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SEC Filings

10-Q
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-Q on 10/26/2017
Entire Document
 

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


Operating income increased during the first nine months of 2017 when compared to the first nine months of 2016, comprised of a decrease in revenue of $53.0, as discussed above, a decrease in office and general expenses of $35.0 and a decrease in salaries and related expenses of $20.2. The decreases in office and general and salaries and related expenses were primarily driven by factors similar to those noted above for the third quarter of 2017.
CORPORATE AND OTHER
Certain corporate and other charges are reported as separate line items within total segment operating income (loss) and include corporate office expenses, as well as shared service center and certain other centrally managed expenses that are not fully allocated to operating divisions. Salaries and related expenses include salaries, long-term incentives, annual bonuses and other miscellaneous benefits for corporate office employees. Office and general expenses primarily include professional fees related to internal control compliance, financial statement audits and legal, information technology and other consulting services that are engaged and managed through the corporate office. Office and general expenses also include rental expense and depreciation of leasehold improvements for properties occupied by corporate office employees. A portion of centrally managed expenses are allocated to operating divisions based on a formula that uses the planned revenues of each of the operating units. Amounts allocated also include specific charges for information technology-related projects, which are allocated based on utilization.
Corporate and other expenses decreased during the third quarter of 2017 by $16.0 to $14.9 compared to the third quarter of 2016, primarily due to lower incentive expense. During the first nine months of 2017, corporate and other expenses decreased by $19.8 to $74.2 compared to the first nine months of 2016, also primarily due to lower incentive expense.

LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW OVERVIEW
The following tables summarize key financial data relating to our liquidity, capital resources and uses of capital.
 
Nine months ended
September 30,
Cash Flow Data
2017
 
2016
Net income, adjusted to reconcile to net cash used in operating activities 1
$
494.9

 
$
538.4

Net cash used in working capital 2
(612.5
)
 
(491.8
)
Changes in other non-current assets and liabilities using cash
(21.4
)
 
(73.5
)
Net cash used in operating activities
$
(139.0
)
 
$
(26.9
)
Net cash used in investing activities
$
(140.5
)
 
$
(167.5
)
Net cash used in financing activities
$
(113.1
)
 
$
(466.9
)
 
1
Reflects net income adjusted primarily for depreciation and amortization of fixed assets and intangible assets, amortization of restricted stock and other non-cash compensation, net losses on sales of businesses and deferred income taxes.
2
Reflects changes in accounts receivable, expenditures billable to clients, other current assets, accounts payable and accrued liabilities.
Operating Activities
Net cash used in operating activities during the first nine months of 2017 was $139.0, which was an increase of $112.1 as compared to the first nine months of 2016 driven by higher use of cash in working capital. Working capital in the first nine months of 2016 benefited from the spending patterns of our clients compared to the first nine months of 2017. Due to the seasonality of our business, we typically use cash from working capital in the first nine months of a year, with the largest impact in the first quarter, and generate cash from working capital in the fourth quarter of a year. The working capital use in the first nine months of 2017 was primarily attributable to our media businesses.
The timing of media buying on behalf of our clients across various countries affects our working capital and operating cash flow and can be volatile. In most of our businesses, our agencies enter into commitments to pay production and media costs on behalf of clients. To the extent possible, we pay production and media charges after we have received funds from our clients. The amounts involved substantially exceed our revenues and primarily affect the level of accounts receivable, expenditures billable to clients, accounts payable and accrued liabilities. Our assets include both cash received and accounts receivable from clients for these pass-through arrangements, while our liabilities include amounts owed on behalf of clients to media and production suppliers.

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