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, 1997
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 31,1997:
124,546,711 shares.PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 1997 and
December 31, 1996 3-4
Consolidated Income Statement
Three months ended June 30, 1997
and 1996 5
Consolidated Income Statement
Six months ended June 30, 1997
and 1996 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1997
and 1996 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 2. Changes in Securities
Item 4. Submission of matters to a Vote of Security
Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
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,
1997 1996
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1997-$86,468;
1996-$83,680) $ 405,677 $ 468,526
Marketable securities, at cost which
approximates market 41,734 35,408
Receivables (less allowance for doubtful
accounts: 1997-$22,468; 1996-$33,301) 2,910,799 2,646,259
Expenditures billable to clients 207,636 130,185
Prepaid expenses and other current assets 92,990 73,081
Total current assets 3,658,836 3,353,459
Other Assets:
Investment in unconsolidated affiliates 92,274 102,711
Deferred taxes on income 72,033 79,371
Other investments and miscellaneous assets 192,168 173,308
Total other assets 356,475 355,390
Fixed Assets, at cost:
Land and buildings 87,063 82,332
Furniture and equipment 436,902 413,029
523,965 495,361
Less accumulated depreciation 292,488 276,448
231,477 218,913
Unamortized leasehold improvements 88,524 88,045
Total fixed assets 320,001 306,958
Intangible Assets (less accumulated
amortization: 1997-$202,134;
1996-$186,189) 868,796 749,323
Total assets $5,204,108 $4,765,130
See accompanying notes to consolidated financial statements.
3 PAGE
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,
1997 1996*
Current Liabilities:
Payable to banks $ 304,328 $ 121,655
Accounts payable 2,876,331 2,626,695
Accrued expenses 279,361 317,157
Accrued income taxes 143,725 133,522
Total current liabilities 3,603,745 3,199,029
Noncurrent Liabilities:
Long-term debt 234,080 231,760
Convertible subordinated debentures 116,626 115,192
Deferred compensation and reserve
for termination liabilities 208,975 210,670
Accrued postretirement benefits 47,146 46,726
Other noncurrent liabilities 56,023 66,457
Minority interests in consolidated
subsidiaries 27,087 23,281
Total noncurrent liabilities 689,937 694,086
Stockholders' Equity:
Preferred Stock, no par value
shares authorized:20,000,000
shares issued:none
Common Stock, $.10 par value
shares authorized: 225,000,000
shares issued:
1997 - 138,206,192
1996 - 136,410,542 13,820 13,641
Additional paid-in capital 483,772 465,945
Retained earnings 940,865 855,113
Adjustment for minimum pension
liability (12,979) (12,979)
Cumulative translation adjustments (124,211) (82,978)
1,301,267 1,238,742
Less:
Treasury stock, at cost:
1997 - 13,767,768 shares
1996 - 14,712,143 shares 330,365 319,377
Unamortized expense of restricted
stock grants 60,476 47,350
Total stockholders' equity 910,426 872,015
Total liabilities and stockholders'
equity $5,204,108 $4,765,130
See accompanying notes to consolidated financial statements.
* Restated to reflect three-for-two stock split payable July 15,1997.
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)
1997 1996*
Revenue $ 788,621 $ 631,585
Other income 23,692 43,760
Gross income 812,313 675,345
Costs and expenses:
Operating expenses 634,105 521,568
Interest 11,216 9,665
Total costs and expenses 645,321 531,233
Income before provision for income taxes 166,992 144,112
Provision for income taxes:
United States - federal 29,667 25,971
- state and local 8,906 5,714
Foreign 31,207 29,563
Total provision for income taxes 69,780 61,248
Income of consolidated companies 97,212 82,864
Loss applicable to minority interests (7,218) (3,017)
Equity in net income of unconsolidated
affiliates (230) 3,081
Net income $ 89,764 $ 82,928
Weighted average number of common shares 123,758,720 119,659,136
Earnings per common and common equivalent
share $ .73 $ .69
Cash dividends per common share $ .13 $ .11
See accompanying notes to consolidated financial statements.
* Restated to reflect three-for-two stock split payable July 15,1997.
5
PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30
(Dollars in Thousands Except Per Share Data)
1997 1996*
Revenue $ 1,372,018 $ 1,123,793
Other income 37,533 57,711
Gross income 1,409,551 1,181,504
Costs and expenses:
Operating expenses 1,182,117 987,677
Interest 21,483 19,190
Total costs and expenses 1,203,600 1,006,867
Income before provision for income taxes 205,951 174,637
Provision for income taxes:
United States - federal 39,610 34,389
- state and local 11,145 7,798
Foreign 35,788 32,187
Total provision for income taxes 86,543 74,374
Income of consolidated companies 119,408 100,263
Loss applicable to minority interests (10,573) (4,845)
Equity in net income of unconsolidated
affiliates 2,964 5,341
Net income $ 111,799 $ 100,759
Weighted average number of common shares 122,849,766 119,306,021
Earnings per common and common equivalent
share $ .91 $ .84
Cash dividends per common share $ .24 $ .22
See accompanying notes to consolidated financial statements.
* Restated to reflect three-for-two stock split payable July 15,1997.
6
PAGE
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: 1997 1996
Net income $111,799 $100,759
Adjustments to reconcile net income to cash
provided by/(used in) operating activities:
Depreciation and amortization of fixed assets 36,534 28,311
Amortization of intangible assets 15,944 13,366
Amortization of restricted stock awards 7,537 7,188
Equity in net income of unconsolidated
affiliates (2,964) (5,341)
Income applicable to minority interests 10,573 4,845
Translation losses 483 1,100
Net gain from sale of investments 0 (8,100)
Other (7,150) (2,827)
Changes in assets and liabilities, net of acquisitions:
Receivables (170,393) (95,395)
Expenditures billable to clients (54,172) (31,598)
Prepaid expenses and other assets (13,819) (11,067)
Accounts payable and other liabilities 20,014 68,929
Accrued income taxes (6,953) 25,737
Deferred income taxes 1,229 (5,856)
Deferred compensation and reserve for termination
allowances (11,495) (4,347)
Net cash (used in)/provided by operating
activities (62,833) 85,704
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (38,089) (41,603)
Proceeds from sale of investments 199 37,578
Capital expenditures (41,825) (33,494)
Net purchases of marketable securities (9,899) (4,844)
Other investments and miscellaneous assets (9,094) (19,893)
Investments in unconsolidated affiliates (4,473) (6,278)
Net cash used in investing activities (103,181) (68,534)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 185,352 33,061
Proceeds from long-term debt 3,024 25,000
Payments of long-term debt (3,007) (13,618)
Treasury stock acquired (58,700) (41,433)
Issuance of common stock 22,092 10,763
Cash dividends (29,015) (24,995)
Net cash provided by/(used in)financing
activities 119,746 (11,222)
Effect of exchange rates on cash and cash
equivalents (16,581) (8,498)
Decrease in cash and cash equivalents (62,849) (2,550)
Cash and cash equivalents at beginning of year 468,526 418,448
Cash and cash equivalents at end of period $405,677 $415,898
See accompanying notes to consolidated financial statements.
7 PAGE
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, 1997, the consolidated statements of income for the three
months and six months ended June 30, 1997 and 1996 and the
consolidated statement of cash flows for the six months ended June 30,
1997 and 1996, 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, 1997 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,
1996 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
$38.1 million and $37.9 million in the first six months of 1997 and
1996, respectively. Interest payments during the first six months of
1997 were approximately $12.6 million. Interest payments during the
comparable period of 1996 were approximately $9.9 million.
(c) In July 1997, a three-for-two stock split was effected by payment of a
stock dividend. This split has been reflected retroactively in the
accompanying consolidated financial statements.
8
PAGE
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 1997 1996*
Net income $ 89,764 $ 82,928
Add:
Dividends paid net of related income tax
applicable to restricted stock 102 95
Net income, as adjusted $ 89,866 $ 83,023
Weighted average number of common shares
outstanding 119,724,822 115,905,189
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 4,033,898 3,753,947
Total 123,758,720 119,659,136
Earnings per common and common equivalent
share $ .73 $ .69
Three Months Ended June 30
Fully Diluted 1997 1996*
Net income $ 89,764 $ 82,928
Add:
After tax interest savings on assumed
conversion of subordinated debentures 1,643 1,602
Dividends paid net of related income tax
applicable to restricted stock 113 98
Net income, as adjusted $ 91,520 $ 84,628
Weighted average number of common shares
outstanding 119,724,822 115,905,189
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 4,420,272 3,801,155
Assumed conversion of subordinated
debentures 4,463,003 4,503,195
Total 128,608,097 124,209,539
Earnings per common and common equivalent
share $ .71 $ .68
* Restated to reflect three-for-two stock split payable July 15,1997.
9 PAGE
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 1997 1996*
Net income before effect of accounting
change $ 111,799 $ 100,759
Add:
Dividends paid net of related income tax
applicable to restricted stock 182 175
Net income, as adjusted $ 111,981 $ 100,934
Weighted average number of common shares
outstanding 119,065,151 115,698,875
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 3,784,615 3,607,146
Total 122,849,766 119,306,021
Earnings per common and common equivalent
share $ .91 $ .84
Six Months Ended June 30
Fully Diluted 1997 1996*
Net income before effect of accounting
change $ 111,799 $ 100,759
Add:
After tax interest savings on assumed
conversion of subordinated debentures 3,245 3,165
Dividends paid net of related income tax
applicable to restricted stock 206 192
Net income, as adjusted $ 115,250 $ 104,116
Weighted average number of common shares
outstanding 119,065,151 115,698,875
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 4,202,596 3,906,334
Assumed conversion of subordinated
debentures 4,464,753 4,503,195
Total 127,732,500 124,108,404
Earnings per common and common equivalent
share $ .90 $ .84
* Restated to reflect three-for-two stock split payable July 15,1997.
10
PAGE
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, 1997 was $55.1 million, a decrease of $99.3
million from December 31, 1996. The ratio of current assets to current
liabilities remained relatively unchanged from December 31, 1996 at
approximately 1.0 to 1.
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 1997, the Company acquired 1,270,975 shares of its own stock for
approximately $58.7 million for the purposes of fulfilling the Company's
obligations under its various compensation plans.
11
PAGE
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30,
1996
Total revenue for the three months ended June 30, 1997 increased $157.0
million, or 24.9%, to $788.6 million compared to the same period in 1996.
Domestic revenue increased $110.9 million or 42.2% from 1996 levels.
Foreign revenue increased $46.1 million or 12.5% during the second quarter
of 1997 compared to 1996. Other income decreased by $20.1 million during
the second quarter of 1997 compared to the same period in 1996 primarily
due to the proceeds resulting from the sale of a portion of the Company's
interest in the CKS Group, Inc. in 1996. The net gain was approximately $8.1
million or $.10 per share.
Operating expenses increased $112.5 million or 21.6% during the three
months ended June 30, 1997 compared to the same period in 1996. Interest
expense increased 16.0% as compared to the same period in 1996.
Pretax income increased $22.9 million or 15.9% during the three months
ended June 30, 1997 compared to the same period in 1996.
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 income for the three months ended June 30, 1997 had an unfavorable
currency impact of $2.9 million versus $1.6 million for the same period in
1996.
The effective tax rate for the three months ended June 30, 1997 was 41.8%,
as compared to 42.5% in 1996.
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, 1997 Compared to Six Months Ended June 30, 1996
Total revenue for the six months ended June 30, 1997 increased $248.2
million, or 22.1%, to $1,372 million compared to the same period in 1996.
Domestic revenue increased $178.9 million or 39.1% from 1996 levels.
Foreign revenue increased $69.4 million or 10.4% during the first six
months of 1997 compared to 1996. Other income decreased by $20.2 million in
the first six months of 1997 compared to the same period in 1996 primarily due
to the proceeds resulting from the sale of a portion of the Company's
interest in the CKS Group, Inc. in 1996. The net gain was approximately $8.1
million or $.10 per share.
Operating expenses increased $194.4 million or 19.7% during the six months
ended June 30, 1997 compared to the same period in 1996. Interest expense
increased 11.9% during the six months ended June 30, 1997 as compared to
the same six month period in 1996.
Pretax income increased $31.3 million or 17.9% during the six months ended
June 30, 1997 compared to the same period in 1996.
12
PAGE
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 income for the six months ended June 30, 1997 had an unfavorable
currency impact of $4.0 million versus $1.9 million for the same period in
1996.
The effective tax rate for the six months ended June 30, 1997 was 42.0%, as
compared to 42.6% in 1996.
13
PART II - OTHER INFORMATION
Item 2. Changes In Securities
Recent Sales In Unregistered Securities
(1) On April 14, 1997, the Registrant acquired
three small companies in consideration for which it
issued a total of 201,558 shares of Common Stock, par
value $.10 per share, to the former shareholders of the
companies. The shares of Common Stock had a market
value of $11,000,000 on the date of issuance.
The shares of Common Stock were issued by the
Registrant without registration in reliance on Rule 506
of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"), based on the accredited
investor status or sophistication of the former
shareholders.
(2) On June 5, 1997, the Registrant acquired a
company in consideration for which it issued a total of
386,137 shares of Common Stock, par value $.10 per
share, to the company's former shareholders. The
shares of Common Stock had a market value of
$21,339,089 on the date of issuance.
The shares of Common Stock were issued by the
Registrant without registration in reliance on Rule 506
of Regulation D under the Securities Act of 1933, as
amended, based on the accredited investor status or
sophistication of the company's former stockholders and
their purchase representative.
Also, as part of the acquisition, existing stock
options in the acquired company were converted into
options to acquire 47,720 shares of the Registrant.
(3) On June 12, 1997, the Registrant acquired a
company in consideration for which it issued a total of
390,036 shares of Common Stock to the company's former
shareholders. The shares of Common Stock had a market
value of $23,100,000 on the date of issuance.
The shares of Common Stock were issued by the
Registrant without registration in reliance on Rule 506
of Regulation D under the Securities Act, based on the
accredited investor status of the company's former
stockholders.
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 on May 19, 1997.
(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 solicitation in
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 63,008,573 640,995 0
Frank J. Borelli 63,003,548 646,020 0
Reginald K. Brack 63,004,082 645,486 0
Jill M. Considine 62,999,987 649,581 0
John J. Dooner, Jr. 63,008,654 640,914 0
Philip H. Geier, Jr. 62,759,816 889,752 0
Frank B. Lowe 62,751,556 898,012 0
Leif H. Olsen 63,000,457 649,111 0
Martin F. Puris 62,743,806 905,762 0
Allen Questrom 63,008,304 641,264 0
J. Phillip Samper 62,750,808 898,760 0
-- Proposal to increase the Company's authorized
Common Stock to 225 million shares.
BROKER
FOR AGAINST ABSTAIN NONVOTES
59,084,070 4,139,029 426,469 0
-- Proposal to approve the Company's 1997 Performance
Incentive Plan.
BROKER
FOR AGAINST ABSTAIN NONVOTES
45,381,853 12,588,752 545,335 5,133,628
-- Proposal to approve confirmation of independent
accountants.
BROKER
FOR AGAINST ABSTAIN NONVOTES
63,186,957 64,595 398,016 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
5,835,590 45,817,940 4,517,948 7,478,090
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 3(i) The Registrant's Restated Certificate
of Incorporation, as amended.
Exhibit 10(a) 1997 Performance Incentive Plan.
Exhibit 10(b) Supplemental Agreement made as of
March 12, 1997 between Interpublic and
Eugene P. Beard.
PAGE
Exhibit 10(c) Note, dated June 16, 1997 and executed
by Registrant in the principal amount
of $15,000,000 to the order of
Wachovia Bank of Georgia, N.A.
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
without financial statements during the quarter ended
June 30, 1997:
(1) Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated April 3, 1997.
(2) Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated June 16, 1997.
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, 1997 By /S/ Philip H. Geier, Jr.
Philip H. Geier, Jr.
Chairman of the Board
President and Chief Executive
Officer
Date: August 14, 1997 By /S/ Eugene P. Beard
Eugene P. Beard
Vice Chairman -
Finance and Operations
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 3(i) The Registrant's Restated Certificate of
Incorporation, as amended.
Exhibit 10(a) 1997 Performance Incentive Plan.
Exhibit 10(b) Supplemental Agreement made as of March 12,
1997 between Interpublic and Eugene P. Beard.
Exhibit 10(c) Note, dated June 16, 1997 and executed by
Registrant in the principal amount of
$15,000,000 to the order of Wachovia Bank of
Georgia, N.A.
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.