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 March 31, 1998
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,
1998: 136,372,692 shares.
1
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
March 31, 1998 and
December 31, 1997 3-4
Consolidated Income Statement
Three months ended March 31, 1998
and 1997 5
Statement of Comprehensive Income 6
Three months ended March 31, 1998
and 1997
Consolidated Statement of Cash Flows
Three months ended March 31, 1998
and 1997 7
Notes to Consolidated Financial Statements 8
Computation of Earnings Per Share 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX TO EXHIBITS 15
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,
1998 1997
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1998-$80,777;
1997-$256,934) $ 485,667 $ 715,206
Marketable securities, at cost which
approximates market 35,040 30,739
Receivables (less allowance for doubtful
accounts: 1998-$38,859; 1997-$39,439) 2,894,992 2,987,688
Expenditures billable to clients 206,152 188,402
Prepaid expenses and other current assets 114,296 103,620
Total current assets 3,736,147 4,025,655
Other Assets:
Investment in unconsolidated affiliates 46,015 46,665
Deferred taxes on income 46,078 48,752
Other investments and miscellaneous assets 218,884 208,497
Total other assets 310,977 303,914
Fixed Assets, at cost:
Land and buildings 83,227 83,621
Furniture and equipment 490,093 476,955
573,320 560,576
Less accumulated depreciation 321,168 312,089
252,152 248,487
Unamortized leasehold improvements 101,450 100,323
Total fixed assets 353,602 348,810
Intangible Assets (less accumulated
amortization: 1998-$238,356;
1997-$225,830) 1,110,182 1,024,142
Total assets $5,510,908 $5,702,521
See accompanying notes to consolidated financial statements.
3
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,
1998 1997
Current Liabilities:
Payable to banks $ 217,069 $ 157,555
Accounts payable 2,742,598 3,013,559
Accrued expenses 410,534 429,451
Accrued income taxes 137,956 151,076
Total current liabilities 3,508,157 3,751,641
Noncurrent Liabilities:
Long-term debt 253,653 250,947
Convertible subordinated notes 201,018 201,768
Deferred compensation and reserve
for termination liabilities 256,341 247,747
Accrued postretirement benefits 47,404 47,404
Other noncurrent liabilities 60,190 63,942
Minority interests in consolidated
subsidiaries 31,967 31,917
Total noncurrent liabilities 850,573 843,725
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:
1998 - 144,322,587
1997 - 143,567,843 14,432 14,357
Additional paid-in capital 685,014 631,757
Retained earnings 1,046,925 1,036,306
Adjustment for minimum pension
liability (13,207) (13,207)
Net unrealized gain on
equity securities 16,566 12,405
Cumulative translation adjustments (161,600) (154,093)
1,588,130 1,527,525
Less:
Treasury stock, at cost:
1998 - 12,471,120 shares
1997 - 12,749,317 shares 377,630 363,736
Unamortized expense of restricted
stock grants 58,322 56,634
Total stockholders' equity 1,152,178 1,107,155
Total liabilities and stockholders'
equity $5,510,908 $5,702,521
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
(Dollars in Thousands Except Per Share Data)
1998 1997*
Revenue $ 719,436 $ 583,398
Other income 14,019 13,840
Gross income 733,455 597,238
Costs and expenses:
Operating expenses 670,728 548,013
Interest 10,682 10,266
Total costs and expenses 681,410 558,279
Income before provision for income taxes 52,045 38,959
Provision for income taxes 22,222 16,763
Income of consolidated companies 29,823 22,196
Income applicable to minority
interests (2,840) (3,356)
Equity in net income of unconsolidated
affiliates 651 3,195
Net income $ 27,634 $ 22,035
Weighted average shares:
Basic 127,721,325 118,405,479
Diluted 132,773,265 122,340,229
Earnings per share:
Basic EPS $ .22 $ .19
Diluted EPS $ .21 $ .18
Dividend per share $ .13 $ .11
* 1997 first quarter results restated for the three-for-two stock split
effected July 1997.
See accompanying notes to consolidated financial statements.
5
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands)
1998 1997
Net Income $ 27,634 $ 22,035
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments (7,507) (34,818)
Net Unrealized Gains on Securities 4,161 -
Other Comprehensive Income (3,346) (34,818)
Comprehensive Income $ 24,288 $(12,783)
6
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
Net income $ 27,634 $ 22,035
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization of fixed assets 20,207 17,406
Amortization of intangible assets 12,526 7,942
Amortization of restricted stock awards 5,052 3,733
Equity in net income of unconsolidated
affiliates (651) (3,195)
Income applicable to minority interests 2,840 3,356
Translation losses 276 873
Other (5,384) (6,256)
Changes in assets and liabilities, net of acquisitions:
Receivables 78,864 24,942
Expenditures billable to clients (18,686) (17,231)
Prepaid expenses and other assets (11,505) (11,878)
Accounts payable and accrued expenses (273,042) (175,686)
Accrued income taxes (11,787) (21,975)
Deferred income taxes 2,907 (242)
Deferred compensation and reserve for termination
liabilities 7,564 (7,644)
Net cash used in operating activities (163,185) (163,820)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (48,051) (12,605)
Proceeds from sale of investments 607 101
Capital expenditures (26,220) (16,609)
Net (purchases) of marketable securities (4,935) (1,467)
Other investments and miscellaneous assets (5,022) (2,236)
Unconsolidated affiliates (612) 2,000
Net cash used in investing activities (84,233) (30,816)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 60,474 185,924
Proceeds from long-term debt 1,408 1,047
Payments of debt (140) (245)
Treasury stock acquired (32,917) (34,061)
Issuance of common stock 9,832 11,048
Cash dividends (17,015) (13,464)
Net cash provided by financing activities 21,642 150,249
Effect of exchange rates on cash and cash
equivalents (3,763) (12,525)
Decrease in cash and cash equivalents (229,539) (56,912)
Cash and cash equivalents at beginning of year 715,206 468,526
Cash and cash equivalents at end of period $485,667 $411,614
See accompanying notes to consolidated financial statements.
7
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
March 31, 1998, the consolidated income statements for the three
months ended March 31, 1998 and 1997, the statement of comprehensive
income for the three months ended March 31, 1998 and 1997 and the
consolidated statement of cash flows for the three months ended March
31, 1998 and 1997, contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1998 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,
1997 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
$49.1 million and $33.0 million in the first three months of 1998 and
1997, respectively. Interest payments during the first three months of
1998 and 1997 were approximately $7.4 million and $4.4 million,
respectively.
(c) In July 1997, a three-for-two stock split was effected by payment of a
stock dividend. This split has been reflected in the accompanying
consolidated financial statements.
(d) Subsequent event
In April 1998, the Company issued approximately 4.7 million shares of
its common stock to acquire several advertising and communications
companies.
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 March 31
Basic 1998 1997 <F2>
Net income $ 27,634 $ 22,035
Weighted average number of common shares
outstanding 127,721,325 118,405,479
Earnings per common and
common equivalent share $ .22 $ .19
Three Months Ended March 31
Diluted <F1> 1998 1997
Net income $ 27,634 $ 22,035
Add:
Dividends paid net of related income tax
applicable to restricted stock 123 91
Net income, as adjusted $ 27,757 $ 22,126
Weighted average number of common shares
outstanding 127,721,325 118,405,479
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 5,051,940 3,934,750
Total 132,773,265 122,340,229
Earnings per common and common equivalent
share $ .21 $ .18
<F1> The computation of diluted EPS for 1998 excludes the assumed
conversion of the 1.80% Convertible Subordinated Notes because they were
anti-dilutive. Similarly, the computation of diluted EPS for 1997 excludes
the assumed conversion of the 3 3/4% Convertible Subordinated Debentures as
they were anti-dilutive.
<F2> Restated to reflect a three-for-two stock split effected July 1997.
9
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, 1998 was $228.0 million, a decrease of $46.0
million from December 31, 1997. The ratio of current assets to current
liabilities was approximately 1.1 to 1 at March 31, 1998.
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 three
months of 1998, the Company acquired 649,915 shares of its own stock for
approximately $32.9 million for the purpose of fulfilling the Company's
obligations under its various compensation plans.
10
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Total revenue for the three months ended March 31, 1998 increased
$136.0 million, or 23.3%, to $719.4 million compared to the same
period in 1997. Domestic revenue increased $101 million or 38.4%
from 1997 levels. Foreign revenue increased $35.1 million or
10.9% during the first quarter of 1998 compared to 1997. Other
income increased by $.2 million during the first quarter of 1998
compared to the same period in 1997.
Operating expenses increased $122.7 million or 22.4% during the
three months ended March 31, 1998 compared to the same period in
1997. Interest expense increased 4.1% as compared to the same
period in 1997.
Pretax income increased $13.1 million or 33.6% during the three
months ended March 31, 1998 compared to the same period in 1997.
The increase in total revenue, operating expenses, and pretax
income is primarily due to acquisitions and the effect of new
business gains.
Net losses from exchange and translation of foreign currencies
for the three months ended March 31, 1998 were approximately $.6
million versus $2.0 million for the same period in 1997.
The effective tax rate for the three months ended March 31, 1998
was 42.7%, as compared to 43.0% in 1997.
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.
11
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
(c) RECENT SALES OF UNREGISTERED SECURITIES
(1) On January 9, 1998, the Registrant acquired a small company,
in consideration for which the Registrant issued a total of
19,990 shares of its common stock, par value $.10 per share
("Interpublic Stock") to the former shareholder of the acquired
company. The shares of Interpublic Stock had a market value of
$1,000,000 on the date of issuance.
The shares of Interpublic 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
shareholder of the acquired company.
(2) On February 13, 1998, the Registrant acquired a company in
consideration for which it issued a total of 113,331 shares of
Interpublic Stock, to the acquired company's former shareholders.
The shares of Interpublic Stock had a market value of $6,500,000
on the date of issuance.
The shares of Interpublic 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 or sophistication of the
acquired company's former stockholders.
(3) On February 24, 1998, the Registrant acquired a company in
consideration for which it issued a total of 43,716 shares of
Interpublic Stock to the acquired company's former shareholders.
The shares of Interpublic Stock had a market value of $2,200,000
on the date of issuance.
The shares of Interpublic 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 or sophistication of the
acquired company's former stockholders.
(4) On March 23, 1998, the Registrant acquired a
company in consideration for which it issued a total of
136,148 shares of Interpublic Stock to the acquired
company's former shareholders. The shares of
Interpublic Stock had a market value of $7,500,000 on
the date of issuance.
The shares of Interpublic 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 or sophistication of the
company's former stockholders.
12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
10(a) Executive
Severance Agreement dated January 1,
1998, between The Interpublic Group
of Companies, Inc. ("Interpublic")
and Eugene P. Beard.
Exhibit
10(b) Executive
Severance Agreement dated January 1,
1998, by and between Interpublic and
John J. Dooner, Jr.
Exhibit
10(c) Executive
Severance Agreement dated January 1,
1998, by and between Interpublic and
Philip H. Geier, Jr.
Exhibit
10(d) Supplemental
Agreement made as of March 1, 1998,
by and between Interpublic and Philip
H. Geier, Jr.
Exhibit
10(e) Supplemental
Agreement dated as of March 1, 1998,
by and between Interpublic and Frank
B. Lowe.
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The following report on Form 8-K was filed without
financial statements during the quarter ended
March 31, 1998:
Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated January 6, 1998.
13
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 15, 1998 BY /S/ EUGENE P. BEARD
Eugene P. Beard
Vice Chairman -
Finance and Operations
Date: May 15, 1998 BY /S/ JOSEPH M. STUDLEY
Joseph M. Studley
Chief Accounting Officer
14
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 10(a) Executive Severance Agreement dated January
1, 1998, between The Interpublic Group of
Companies, Inc. ("Interpublic") and Eugene P.
Beard.
Exhibit 10(b) Executive Severance Agreement dated January
1, 1998, by and between Interpublic and John
J. Dooner, Jr.
Exhibit 10(c) Executive Severance Agreement dated January
1, 1998, by and between Interpublic and
Philip H. Geier, Jr.
Exhibit 10(d) Supplemental Agreement made as of March 1,
1998, by and between Interpublic and Philip
H. Geier, Jr.
Exhibit 10(e) Supplemental Agreement dated as of March 1,
1998, by and between Interpublic and Frank B.
Lowe.
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
15