (9,315)
Net cash used in investing activities (68,534) (80,317)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 33,061 8,193
Proceeds from long-term debt 25,000 40,000
Payments of long-term debt (13,618) (13,637)
Treasury stock acquired (41,433) (28,089)
Issuance of common stock 10,763 23,035
Cash dividends (24,995) (22,430)
Net cash (used in)/provided by financing
activities (11,222) 7,072
Effect of exchange rates on cash and cash
equivalents (8,498) 13,343
Decrease in cash and cash equivalents (2,550) (109,328)
Cash and cash equivalents at beginning of year 418,448 413,709
Cash and cash equivalents at end of period $415,898 $304,381
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
1. Consolidated Financial Statements
(a) In the opinion of management, the consolidated balance sheet as of
June 30, 1996, the consolidated statements of income for the three
months and six months ended June 30, 1996 and 1995 and the
consolidated statement of cash flows for the six months ended June 30,
1996 and 1995, contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1996 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,
1995 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
$37.9 million and $40.3 million in the first six months of 1996 and
1995, respectively. Interest payments during the first six months of
1996 were approximately $9.9 million. Interest payments during the
comparable period of 1995 were approximately $12.4 million.
8
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Exhibit 11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Data)
Three Months Ended June 30
Primary 1996 1995
Net income $ 82,928 $ 63,768
Add:
Dividends paid net of related income tax
applicable to restricted stock 95 113
Net income, as adjusted $ 83,023 $ 63,881
Weighted average number of common shares
outstanding 77,270,126 75,745,842
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,502,631 2,361,032
Total 79,772,757 78,106,874
Earnings per common and common equivalent
share $ 1.04 $ .82
Three Months Ended June 30
Fully Diluted 1996 1995
Net income $ 82,928 $ 63,768
Add:
After tax interest savings on assumed
conversion of subordinated debentures 1,602 1,527
Dividends paid net of related income tax
applicable to restricted stock 98 114
Net income, as adjusted $ 84,628 $ 65,409
Weighted average number of common shares
outstanding 77,270,126 75,745,842
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,534,103 2,397,631
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 82,806,359 81,145,603
Earnings per common and common equivalent
share $ 1.02 $ .81
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Exhibit 11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Data)
Six Months Ended June 30
Primary 1996 1995
Net income before effect of accounting
change $ 100,759 $ 78,944
Add:
Dividends paid net of related income tax
applicable to restricted stock 175 205
Net income, as adjusted $ 100,934 $ 79,149
Weighted average number of common shares
outstanding 77,132,583 75,520,732
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,404,764 2,315,991
Total 79,537,347 77,836,723
Earnings per common and common equivalent
share $ 1.27 $ 1.02
Six Months Ended June 30
Fully Diluted 1996 1995
Net income before effect of accounting
change $ 100,759 $ 78,944
Add:
After tax interest savings on assumed
conversion of subordinated debentures 3,165 3,054
Dividends paid net of related income tax
applicable to restricted stock 192 221
Net income, as adjusted $ 104,116 $ 82,219
Weighted average number of common shares
outstanding 77,132,583 75,520,732
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,604,223 2,533,231
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 82,738,936 81,056,093
Earnings per common and common equivalent
share $ 1.26 $ 1.01
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, 1996 was $158.5 million, an increase of $10.8
million from December 31, 1995. The ratio of current assets to current
liabilities remained relatively unchanged from December 31, 1995 at
approximately 1.1 to 1.
In June 1996, the Company issued 1,824,609 shares (or approximately $84.8
million) of the Company's common stock in exchange for all the issued and
outstanding stock of DraftDirect Worldwide, Inc. The acquisition was
accounted for as a pooling of interest; however, the Company's financial
statements were not restated for the prior periods as the Company's
consolidated results would not have changed significantly.
Historically, cash flow from operations has been the primary source of
working capital and management believes that it will continue to be in the
future. 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 1996, the Company acquired 933,833 shares of its own stock for
approximately $41.4 million for the purposes of fulfilling the Company's
obligations under its various compensation plans.
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RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1995
Total revenue for the three months ended June 30, 1996 increased $97.2
million, or 18.2%, to $631.6 million compared to the same period in 1995.
Domestic revenue increased $78.8 million or 42.8% from 1995 levels.
Foreign revenue increased $18.4 million or 5.2% during the second quarter
of 1996 compared to 1995. Other income increased by $21.0 million during
the second quarter of 1996 compared to the same period in 1995. The
increase in other income is primarily from the proceeds resulting from the
sale of a portion of the Company's interest in the CKS Group, Inc. The net
gain was approximately $8.1 million or $.10 per share.
Operating expenses increased $86.0 million or 19.7% during the three months
ended June 30, 1996 compared to the same period in 1995. Interest expense
decreased 1.4% as compared to the same period in 1995.
Pretax income increased $32.3 million or 28.9% during the three months
ended June 30, 1996 compared to the same period in 1995.
The increase in total revenue, operating expenses, and pretax income is
primarily due to acquired companies' results of operations and
contributions from new business gains.
Net losses from exchange and translation of foreign currencies for the
three months ended June 30, 1996 were approximately $.5 million versus $1.1
million for the same period in 1995. The decrease in the quarter ended June
30, 1996 is primarily due to decreased translation losses in Brazil.
The effective tax rate for the three months ended June 30, 1996 was 42.5%,
as compared to 42.4% in 1995.
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, 1996 Compared to Six Months Ended June 30, 1995
Total revenue for the six months ended June 30, 1996 increased $141.9
million, or 14.5%, to $1,123.8 million compared to the same period in 1995.
Domestic revenue increased $108.6 million or 31.1% from 1995 levels.
Foreign revenue increased $33.4 million or 5.3% during the first six months
of 1996 compared to 1995. Other income increased $22.0 million in the
first six months of 1996 compared to the same period in 1995. The increase
in other income is primarily from the proceeds resulting from the sale of a
portion of the Company's interest in the CKS Group, Inc. The net gain was
approximately $8.1 million or $.10 per share.
Operating expenses increased $126.5 million or 14.7% during the six months
ended June 30, 1996 compared to the same period in 1995. Interest expense
increased 8.2% during the six months ended June 30, 1996 as compared to the
same six month period in 1995.
Pretax income increased $36.0 million or 25.9% during the six months ended
June 30, 1996 compared to the same period in 1995.
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The increase in total revenue, operating expenses, and pretax income is
primarily due to acquired companies' results of operations and
contributions from new business gains.
Net losses from exchange and translation of foreign currencies for the six
months ended June 30, 1996 were approximately $1.0 million versus $1.8
million for the same period in 1995. The decrease for the six months ended
June 30, 1996 is primarily due to decreased translation losses in Brazil.
The effective tax rate for the six months ended June 30, 1996 was 42.6%, as
compared to 42.5% in 1995.
13
PART II - OTHER INFORMATION
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 20, 1996.
(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; (ii)
there was no solicitationin opposition to Management's
nominees as listed in the proxy statement; and (iii) 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:
BROKER
NOMINEE FOR WITHHELD NONVOTES
Eugene P. Beard 65,117,053 218,973 0
Frank J. Borelli 65,126,367 209,659 0
John J. Dooner, Jr. 65,115,663 220,363 0
Philip H. Geier, Jr. 65,120,648 215,378 0
Frank B. Lowe 65,112,472 223,554 0
Leif H. Olsen 65,106,670 229,356 0
Martin F. Puris 65,118,330 217,696 0
Allen Questrom 65,111,049 224,977 0
J. Phillip Samper 65,118,410 217,616 0
Joseph J. Sisco 65,070,282 265,744 0
-- Proposal to approve the Company's 1996 Stock Incentive
Plan.
Broker
For Against Abstain Nonvotes
36,789,809 21,330,100 642,460 6,573,657
-- Proposal to approve Amendments to the Company's Outside
Directors' Stock Option.
Broker
For Against Abstain Nonvotes
47,958,564 10,153,905 649,900 6,573,657
14
-- Proposal to approve confirmation of independent
accountants.
Broker
For Against Abstain Nonvotes
65,198,989 61,669 75,368 0
-- Stockholder proposed resolution regarding implementation
of the Mac Bride Principles with respect to the
Company's subsidiary in Northern Ireland.
Broker
For Against Abstain Nonvotes
6,406,527 46,800,233 5,171,991 6,957,275
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10(a) 1996 Stock Incentive Plan.
Exhibit 10(b) The Interpublic Outside Directors' Stock
Incentive Plan (formerly named The
Interpublic Outside Directors' Stock
Option Plan).
Exhibit 10(c) Credit Agreement, dated as of June 25,
1996, between the Interpublic Group of
Comapnies, Inc. ("Interpublic") and
Chemical Bank.
Exhibit 10(d) Promissory Note, dated June 25, 1996 and
executed by the Interpublic.
Exhibit 10(e) Money Market Note, dated June 25, 1996
and executed by Interpublic.
Exhibit 10(f) Promissory Note, dated June 25, 1996 and
executed by DraftDirect Worldwide, Inc.
Exhibit 10(g) Guaranty, dated June 25, 1996 and
executed by Interpublic.
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 June 30, 1996.
15
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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: August 14, 1996 By /S/ Eugene P. Beard
Eugene P. Beard
Vice Chairman -
Finance and Operations
Date: August 14, 1996 By /S/ Joseph M. Studley
Joseph M. Studley
Vice President & Controller -
Chief Accounting Officer
16
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 10(a) 1996 Stock Incentive Plan.
Exhibit 10(b) The Interpublic Outside Directors' Stock
Incentive Plan (formerly named The
Interpublic Outside Directors' Stock
Option Plan).
Exhibit 10(c) Credit Agreement, dated as of June 25,
1996, between the Interpublic Group of
Companies, Inc. ("Interpublic") and
Chemical Bank.
Exhibit 10(d) Promissory Note, dated June 25, 1996 and
executed by the Interpublic.
Exhibit 10(e) Money Market Note, dated June 25, 1996
and executed by Interpublic.
Exhibit 10(f) Promissory Note, dated June 25, 1996 and
executed by DraftDirect Worldwide, Inc.
Exhibit 10(g) Guaranty, dated June 25, 1996 and
executed by Interpublic.
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
17