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SEC Filings

10-K
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-K on 02/22/2016
Entire Document
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)



The table below sets forth the financial covenants in effect as of December 31, 2015.
 
Four Quarters Ended
 
 
Four Quarters Ended
Financial Covenants
December 31, 2015
 
EBITDA Reconciliation
December 31, 2015
Interest coverage ratio (not less than) 1
5.00x
 
Operating income
$
871.9

Actual interest coverage ratio
19.06x
 
Add:
 
Leverage ratio (not greater than) 1
3.50x
 
Depreciation and amortization
227.3

Actual leverage ratio
1.60x
 
Other non-cash amounts
0.5

 
 
 
EBITDA 1
$
1,099.7

 
 
1
The interest coverage ratio is defined as EBITDA, as defined in the Credit Agreement, to net interest expense. The leverage ratio is defined as debt as of the last day of such fiscal quarter to EBITDA for the four quarters then ended.
As of December 31, 2015, we were in compliance with all of our covenants in the Credit Agreement. If we were unable to comply with our covenants in the future, we would seek an amendment or waiver from our lenders, but there is no assurance that our lenders would grant an amendment or waiver. If we were unable to obtain the necessary amendment or waiver, the credit facility could be terminated and our lenders could accelerate payments of any outstanding principal. In addition, under those circumstances we could be required to deposit funds with one of our lenders in an amount equal to any outstanding letters of credit under the credit facility.
We also have uncommitted credit facilities with various banks that permit borrowings at variable interest rates. As of December 31, 2015, there were borrowings under some of the uncommitted facilities to manage working capital needs. We have guaranteed the repayment of some of these borrowings made by certain subsidiaries. If we lose access to these credit lines, we would have to provide funding directly to some of our international operations. The weighted-average interest rate on outstanding balances under the uncommitted credit facilities as of December 31, 2015 and 2014 was approximately 3% and 5%, respectively.
Cash Pooling
We aggregate our domestic cash position on a daily basis. Outside the United States, we use cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, several IPG agencies agree with a single bank that the cash balances of any of the agencies with the bank will be subject to a full right of set-off against amounts the other agencies owe the bank, and the bank provides for overdrafts as long as the net balance for all the agencies does not exceed an agreed-upon level. Typically, each agency pays interest on outstanding overdrafts and receives interest on cash balances. Our Consolidated Balance Sheets reflect cash, net of bank overdrafts, under all of our pooling arrangements, and as of December 31, 2015 and 2014 the amounts netted were $1,608.3 and $1,590.7, respectively.

DEBT CREDIT RATINGS
Our long-term debt credit ratings as of February 16, 2016 are listed below.
 
Moody’s Investor
Service
 
Standard and
Poor’s
 
Fitch Ratings
Rating
Baa3
 
BBB-
 
BBB
Outlook
Stable
 
Stable
 
Stable
We are rated investment-grade by Moody's Investor Services ("Moody's"), Standard and Poor's and Fitch Ratings. The most recent update to our credit ratings occurred in April 2015, when Standard & Poor's changed our long-term credit rating from BB+ to BBB-. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning credit rating agency. The rating of each credit rating agency should be evaluated independently of any other rating. Credit ratings could have an impact on liquidity, either adverse or favorable, including, among other things, because they could affect funding costs in the capital markets or otherwise. For example, our Credit Agreement fees and borrowing rates are based on a credit ratings grid.

CRITICAL ACCOUNTING ESTIMATES
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of the Consolidated Financial Statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes. Our significant accounting policies are discussed in Note 1 to the Consolidated Financial Statements. We believe that of our significant accounting policies, the following critical accounting estimates involve management’s most difficult, subjective or complex judgments. We consider these accounting estimates to be critical because changes in the underlying

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