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 September 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 October 31, 1996: 81,061,337
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
September 30, 1996 and
December 31, 1995 3-4
Consolidated Income Statement
Three months ended September 30, 1996
and 1995 5
Consolidated Income Statement
Nine months ended September 30, 1996
and 1995 6
Consolidated Statement of Cash Flows
Nine months ended September 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 6. Exhibits and Reports on Form 8-K 14 - 15
SIGNATURES 16
INDEX TO EXHIBITS 17 - 18
2
PART I - FINANCIAL INFORMATION
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1996-$81,613;
1995-$114,182) $ 424,832 $ 418,448
Marketable securities, at cost which
approximates market 42,354 38,926
Receivables (less allowance for doubtful
accounts: 1996-$27,825; 1995-$21,941) 2,211,655 2,320,248
Expenditures billable to clients 150,702 108,165
Prepaid expenses and other current assets 87,723 88,611
Total current assets 2,917,266 2,974,398
Other Assets:
Investment in unconsolidated affiliates 92,580 119,473
Deferred taxes on income 91,601 103,497
Other investments and miscellaneous assets 180,586 144,963
Total other assets 364,767 367,933
Fixed Assets, at cost:
Land and buildings 75,749 76,813
Furniture and equipment 398,484 360,653
474,233 437,466
Less accumulated depreciation 266,552 240,274
207,681 197,192
Unamortized leasehold improvements 83,658 82,075
Total fixed assets 291,339 279,267
Intangible Assets (less accumulated
amortization: 1996-$179,039;
1995-$157,673) 702,798 638,168
Total assets $4,276,170 $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
SEPTEMBER 30, DECEMBER 31,
1996 1995
Current Liabilities:
Payable to banks $ 252,241 $ 162,524
Accounts payable 2,189,350 2,291,208
Accrued expenses 225,238 256,408
Accrued income taxes 116,597 116,557
Total current liabilities 2,783,426 2,826,697
Noncurrent Liabilities:
Long-term debt 184,192 170,262
Convertible subordinated debentures 114,456 113,235
Deferred compensation and reserve
for termination liabilities 236,832 235,325
Accrued postretirement benefits 47,656 46,461
Other noncurrent liabilities 80,149 102,909
Minority interests in consolidated
subsidiaries 18,775 15,171
Total noncurrent liabilities 682,060 683,363
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 - 90,688,247
1995 - 89,630,568 9,069 8,963
Additional paid-in capital 474,441 446,931
Retained earnings 796,889 704,946
Adjustment for minimum pension
liability (9,088) (9,088)
Cumulative translation adjustments (102,068) (93,436)
1,169,243 1,058,316
Less:
Treasury stock, at cost:
1996 - 9,918,354 shares
1995 - 10,002,567 shares 310,792 268,946
Unamortized expense of restricted
stock grants 47,767 39,664
Total stockholders' equity 810,684 749,706
Total liabilities and stockholders'
equity $4,276,170 $4,259,766
See accompanying notes to consolidated financial statements.
4
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands Except Per Share Data)
1996 1995
Revenue $554,981 $ 476,308
Other income 12,737 16,178
Gross income 567,718 492,486
Costs and expenses:
Operating expenses 509,036 444,909
Interest 10,304 10,502
Total costs and expenses 519,340 455,411
Income before provision for income taxes 48,378 37,075
Provision for income taxes:
United States - federal 12,410 9,572
- state and local 4,253 1,984
Foreign 3,864 4,397
Total provision for income taxes 20,527 15,953
Income of consolidated companies 27,851 21,122
Loss applicable to minority
interests (2,495) (757)
Equity in net income of unconsolidated
affiliates 2,115 1,816
Net income $ 27,471 $ 22,181
Weighted average number of common shares 81,049,187 78,172,381
Earnings per common and common equivalent
share $ .34 $ .28
Cash dividends per common share $ .17 $ .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
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands Except Per Share Data)
1996 1995
Revenue $ 1,678,774 $ 1,458,170
Other income 70,448 51,890
Gross income 1,749,222 1,510,060
Costs and expenses:
Operating expenses 1,496,713 1,306,089
Interest 29,494 28,232
Total costs and expenses 1,526,207 1,334,321
Income before provision for income taxes 223,015 175,739
Provision for income taxes:
United States - federal 46,799 32,473
- state and local 12,051 11,603
Foreign 36,051 30,834
Total provision for income taxes 94,901 74,910
Income of consolidated companies 128,114 100,829
Loss applicable to minority interests (7,340) (3,628)
Equity in net income of unconsolidated
affiliates 7,456 3,924
Net income $ 128,230 $ 101,125
Weighted average number of common shares 80,053,482 77,981,543
Earning per common and common equivalent
share $ 1.60 $ 1.30
Cash dividends per common share $ .495 $ .450
See accompanying notes to consolidated financial statements.
6
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
Net income $128,230 $101,125
Adjustments to reconcile net income to
cash provided by/(used in) operating activities:
Depreciation and amortization of fixed assets 44,354 38,766
Amortization of intangible assets 21,366 20,706
Amortization of restricted stock awards 10,688 10,527
Equity in net income of unconsolidated
affiliates (7,456) (3,924)
Income applicable to minority interests 7,340 3,628
Translation losses 2,131 2,779
Net gain from sale of investments (8,100)
Other (3,592) 7,324
Changes in assets and liabilities, net of acquisitions:
Receivables 148,687 140,984
Expenditures billable to clients (39,412) (30,067)
Prepaid expenses and other assets 85 (41,968)
Accounts payable and accrued expenses (178,981) (268,551)
Accrued income taxes (4,487) 11,430
Deferred income taxes (6,497) (13,939)
Deferred compensation and reserve for termination
liabilities (1,187) 4,835
Net cash provided by/ (used in)operating
activities 113,169 (16,345)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (64,653) (68,702)
Proceeds from sale of investments 38,100 (656)
Capital expenditures (49,673) (47,163)
Net (purchases) of marketable securities (5,649) (2,474)
Other investments and miscellaneous assets (20,634) (5,103)
Unconsolidated affiliates (6,878) (7,520)
Net cash used in investing activities (109,387) (131,618)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 76,100 50,990
Proceeds from long-term debt 33,687 40,000
Payments of debt (18,459) (14,441)
Treasury stock acquired (62,489) (49,786)
Issuance of common stock 14,715 27,772
Cash dividends (37,575) (34,194)
Net cash provided by financing activities 5,979 20,341
Effect of exchange rates on cash and cash
equivalents (3,377) 14,775
Increase/(decrease) in cash and cash equivalents 6,384 (112,847)
Cash and cash equivalents at beginning of year 418,448 413,709
Cash and cash equivalents at end of period $424,832 $300,862
See accompanying notes to consolidated financial statements.
7
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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
September 30, 1996, the consolidated income statements for the three
months and nine months ended September 30, 1996 and 1995 and the
consolidated statement of cash flows for the nine months ended
September 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 September
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's") 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
$70 million and $39.7 million in the first nine months of 1996 and
1995, respectively. Interest payments during the first nine months of
1996 and 1995 were approximately $18 million.
8
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 September 30
Primary 1996 1995
Net income $ 27,471 $ 22,181
Add:
Dividends paid net of related income
tax applicable to restricted stock 90 120
Net income, as adjusted $ 27,561 $ 22,301
Weighted average number of common shares
outstanding 78,682,886 75,602,346
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,366,301 2,570,035
Total 81,049,187 78,172,381
Earnings per common and common equivalent
share .34 $ .28
Three Months Ended September 30
Fully Diluted 1996 1995
Net income $ 27,471 $ 22,181
Add:
After tax interest savings on assumed
conversion of subordinated debentures 1,601 1,600
Dividends paid net of related income tax
applicable to restricted stock 98 127
Net income, as adjusted $ 29,170 $ 23,908
Weighted average number of common shares
outstanding 78,682,886 75,602,346
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,510,690 2,730,172
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 84,195,706 81,334,648
Earnings per common and common equivalent
share $ .35 $ .29
9
Exhibit 11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Data)
Nine Months Ended September 30
Primary 1996 1995
Net income $ 128,230 $ 101,125
Add:
Dividends paid net of related income tax
applicable to restricted stock 265 325
Net income, as adjusted $ 128,495 $ 101,450
Weighted average number of common shares
outstanding 77,653,123 75,548,236
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,400,359 2,433,307
Total 80,053,482 77,981,543
Earnings per common and common equivalent
share $ 1.60 $ 1.30
Nine Months Ended September 30
Fully Diluted 1996 1995
Net income $ 128,230 $ 101,125
Add:
After tax interest savings on assumed
conversion of subordinated debentures 4,766 4,654
Dividends paid net of related income tax
applicable to restricted stock 287 347
Net income, as adjusted $ 133,283 $ 106,126
Weighted average number of common shares
outstanding 77,653,123 75,548,236
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,574,008 2,637,689
Assumed conversion of subordinated
debentures 3,002,130 3,002,130
Total 83,229,261 81,188,055
Earning per common and common equivalent
share $ 1.60 $ 1.31
10
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 September 30, 1996 was $133.8 million, a decrease of
$13.9 million from December 31, 1995. The ratio of current assets to
current liabilities was approximately 1.0 to 1 at September 30, 1996.
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 nine
months of 1996, the Company acquired 1,403,870 shares of its own stock for
approximately $62.5 million for the purpose of fulfilling the Company's
obligations under its various compensation plans.
11
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RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Total revenue for the three months ended September 30, 1996 increased $78.7
million, or 16.5%, to $555.0 million compared to the same period in 1995.
Domestic revenue increased $64.3 million or 36.9% from 1995 levels.
Foreign revenue increased $14.4 million or 4.8% during the third quarter of
1996 compared to 1995. Other income decreased by $3.4 million during the
third quarter of 1996 compared to the same period in 1995.
Operating expenses increased $64.1 million or 14.4% during the three months
ended September 30, 1996 compared to the same period in 1995. Interest
expense decreased 1.9% as compared to the same period in 1995.
Pretax income increased $11.3 million or 30.5% during the three months
ended September 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 September 30, 1996 were approximately $.9 million versus
$1.1 million for the same period in 1995.
The effective tax rate for the three months ended September 30, 1996 was
42.4%, as compared to 43.0% 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.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Total revenue for the nine months ended September 30, 1996 increased $220.6
million, or 15.1%, to $1,678.8 million compared to the same period in 1995.
Domestic revenue increased $172.9 million or 33.0% from 1995 levels.
Foreign revenue increased $47.7 million or 5.1% during the first nine
months of 1996 compared to 1995. Other income has increased by $18.6
million in the first nine 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 $190.6 million or 14.6% during the nine months
ended September 30, 1996 compared to the same period in 1995. Interest
expense increased 4.5% during the nine months ended September 30, 1996 as
compared to the same nine month period in 1995.
Pretax income increased $47.3 million or 26.9% during the nine months ended
September 30, 1996 compared to the same period in 1995.
12
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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 nine
months ended September 30, 1996 were approximately $1.9 million versus $2.9
million for the same period in 1995.
The effective tax rate for the nine months ended September 30, 1996 and
1995 was 42.6%.
13
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10(a) Supplemental Agreement, made as of July 1, 1996 to an
Employment Agreement made as of July 1, 1991 by and between
The Interpublic Group of Companies, Inc. ("Interpublic") and
Philip H. Geier, Jr.
Exhibit 10(b) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated December 1, 1994 by and
between Interpublic and Bank of America National Trust and
Savings Association.
Exhibit 10(c) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and The Bank of New York.
Exhibit 10(d) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and NBD Bank.
Exhibit 10(e) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and SunTrust Bank.
Exhibit 10(f) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and Swiss Bank Corporation.
14
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Exhibit 10(g) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and Union Bank of Switzerland.
Exhibit 10(h) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and Citibank, N.A.
Exhibit 10(I) Letter, dated September 20, 1996, extending the term of a
certain Credit Agreement dated September 30, 1992 by and
between Interpublic and The Chase Manhattan Bank (formerly
Chemical Bank).
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
September 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: November 13, 1996 By /S/ PHILIP H. GEIER, JR.
PHILIP H. GEIER, JR.
Chairman of the Board,
President and Chief Executive
Officer
Date: November 13, 1996 By /S/ EUGENE P. BEARD
EUGENE P. BEARD
Vice Chairman -
Finance and Operations
16
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 10(a) Supplemental Agreement, made as of July 1, 1996 to
an Employment Agreement made as of July 1, 1991 by
and between The Interpublic Group of Companies,
Inc. ("Interpublic") and Philip H. Geier, Jr.
Exhibit 10(b) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated December
1, 1994 by and between Interpublic and Bank of
America National Trust and Savings Association.
Exhibit 10(c) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and The Bank
of New York.
Exhibit 10(d) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and NBD Bank.
Exhibit 10(e) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and SunTrust
Bank.
Exhibit 10(f) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and Swiss Bank
Corporation.
17
Exhibit 10(g) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and Union Bank
of Switzerland.
Exhibit 10(h) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and Citibank,
N.A.
Exhibit 10(I) Letter, dated September 20, 1996, extending the
term of a certain Credit Agreement dated September
30, 1992 by and between Interpublic and The Chase
Manhattan Bank (formerly Chemical Bank).
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
18