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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, 1994
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 29, 1994: 75,279,754
shares.
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, 1994 (Unaudited) and
December 31, 1993 3-4
Consolidated Income Statement
Three months ended March 31, 1994
and 1993 (Unaudited) 5
Consolidated Statement of Cash Flows
Three months ended March 31, 1994
and 1993 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
Computation of Earnings Per Share
(Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX TO EXHIBITS 13
2
PART 1 - FINANCIAL INFORMATION
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
MARCH 31, DECEMBER 31,
1994 1993
(UNAUDITED)
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1994-$83,999;
1993-$94,451) $ 251,710 $ 292,268
Marketable securities, at cost which
approximates market 33,780 30,106
Receivables (less allowance for doubtful
accounts: 1994-$15,355; 1993-$16,834) 1,429,355 1,525,717
Expenditures billable to clients 122,691 100,230
Prepaid expenses and other current assets 65,440 54,835
Total current assets 1,902,976 2,003,156
Other Assets:
Investment in unconsolidated affiliates 30,007 28,182
Deferred taxes on income 58,661 38,570
Other investments and miscellaneous assets 90,156 92,048
Total other assets 178,824 158,800
Fixed Assets, at cost:
Land and buildings 66,965 65,327
Furniture and equipment 276,070 268,387
343,035 333,714
Less accumulated depreciation 176,272 170,998
166,763 162,716
Unamortized leasehold improvements 51,994 53,975
Total fixed assets 218,757 216,691
Intangible Assets (less accumulated
amortization: 1994-$117,159;
1993-$111,710) 504,631 491,170
Total assets $2,805,188 $2,869,817
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,
1994 1993
(UNAUDITED)
Current Liabilities:
Payable to banks $ 170,032 $ 147,075
Accounts payable 1,335,928 1,428,442
Accrued expenses 188,593 183,501
Accrued income taxes 62,504 76,963
Total current liabilities 1,757,057 1,835,981
Noncurrent Liabilities:
Long-term debt 113,265 118,088
Convertible subordinated debentures 108,598 107,997
Deferred compensation and reserve
for termination liabilities 188,296 146,774
Accrued postretirement benefits 44,480 44,480
Other noncurrent liabilities 33,101 39,274
Minority interests in consolidated
subsidiaries 11,538 13,208
Total noncurrent liabilities 499,278 469,821
Stockholders' Equity:
Preferred Stock, no par value
shares authorized:20,000,000
shares issued:none
Common Stock, $.10 par value
shares authorized: 100,000,000
shares issued:
1994 - 86,861,732
1993 - 86,299,688 8,686 8,630
Additional paid-in capital 354,021 335,340
Retained earnings 552,350 570,267
Adjustment for minimum pension
liability (704) (704)
Cumulative translation adjustments (111,698) (116,432)
802,655 797,101
Less:
Treasury stock, at cost:
1994 - 11,613,495 shares
1993 - 11,449,031 shares 218,040 208,821
Unamortized expense of restricted
stock grants 35,762 24,265
Total stockholders' equity 548,853 564,015
Total liabilities and stockholders'
equity $2,805,188 $2,869,817
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
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
1994 1993
Revenue $ 404,313 $ 378,248
Other income 16,649 11,537
Gross Income 420,962 389,785
Costs and expenses:
Operating expenses 389,688 360,731
Interest 7,166 7,721
Total costs and expenses 396,854 368,452
Income before provision for income taxes
and effect of accounting changes 24,108 21,333
Provision for income taxes:
United States - federal 5,880 6,603
- state and local 3,134 2,060
Foreign 1,353 1,355
Total taxes 10,367 10,018
Income of consolidated companies 13,741 11,315
Income applicable to minority interests (977) (632)
Equity in net income of unconsolidated
affiliates 226 342
Income before effect of accounting changes $ 12,990 $ 11,025
Effect of accounting changes:
Postemployment benefits (21,780) -
Income taxes - (512)
Net (loss) income $ (8,790) $ 10,513
Weighted average number of common shares 75,161,764 75,554,336
Per Share Data:
Income before effect of accounting
changes .17 .15
Effect of accounting changes (.29) (.01)
Net (loss) income (.12) .14
Cash dividends per common share $ .125 $ .115
See accompanying notes to consolidated financial statements.
5THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993
Net (loss) income after effect of accounting
changes $ (8,790) $ 10,513
Adjustments to reconcile net income to
cash used in operating activities:
Effect of accounting changes 21,780 512
Depreciation and amortization of fixed assets 10,041 6,862
Amortization of intangible assets 5,449 4,685
Amortization of restricted stock awards 2,095 2,564
Equity in net income of unconsolidated affiliates (226) (342)
Income applicable to minority interests 977 632
Translation losses 7,102 3,411
Other (6,031) (2,549)
Change in assets and liabilities, net of acquisitions:
Receivables 98,099 58,104
Expenditures billable to clients (21,644) (25,586)
Prepaid expenses and other assets (9,411) (4,263)
Accounts payable and accrued expenses (120,384) (69,201)
Accrued income taxes (14,693) 1,767
Deferred income taxes (20,306) -
Deferred compensation and reserve for termination
allowances 36,744 (10,888)
Net cash used in operating activities (19,198) (23,779)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (3,240) -
Capital expenditures (6,900) (48,013)
Proceeds from sales of assets 121 836
Net purchases of marketable securities (2,795) 3,137
Other investments and miscellaneous assets 2,784 (2,505)
Unconsolidated affiliates (724) (1,754)
Net cash used in investing activities (10,754) (48,299)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 16,779 (21,891)
Proceeds from long-term debt - 35,280
Payments of debt (15,533) (5,000)
Treasury stock acquired (11,095) (3,952)
Issuance of Common Stock 4,802 8,614
Cash Dividends (9,127) (8,444)
Net cash (used in) provided by financing activities (14,174) 4,607
Effect of exchange rates on cash and cash
equivalents 3,568 (713)
Decrease in cash and cash equivalents (40,558) (68,184)
Cash and cash equivalents at beginning of year 292,268 255,778
Cash and cash equivalents at end of quarter $251,710 $187,594
See accompanying notes to consolidated financial statements.
6THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Consolidated Financial Statements
(a) The consolidated balance sheet as of March 31, 1994, the consolidated
statements of income and cash flows for the three months ended March 31,
1994 and 1993, are unaudited. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at March 31, 1994 and for all periods presented have been made.
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
Company's December 31, 1993 annual report to stockholders. The results
of operations for the period ended March 31, 1994 are not necessarily
indicative of the operating results for the full year.
(b) FAS 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 $21.1 million and $9.5 million in the first three months
of 1994 and 1993, respectively. Interest payments during the first
three months of 1994 were approximately $5.5 million. Interest payments
in 1993 were not materially different from interest expense.
Effective January 1, 1993, the Company adopted FAS 109 "Accounting for
Income Taxes" and recorded a one-time charge of $512,000. This
statement requires the use of the liability method of accounting for
deferred income taxes.
Effective January 1, 1994, the Company adopted FAS 112 "Employers'
Accounting for Postemployment Benefits" and recorded a one-time pre-tax
charge of $39.6 million or $21.8 million after-tax. As of March 31,
1994, deferred compensation and reserve for termination allowances
includes approximately $76 million of postemployment benefits.
7
Exhibit
11
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
Three Months Ended March 31
Primary 1994 1993
Net income before effect of accounting
changes $ 12,990 $ 11,025
Effect of accounting changes (21,780) (512)
Add:
Dividends paid net of related income tax
applicable to restricted stock 80 97
Net (loss) income, as adjusted $ (8,710) $ 10,610
Weighted average number of common shares
outstanding 72,880,606 72,652,923
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,281,158 2,901,413
Total 75,161,764 75,554,336
Per share data:
Income before effect of accounting
changes .17 .15
Effect of accounting changes (.29) (.01)
Net (loss) income $ (.12) $ .14
Three Months Ended March 31
Fully Diluted 1994 1993
Net income before effect of accounting
changes $ 12,990 $ 11,025
Effect of accounting changes (21,780) (512)
Add:
Dividends paid net of related income tax
applicable to restricted stock 83 99
Net (loss) income, as adjusted $ (8,707) $ 10,612
Weighted average number of common shares
outstanding 72,880,606 72,652,923
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 2,316,327 2,938,123
Total 75,196,933 75,591,046
Per share data:
Income before effect of accounting
changes .17 .15
Effect of accounting changes (.29) (.01)
Net (loss) income $ (.12) $ .14
The effect of the conversion of subordinated debentures has been
excluded as it is anti-dilutive.
8THE 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, 1994 was $145.9 million, a decrease of $21.3
million from December 31, 1993. The ratio of current assets to current
liabilities remained relatively unchanged from December 31, 1993 at
approximately 1.1 to 1.
In March 1993, the company purchased a building and land in Frankfurt,
Germany to be used by the local office of McCann-Erickson, a subsidiary of
the Company. The purchase price was approximately $41.5 million, of which
$35.2 was financed at a rate of 7.6%, due in 2003.
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 three months of 1994, the Company
acquired 351,355 shares of its own stock for approximately $11.1 million for
the purposes of fulfilling the Company's obligations under its various
compensation plans.
9
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 Compared to Three Months Ended March 31,
1993
Total revenue for the three months ended March 31, 1994 increased $26.1
million, or 7.0%, to $404 million compared to the same period in 1993. The
U.S. dollar was considerably stronger during the first quarter of 1994 as
compared to 1993, which had a negative impact on revenue of $6.6 million.
Domestic revenue increased 22.4% from 1993 levels. Foreign revenue decreased
.8% during the first quarter of 1994 compared to 1993. Excluding the
unfavorable foreign exchange effects discussed above, worldwide revenue would
have shown an increase of about $32.7 million or 8.4% over 1993. Other
income increased by $5.1 million during the first quarter of 1994.
Operating expenses increased $29.0 million or 8.0% during the three months
ended March 31, 1994 compared to the same period in 1993. Interest expense
decreased $0.6 million during the three months ended March 31, 1994 as
compared to the same period in 1993.
Net losses from exchange and translation of foreign currencies for the three
months ended March 31, 1994 were approximately $5.6 million versus $3.4
million for the same period in 1993. The increase in 1994 is primarily due
to increased exchange losses in Brazil.
The effective tax rate for the three months ended March 31, 1994 was 43.0%,
as compared to 47.0% in 1993. The decrease in the effective tax rate is
mainly due to the geographic mix of earnings.
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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in Haight et. al.
v. The American Tobacco Company et. al., the case wherein
several tobacco companies and their advertising agencies
are defendants, since the description of this case in the
Company's report on Form 10-K for the year ended December
31, 1993.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
11
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 13, 1994 By /S/ Philip H. Geier
Philip H. Geier
Chairman of the Board,
President and Chief
Executive Officer
Date: May 13, 1994 By /S/ Eugene P. Beard
Eugene P. Beard
Executive Vice President -
Finance and Operations,
Chief Financial Officer
12
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
INDEX TO EXHIBITS
The following exhibits are found where indicated in the sequential
numbering system in this report on Form 10-Q filed with the
Securities and Exchange Commission.
Sequential
Exhibit No. Description Page No.
11 Computation of Earnings Per Share. 8
13