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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, 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 April 30,
1997: 82,097,787 shares.
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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, 1997 and
December 31, 1996 3-4
Consolidated Income Statement
Three months ended March 31, 1997
and 1996 5
Consolidated Statement of Cash Flows
Three months ended March 31, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Computation of Earnings Per Share 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX TO EXHIBITS 13
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,
1997 1996
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1997-$93,109;
1996-$83,680) $ 411,614 $ 468,526
Marketable securities, at cost which
approximates market 34,074 35,408
Receivables (less allowance for doubtful
accounts: 1997-$33,082; 1996-$33,301) 2,638,123 2,646,259
Expenditures billable to clients 145,100 130,185
Prepaid expenses and other current assets 84,858 73,081
Total current assets 3,313,769 3,353,459
Other Assets:
Investment in unconsolidated affiliates 103,690 102,711
Deferred taxes on income 74,966 79,371
Other investments and miscellaneous assets 167,479 173,308
Total other assets 346,135 355,390
Fixed Assets, at cost:
Land and buildings 82,136 82,332
Furniture and equipment 416,333 413,029
498,469 495,361
Less accumulated depreciation 282,068 276,448
216,401 218,913
Unamortized leasehold improvements 87,031 88,045
Total fixed assets 303,432 306,958
Intangible Assets (less accumulated
amortization: 1997-$194,131;
1996-$186,189) 748,429 749,323
Total assets $4,711,765 $4,765,130
See accompanying notes to consolidated financial statements.
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PAGE
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,
1997 1996
Current Liabilities:
Payable to banks $ 306,528 $ 121,655
Accounts payable 2,504,277 2,626,695
Accrued expenses 273,732 317,157
Accrued income taxes 112,317 133,522
Total current liabilities 3,196,854 3,199,029
Noncurrent Liabilities:
Long-term debt 230,423 231,760
Convertible subordinated debentures 115,929 115,192
Deferred compensation and reserve
for termination liabilities 200,896 210,670
Accrued postretirement benefits 46,702 46,726
Other noncurrent liabilities 60,736 66,457
Minority interests in consolidated
subsidiaries 24,819 23,281
Total noncurrent liabilities 679,505 694,086
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:
1997 - 91,483,959
1996 - 90,940,361 9,148 9,094
Additional paid-in capital 478,489 465,945
Retained earnings 868,521 859,660
Adjustment for minimum pension
liability (12,979) (12,979)
Cumulative translation adjustments (117,796) (82,978)
1,225,383 1,238,742
Less:
Treasury stock, at cost:
1997 - 9,920,250 shares
1996 - 9,808,095 shares 339,834 319,377
Unamortized expense of restricted
stock grants 50,143 47,350
Total stockholders' equity 835,406 872,015
Total liabilities and stockholders'
equity $4,711,765 $4,765,130
See accompanying notes to consolidated financial statements.
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PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31
(Dollars in Thousands Except Per Share Data)
1997 1996
Revenue $583,398 $ 492,209
Other income 13,840 13,951
Gross income 597,238 506,160
Costs and expenses:
Operating expenses 548,013 466,109
Interest 10,266 9,525
Total costs and expenses 558,279 475,634
Income before provision for income taxes 38,959 30,526
Provision for income taxes 16,763 13,126
Income of consolidated companies 22,196 17,400
Income applicable to minority
interests (3,356) (1,828)
Equity in net income of unconsolidated
affiliates 3,195 2,260
Net income $ 22,035 $ 17,832
Weighted average number of common shares 81,293,374 79,252,013
Earnings per common and common equivalent
share $ .27 $ .23
Cash dividends per common share $ .17 $ .155
See accompanying notes to consolidated financial statements.
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PAGE
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: 1997 1996
Net income $ 22,035 $ 17,832
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization of fixed assets 17,406 13,127
Amortization of intangible assets 7,942 6,383
Amortization of restricted stock awards 3,733 4,025
Equity in net income of unconsolidated
affiliates (3,195) (2,260)
Income applicable to minority interests 3,356 1,828
Translation losses 873 560
Other (6,256) (5,438)
Changes in assets and liabilities, net of acquisitions:
Receivables 24,942 201,093
Expenditures billable to clients (17,231) (27,594)
Prepaid expenses and other assets (11,878) (9,331)
Accounts payable and accrued expenses (175,686) (213,114)
Accrued income taxes (21,975) 1,541
Deferred income taxes (242) (7,183)
Deferred compensation and reserve for termination
liabilities (7,644) (8,294)
Net cash used in operating activities (163,820) (26,825)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (12,605) (9,589)
Proceeds from sale of investments 101 177
Capital expenditures (16,609) (14,251)
Net (purchases) of marketable securities (1,467) (6,897)
Other investments and miscellaneous assets (2,236) (2,350)
Unconsolidated affiliates 2,000 (5,998)
Net cash used in investing activities (30,816) (38,908)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 185,924 921
Proceeds from long-term debt 1,047 25,000
Payments of debt (245) (13,487)
Treasury stock acquired (34,061) (30,180)
Issuance of common stock 11,048 5,542
Cash dividends (13,464) (11,916)
Net cash provided by/(used in)financing activities 150,249 (24,120)
Effect of exchange rates on cash and cash
equivalents (12,525) (5,721)
Decrease in cash and cash equivalents (56,912) (95,574)
Cash and cash equivalents at beginning of year 468,526 418,448
Cash and cash equivalents at end of period $411,614 $322,874
See accompanying notes to consolidated financial statements.
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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
March 31, 1997, the consolidated income statements for the three
months ended March 31, 1997 and 1996 and the consolidated statement of
cash flows for the three months ended March 31, 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 March 31, 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's") 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
$33.0 million and $12.5 million in the first three months of 1997 and
1996, respectively. Interest payments during the first three months
of 1997 and 1996 were approximately $4.4 million and $5.9 million,
respectively.
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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
Primary 1997 1996
Net income $ 22,035 $ 17,832
Add:
Dividends paid net of related income
tax applicable to restricted stock 81 76
Net income, as adjusted $ 22,116 $ 17,908
Weighted average number of common shares
outstanding 78,936,986 76,995,040
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,356,388 2,256,973
Total 81,293,374 79,252,013
Earnings per common and common equivalent
share .27 $ .23
Three Months Ended March 31
Fully Diluted 1997 1996
Net income $ 22,035 $ 17,832
Add:
Dividends paid net of related income tax
applicable to restricted stock 91 89
Net income, as adjusted $ 22,126 $ 17,921
Weighted average number of common shares
outstanding 78,936,986 76,995,040
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,623,166 2,610,143
Total 81,560,152 79,605,183
Earnings per common and common equivalent
share $ .27 $ .23
The effect of the conversion of subordinated debentures has been
excluded as it is anti-dilutive.
8
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, 1997 was $116.9 million, a decrease of $37.5
million from December 31, 1996. The ratio of current assets to current
liabilities was approximately 1.0 to 1 at March 31, 1997.
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 1997, the Company acquired 690,818 shares of its own stock for
approximately $34.1 million for the purpose of fulfilling the Company's
obligations under its various compensation plans.
9
PAGE
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Total revenue for the three months ended March 31, 1997 increased $91.2
million, or 18.5%, to $583.4 million compared to the same period in 1996.
Domestic revenue increased $68.0 million or 34.9% from 1996 levels.
Foreign revenue increased $23.2 million or 7.8% during the first quarter of
1997 compared to 1996. Other income decreased by $.1 million during the
first quarter of 1997 compared to the same period in 1996.
Operating expenses increased $81.9 million or 17.6% during the three months
ended March 31, 1997 compared to the same period in 1996. Interest expense
increased 7.8% as compared to the same period in 1996.
Pretax income increased $8.4 million or 27.6% during the three months ended
March 31, 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 losses from exchange and translation of foreign currencies for the
three months ended March 31, 1997 were approximately $1.8 million versus
$.5 million for the same period in 1996.
The effective tax rate for the three months ended March 31, 1997 and 1996
was 43.0%.
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.
10
PAGE
PART II - OTHER INFORMATION
Item 2. Changes In Securities
(c) Recent Sales In Unregistered Securities
On February 28, 1997, the Registrant acquired a
small company in consideration for which it issued a
total of 211,555 shares of Common Stock, par value $.10
per share, to the company's former shareholders. The
shares of Common Stock have a market value of
$10,710,000 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, based on the accredited investor status or
sophistication of the company's former stockholders.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
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
March 31, 1997:
1) Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated January 10, 1997.
2) Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated March 10, 1997.
3) Item 9 - Sale of Equity Securities Pursuant to
Regulation S, dated March 10, 1997.
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PAGE
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 14, 1997 By /S/ Philip H. Geier, Jr.
Philip H. Geier, Jr.
Chairman of the Board
President and Chief Executive
Officer
Date: May 14, 1997 By /S/ Eugene P. Beard
Eugene P. Beard
Vice Chairman-Finance
and Operations
12
INDEX TO EXHIBITS
Exhibit No. Description
Exhibit 11 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
13