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ipg-20200930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-6686

https://cdn.kscope.io/3af2fe8494aa94b551773a0dc4c58f3c-ipg-20200930_g1.jpg

THE INTERPUBLIC GROUP OF COMPANIES, INC.

(Exact name of registrant as specified in its charter)


Delaware						13-1024020
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

909 Third Avenue, New York, New York 10022

(Address of principal executive offices) (Zip Code)

(212)704-1200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	IPG	The New York Stock Exchange

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The number of shares of the registrant’s common stock outstanding as of October 15, 2020 was 390,034,693.

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019

Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

INDEX TO EXHIBITS

SIGNATURES

INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE

This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or comparable terminology are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:

•the effects of a challenging economy on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;

•the outbreak of the novel coronavirus (COVID-19), including the measures to contain its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties;

•our ability to attract new clients and retain existing clients;

•our ability to retain and attract key employees;

•risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;

•potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;

•risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates;

•developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world; and

•failure to realize the anticipated benefits on the acquisition of the Acxiom business.

Investors should carefully consider these factors and the additional risk factors outlined in more detail under Item 1A, Risk Factors, in our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q.

Table of Contents

PART I – FINANCIAL INFORMATION


Item 1.			Financial Statements (Unaudited)

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
REVENUE:
Net revenue	$	1,954.6	$	2,061.4	$	5,780.1	$	6,192.1
Billable expenses	170.9		376.7		730.9		1,127.4
Total revenue	2,125.5		2,438.1		6,511.0		7,319.5

OPERATING EXPENSES:
Salaries and related expenses	1,269.9		1,334.4		3,998.8		4,136.7
Office and other direct expenses	307.9		367.9		1,003.1		1,144.4
Billable expenses	170.9		376.7		730.9		1,127.4
Cost of services	1,748.7		2,079.0		5,732.8		6,408.5
Selling, general and administrative expenses	9.9		9.8		36.4		69.3
Depreciation and amortization	71.0		69.0		216.9		213.1
Restructuring charges	47.3		0.0		159.9		33.9
Total operating expenses	1,876.9		2,157.8		6,146.0		6,724.8

OPERATING INCOME	248.6		280.3		365.0		594.7

EXPENSES AND OTHER INCOME:
Interest expense	(50.8)		(49.7)		(145.4)		(151.1)
Interest income	6.1		9.5		22.7		25.0
Other expense, net	(11.3)		(7.4)		(54.6)		(18.1)
Total (expenses) and other income	(56.0)		(47.6)		(177.3)		(144.2)

Income before income taxes	192.6		232.7		187.7		450.5
(Benefit of) provision for income taxes	(86.3)		64.6		(50.1)		118.7
Income of consolidated companies	278.9		168.1		237.8		331.8
Equity in net (loss) income of unconsolidated affiliates	(0.4)		0.3		(0.6)		(0.1)
NET INCOME	278.5		168.4		237.2		331.7
Net loss (income) attributable to noncontrolling interests	1.2		(2.8)		1.6		(4.6)
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS	$	279.7	$	165.6	$	238.8	$	327.1

Earnings per share available to IPG common stockholders:
Basic	$	0.72	$	0.43	$	0.61	$	0.85
Diluted	$	0.71	$	0.42	$	0.61	$	0.84

Weighted-average number of common shares outstanding:
Basic	389.6		386.7		388.9		385.8
Diluted	393.9		391.8		392.6		390.3

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Millions)

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		2020		2019
NET INCOME	$	278.5	$	168.4	$	237.2	$	331.7

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation:
Foreign currency translation adjustments	46.5		(50.9)		(58.3)		(38.4)
Reclassification adjustments recognized in net income	9.6		(0.6)		9.3		5.2
	56.1		(51.5)		(49.0)		(33.2)
Derivative instruments:
Changes in fair value of derivative instruments	4.5		0.0		3.6		0.0
Recognition of previously unrealized losses in net income	0.6		0.6		1.8		1.8
Income tax effect	(1.3)		(0.2)		(1.4)		(0.4)
	3.8		0.4		4.0		1.4
Defined benefit pension and other postretirement plans:
Net actuarial gains for the period	0.0		0.0		2.2		0.7
Amortization of unrecognized losses, transition obligation and prior service cost included in net income	1.8		1.7		5.5		5.0

Other	0.4		(0.1)		(1.0)		0.2
Income tax effect	(0.4)		(0.2)		(1.6)		(0.4)
	1.8		1.4		5.1		5.5
Other comprehensive income (loss), net of tax	61.7		(49.7)		(39.9)		(26.3)
TOTAL COMPREHENSIVE INCOME	340.2		118.7		197.3		305.4
Less: comprehensive (loss) income attributable to noncontrolling interests	(0.8)		1.4		(3.7)		3.4
COMPREHENSIVE INCOME ATTRIBUTABLE TO IPG	$	341.0	$	117.3	$	201.0	$	302.0

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Millions)

(Unaudited)


	September 30, 2020		December 31, 2019
ASSETS:
Cash and cash equivalents	$	1,628.0	$	1,192.2
Accounts receivable, net of allowance of $90.7 and $40.2, respectively	3,297.4		5,209.2
Accounts receivable, billable to clients	1,817.2		1,934.1
Assets held for sale	20.0		22.8
Other current assets	521.7		412.4
Total current assets	7,284.3		8,770.7
Property and equipment, net of accumulated depreciation and amortization of $1,169.8 and $1,116.4, respectively	709.8		778.1
Deferred income taxes	291.4		252.1
Goodwill	4,875.4		4,894.4
Other intangible assets	949.3		1,014.3
Operating lease right-of-use assets	1,550.2		1,574.4
Other non-current assets	414.3		467.9
TOTAL ASSETS	$	16,074.7	$	17,751.9

LIABILITIES:
Accounts payable	$	5,105.9	$	7,205.4
Accrued liabilities	644.7		742.8
Contract liabilities	611.3		585.6
Short-term borrowings	46.3		52.4
Current portion of long-term debt	506.6		502.0
Current portion of operating leases	263.6		267.2
Liabilities held for sale	49.5		65.0
Total current liabilities	7,227.9		9,420.4
Long-term debt	3,411.3		2,771.9
Non-current operating leases	1,471.3		1,429.6
Deferred compensation	388.2		425.0
Other non-current liabilities	662.6		714.7
TOTAL LIABILITIES	13,161.3		14,761.6

Redeemable noncontrolling interests (see Note 5)	152.8		164.7

STOCKHOLDERS’ EQUITY:
Common stock	38.9		38.7
Additional paid-in capital	1,028.1		977.3
Retained earnings	2,623.4		2,689.9
Accumulated other comprehensive loss, net of tax	(967.8)		(930.0)


Total IPG stockholders’ equity	2,722.6		2,775.9
Noncontrolling interests	38.0		49.7
TOTAL STOCKHOLDERS’ EQUITY	2,760.6		2,825.6
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	16,074.7	$	17,751.9

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Millions)

(Unaudited)


	Nine months ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	237.2	$	331.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	216.9		213.1
Non-cash restructuring charges	95.7		11.7
Amortization of restricted stock and other non-cash compensation	56.4		58.3
Net losses on sales of businesses	51.8		19.5
Provision for uncollectible receivables	49.8		7.7
Net amortization of bond discounts and deferred financing costs	8.6		7.0
Deferred income tax	(9.4)		(1.5)
Other	20.7		(1.6)
Changes in assets and liabilities, net of acquisitions and divestitures, providing (using) cash:
Accounts receivable	1,759.9		1,010.2
Accounts receivable, billable to clients	83.0		(152.0)
Other current assets	(60.7)		(29.5)
Accounts payable	(2,014.7)		(952.7)
Accrued liabilities	(61.3)		(73.5)
Contract liabilities	34.1		37.2
Other non-current assets and liabilities	(142.9)		(62.0)
Net cash provided by operating activities	325.1		423.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(112.0)		(133.8)
Acquisitions, net of cash acquired	(2.5)		(0.6)
Other investing activities	(18.0)		13.7
Net cash used in investing activities	(132.5)		(120.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt	646.2		0.0
Net increase in short-term borrowings	1.9		173.1
Exercise of stock options	0.0		4.2
Common stock dividends	(298.6)		(272.2)
Acquisition-related payments	(40.6)		(15.3)
Tax payments for employee shares withheld	(22.2)		(22.3)
Distributions to noncontrolling interests	(13.7)		(12.4)
Repayment of long-term debt	(0.5)		(300.2)
Other financing activities	(10.2)		0.1
Net cash provided by (used in) financing activities	262.3		(445.0)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(20.3)		(11.1)
Net increase (decrease) in cash, cash equivalents and restricted cash	434.6		(153.2)
Cash, cash equivalents and restricted cash at beginning of period	1,195.7		677.2
Cash, cash equivalents and restricted cash at end of period	$	1,630.3	$	524.0

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in Millions)

(Unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax			Total IPG Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at June 30, 2020	389.6	$	38.9	$	996.3	$	2,444.3	$	(1,029.1)		$	2,450.4	$	40.7	$	2,491.1
Net income (loss)						279.7					279.7		(1.2)		278.5
Other comprehensive income								61.3			61.3		0.4		61.7
Reclassifications related to redeemable noncontrolling interests													2.9		2.9
Distributions to noncontrolling interests													(4.3)		(4.3)
Change in redemption value of redeemable noncontrolling interests						—					—				—
Common stock dividends ($0.255 per share)						(100.6)					(100.6)				(100.6)
Stock-based compensation	0.2	0.0		23.1							23.1				23.1
Exercise of stock options	0.0	0.0		0.1							0.1				0.1
Shares withheld for taxes	(0.1)	0.0		(0.2)							(0.2)				(0.2)
Other				8.8							8.8		(0.5)		8.3
Balance at September 30, 2020	389.7	$	38.9	$	1,028.1	$	2,623.4	$	(967.8)		$	2,722.6	$	38.0	$	2,760.6


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax			Total IPG Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	387.0	$	38.7	$	977.3	$	2,689.9	$	(930.0)		$	2,775.9	$	49.7	$	2,825.6
Cumulative effect of accounting change						(6.6)					(6.6)				(6.6)
Net income (loss)						238.8					238.8		(1.6)		237.2
Other comprehensive loss								(37.8)			(37.8)		(2.1)		(39.9)
Reclassifications related to redeemable noncontrolling interests													5.9		5.9
Distributions to noncontrolling interests													(13.7)		(13.7)
Change in redemption value of redeemable noncontrolling interests						3.1					3.1				3.1
Common stock dividends ($0.765 per share)						(301.8)					(301.8)				(301.8)
Stock-based compensation	3.8	0.4		63.7							64.1				64.1
Exercise of stock options	0.0	0.0		0.5							0.5				0.5
Shares withheld for taxes	(1.1)	(0.2)		(22.2)							(22.4)				(22.4)
Other				8.8							8.8		(0.2)		8.6
Balance at September 30, 2020	389.7	$	38.9	$	1,028.1	$	2,623.4	$	(967.8)		$	2,722.6	$	38.0	$	2,760.6

The accompanying notes are an integral part of these unaudited financial statements.

Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in Millions)

(Unaudited)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax			Total IPG Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at June 30, 2019	386.4	$	38.6	$	921.4	$	2,381.8	$	(917.9)		$	2,423.9	$	34.5	$	2,458.4

Net income						165.6					165.6		2.8		168.4
Other comprehensive loss								(48.3)			(48.3)		(1.4)		(49.7)
Reclassifications related to redeemable noncontrolling interests													2.4		2.4
Distributions to noncontrolling interests													(4.3)		(4.3)
Change in redemption value of redeemable noncontrolling interests						—					—				—
Common stock dividends ($0.235 per share)						(90.8)					(90.8)				(90.8)
Stock-based compensation	0.1	0.0		16.2							16.2				16.2
Exercise of stock options	0.5	0.1		3.6							3.7				3.7
Shares withheld for taxes	(0.1)	0.0		(0.2)							(0.2)				(0.2)
Other				0.0		(1.1)					(1.1)		0.1		(1.0)
Balance at September 30, 2019	386.9	$	38.7	$	941.0	$	2,455.5	$	(966.2)		$	2,469.0	$	34.1	$	2,503.1


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax			Total IPG Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2018	383.6	$	38.3	$	895.9	$	2,400.1	$	(941.1)		$	2,393.2	$	39.6	$	2,432.8
Cumulative effect of accounting change						2.2					2.2				2.2
Net income						327.1					327.1		4.6		331.7
Other comprehensive loss								(25.1)			(25.1)		(1.2)		(26.3)
Reclassifications related to redeemable noncontrolling interests													2.0		2.0
Distributions to noncontrolling interests													(12.4)		(12.4)
Change in redemption value of redeemable noncontrolling interests						1.4					1.4				1.4

Common stock dividends ($0.705 per share)						(272.2)					(272.2)				(272.2)
Stock-based compensation	3.7	0.4		64.3							64.7				64.7
Exercise of stock options	0.6	0.1		4.2							4.3				4.3
Shares withheld for taxes	(1.0)	(0.1)		(22.4)							(22.5)				(22.5)
Other				(1.0)		(3.1)					(4.1)