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 June 30, 1996 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 July 31, 1995: 90,578,140 shares. PAGE
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 June 30, 1996 and December 31, 1995 3-4 Consolidated Income Statement Three months ended June 30, 1996 and 1995 5 Consolidated Income Statement Six months ended June 30, 1996 and 1995 6 Consolidated Statement of Cash Flows Six months ended June 30, 1996 and 1995 7 Notes to Consolidated Financial Statements 8 Computation of Earnings Per Share 9 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 13 PART II. OTHER INFORMATION Item 4. Submission of matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 INDEX TO EXHIBITS 17 2
PART I - FINANCIAL INFORMATION THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in Thousands) ASSETS JUNE 30, DECEMBER 31, 1996 1995 Current Assets: Cash and cash equivalents (includes certificates of deposit: 1996-$92,860; 1995-$114,182) $ 415,898 $ 418,448 Marketable securities, at cost which approximates market 41,502 38,926 Receivables (less allowance for doubtful accounts: 1996-$24,246; 1995-$21,941) 2,467,895 2,320,248 Expenditures billable to clients 142,913 108,165 Prepaid expenses and other current assets 91,056 88,611 Total current assets 3,159,264 2,974,398 Other Assets: Investment in unconsolidated affiliates 96,498 119,473 Deferred taxes on income 101,653 103,497 Other investments and miscellaneous assets 172,683 144,963 Total other assets 370,834 367,933 Fixed Assets, at cost: Land and buildings 75,279 76,813 Furniture and equipment 386,487 360,653 461,766 437,466 Less accumulated depreciation 255,199 240,274 206,567 197,192 Unamortized leasehold improvements 83,273 82,075 Total fixed assets 289,840 279,267 Intangible Assets (less accumulated amortization: 1996-$176,039; 1995-$157,673) 690,749 638,168 Total assets $4,510,687 $4,259,766 See accompanying notes to consolidated financial statements. 3 PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in Thousands Except Per Share Data) LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, DECEMBER 31, 1996 1995 Current Liabilities: Payable to banks $ 178,082 $ 162,524 Accounts payable 2,455,293 2,291,208 Accrued expenses 219,346 256,408 Accrued income taxes 148,023 116,557 Total current liabilities 3,000,744 2,826,697 Noncurrent Liabilities: Long-term debt 192,911 170,262 Convertible subordinated debentures 114,651 113,235 Deferred compensation and reserve for termination liabilities 229,082 235,325 Accrued postretirement benefits 47,680 46,461 Other noncurrent liabilities 95,621 102,909 Minority interests in consolidated subsidiaries 18,946 15,171 Total noncurrent liabilities 698,891 683,363 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: 1996 - 90,393,121 1995 - 89,630,568 9,039 8,963 Additional paid-in capital 457,440 446,931 Retained earnings 782,807 704,946 Adjustment for minimum pension liability (9,088) (9,088) Cumulative translation adjustments (99,822) (93,436) 1,140,376 1,058,316 Less: Treasury stock, at cost: 1996 - 9,086,595 shares 1995 - 10,002,567 shares 283,519 268,946 Unamortized expense of restricted stock grants 45,805 39,664 Total stockholders' equity 811,052 749,706 Total liabilities and stockholders' equity $4,510,687 $4,259,766 See accompanying notes to consolidated financial statements.
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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT THREE MONTHS ENDED JUNE 30 (Dollars in Thousands Except Per Share Data) 1996 1995 Revenue $ 631,585 $ 534,427 Other income 43,760 22,727 Gross income 675,345 557,154 Costs and expenses: Operating expenses 521,568 435,588 Interest 9,665 9,803 Total costs and expenses 531,233 445,391 Income before provision for income taxes 144,112 111,763 Provision for income taxes: United States - federal 25,971 16,960 - state and local 5,714 7,058 Foreign 29,563 23,372 Total provision for income taxes 61,248 47,390 Income of consolidated companies 82,864 64,373 Loss applicable to minority interests (3,017) (2,083) Equity in net income of unconsolidated affiliates 3,081 1,478 Net income $ 82,928 $ 63,768 Weighted average number of common shares 79,772,757 78,106,874 Earnings per common and common equivalent share $ 1.04 $ .82 Cash dividends per common share $ .170 $ .155 See accompanying notes to consolidated financial statements. 5 PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT SIX MONTHS ENDED JUNE 30 (Dollars in Thousands Except Per Share Data) 1996 1995 Revenue $ 1,123,793 $ 981,863 Other income 57,711 35,711 Gross income 1,181,504 1,017,574 Costs and expenses: Operating expenses 987,677 861,180 Interest 19,190 17,730 Total costs and expenses 1,006,867 878,910 Income before provision for income taxes 174,637 138,664 Provision for income taxes: United States - federal 34,389 22,901 - state and local 7,798 9,618 Foreign 32,187 26,438 Total provision for income taxes 74,374 58,957 Income of consolidated companies 100,263 79,707 Loss applicable to minority interests (4,845) (2,871) Equity in net income of unconsolidated affiliates 5,341 2,108 Net income $ 100,759 $ 78,944 Weighted average number of common shares 79,537,347 77,836,723 Earnings per common and common equivalent share $ 1.27 $ 1.02 Cash dividends per common share $ .325 $ .295 See accompanying notes to consolidated financial statements. 6 PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30 (Dollars in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 Net income $100,759 $ 78,944 Adjustments to reconcile net income to cash provided by/(used in) operating activities: Depreciation and amortization of fixed assets 28,311 26,813 Amortization of intangible assets 13,366 12,960 Amortization of restricted stock awards 7,188 6,788 Equity in net income of unconsolidated affiliates (5,341) (2,108) Income applicable to minority interests 4,845 2,871 Translation losses 1,100 1,733 Net gain from sale of investments (8,100) - Other (2,827) (5,999) Changes in assets and liabilities, net of acquisitions: Receivables (95,395) (11,061) Expenditures billable to clients (31,598) (34,083) Prepaid expenses and other assets (11,067) (17,322) Accounts payable and accrued expenses 68,929 (126,262) Accrued income taxes 25,737 19,064 Deferred income taxes (5,856) (3,133) Deferred compensation and reserve for termination allowances (4,347) 1,369 Net cash provided by/(used in) operating activities 85,704 (49,426) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions (41,603) (31,230) Proceeds from sale of investments 37,578 - Capital expenditures (33,494) (29,109) Net purchases of marketable securities (4,844) (8,080) Other investments and miscellaneous assets (19,893) (2,583) Investments in unconsolidated affiliates (6,278) (9,315) Net cash used in investing activities (68,534) (80,317) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 33,061 8,193 Proceeds from long-term debt 25,000 40,000 Payments of long-term debt (13,618) (13,637) Treasury stock acquired (41,433) (28,089) Issuance of common stock 10,763 23,035 Cash dividends (24,995) (22,430) Net cash (used in)/provided by financing activities (11,222) 7,072 Effect of exchange rates on cash and cash equivalents (8,498) 13,343 Decrease in cash and cash equivalents (2,550) (109,328) Cash and cash equivalents at beginning of year 418,448 413,709 Cash and cash equivalents at end of period $415,898 $304,381 See accompanying notes to consolidated financial statements. 7 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 June 30, 1996, the consolidated statements of income for the three months and six months ended June 30, 1996 and 1995 and the consolidated statement of cash flows for the six months ended June 30, 1996 and 1995, contain all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 1996 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") December 31, 1995 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 $37.9 million and $40.3 million in the first six months of 1996 and 1995, respectively. Interest payments during the first six months of 1996 were approximately $9.9 million. Interest payments during the comparable period of 1995 were approximately $12.4 million. 8 PAGE
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 June 30 Primary 1996 1995 Net income $ 82,928 $ 63,768 Add: Dividends paid net of related income tax applicable to restricted stock 95 113 Net income, as adjusted $ 83,023 $ 63,881 Weighted average number of common shares outstanding 77,270,126 75,745,842 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,502,631 2,361,032 Total 79,772,757 78,106,874 Earnings per common and common equivalent share $ 1.04 $ .82 Three Months Ended June 30 Fully Diluted 1996 1995 Net income $ 82,928 $ 63,768 Add: After tax interest savings on assumed conversion of subordinated debentures 1,602 1,527 Dividends paid net of related income tax applicable to restricted stock 98 114 Net income, as adjusted $ 84,628 $ 65,409 Weighted average number of common shares outstanding 77,270,126 75,745,842 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,534,103 2,397,631 Assumed conversion of subordinated debentures 3,002,130 3,002,130 Total 82,806,359 81,145,603 Earnings per common and common equivalent share $ 1.02 $ .81 9 PAGE
Exhibit 11 THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Dollars in Thousands Except Per Share Data) Six Months Ended June 30 Primary 1996 1995 Net income before effect of accounting change $ 100,759 $ 78,944 Add: Dividends paid net of related income tax applicable to restricted stock 175 205 Net income, as adjusted $ 100,934 $ 79,149 Weighted average number of common shares outstanding 77,132,583 75,520,732 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,404,764 2,315,991 Total 79,537,347 77,836,723 Earnings per common and common equivalent share $ 1.27 $ 1.02 Six Months Ended June 30 Fully Diluted 1996 1995 Net income before effect of accounting change $ 100,759 $ 78,944 Add: After tax interest savings on assumed conversion of subordinated debentures 3,165 3,054 Dividends paid net of related income tax applicable to restricted stock 192 221 Net income, as adjusted $ 104,116 $ 82,219 Weighted average number of common shares outstanding 77,132,583 75,520,732 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,604,223 2,533,231 Assumed conversion of subordinated debentures 3,002,130 3,002,130 Total 82,738,936 81,056,093 Earnings per common and common equivalent share $ 1.26 $ 1.01 10 PAGE
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 June 30, 1996 was $158.5 million, an increase of $10.8 million from December 31, 1995. The ratio of current assets to current liabilities remained relatively unchanged from December 31, 1995 at approximately 1.1 to 1. In June 1996, the Company issued 1,824,609 shares (or approximately $84.8 million) of the Company's common stock in exchange for all the issued and outstanding stock of DraftDirect Worldwide, Inc. The acquisition was accounted for as a pooling of interest; however, the Company's financial statements were not restated for the prior periods as the Company's consolidated results would not have changed significantly. 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 six months of 1996, the Company acquired 933,833 shares of its own stock for approximately $41.4 million for the purposes of fulfilling the Company's obligations under its various compensation plans. 11 PAGE
RESULTS OF OPERATIONS Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Total revenue for the three months ended June 30, 1996 increased $97.2 million, or 18.2%, to $631.6 million compared to the same period in 1995. Domestic revenue increased $78.8 million or 42.8% from 1995 levels. Foreign revenue increased $18.4 million or 5.2% during the second quarter of 1996 compared to 1995. Other income increased by $21.0 million during the second quarter of 1996 compared to the same period in 1995. The increase in other income is primarily from the proceeds resulting from the sale of a portion of the Company's interest in the CKS Group, Inc. The net gain was approximately $8.1 million or $.10 per share. Operating expenses increased $86.0 million or 19.7% during the three months ended June 30, 1996 compared to the same period in 1995. Interest expense decreased 1.4% as compared to the same period in 1995. Pretax income increased $32.3 million or 28.9% during the three months ended June 30, 1996 compared to the same period in 1995. 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 June 30, 1996 were approximately $.5 million versus $1.1 million for the same period in 1995. The decrease in the quarter ended June 30, 1996 is primarily due to decreased translation losses in Brazil. The effective tax rate for the three months ended June 30, 1996 was 42.5%, as compared to 42.4% in 1995. 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. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Total revenue for the six months ended June 30, 1996 increased $141.9 million, or 14.5%, to $1,123.8 million compared to the same period in 1995. Domestic revenue increased $108.6 million or 31.1% from 1995 levels. Foreign revenue increased $33.4 million or 5.3% during the first six months of 1996 compared to 1995. Other income increased $22.0 million in the first six months of 1996 compared to the same period in 1995. The increase in other income is primarily from the proceeds resulting from the sale of a portion of the Company's interest in the CKS Group, Inc. The net gain was approximately $8.1 million or $.10 per share. Operating expenses increased $126.5 million or 14.7% during the six months ended June 30, 1996 compared to the same period in 1995. Interest expense increased 8.2% during the six months ended June 30, 1996 as compared to the same six month period in 1995. Pretax income increased $36.0 million or 25.9% during the six months ended June 30, 1996 compared to the same period in 1995. 12 PAGE
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 six months ended June 30, 1996 were approximately $1.0 million versus $1.8 million for the same period in 1995. The decrease for the six months ended June 30, 1996 is primarily due to decreased translation losses in Brazil. The effective tax rate for the six months ended June 30, 1996 was 42.6%, as compared to 42.5% in 1995. 13
PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) This item is answered in respect of the Annual Meeting of Stockholders held May 20, 1996. (b) No response is required to Paragraph (b) because (i) proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; (ii) there was no solicitationin opposition to Management's nominees as listed in the proxy statement; and (iii) all such nominees were elected. (c) At the Annual Meeting, the following number of shares were cast with respect to each matter voted upon: -- Proposal to approve Management's nominees for director as follows: BROKER NOMINEE FOR WITHHELD NONVOTES Eugene P. Beard 65,117,053 218,973 0 Frank J. Borelli 65,126,367 209,659 0 John J. Dooner, Jr. 65,115,663 220,363 0 Philip H. Geier, Jr. 65,120,648 215,378 0 Frank B. Lowe 65,112,472 223,554 0 Leif H. Olsen 65,106,670 229,356 0 Martin F. Puris 65,118,330 217,696 0 Allen Questrom 65,111,049 224,977 0 J. Phillip Samper 65,118,410 217,616 0 Joseph J. Sisco 65,070,282 265,744 0 -- Proposal to approve the Company's 1996 Stock Incentive Plan. Broker For Against Abstain Nonvotes 36,789,809 21,330,100 642,460 6,573,657 -- Proposal to approve Amendments to the Company's Outside Directors' Stock Option. Broker For Against Abstain Nonvotes 47,958,564 10,153,905 649,900 6,573,657
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-- Proposal to approve confirmation of independent accountants. Broker For Against Abstain Nonvotes 65,198,989 61,669 75,368 0 -- Stockholder proposed resolution regarding implementation of the Mac Bride Principles with respect to the Company's subsidiary in Northern Ireland. Broker For Against Abstain Nonvotes 6,406,527 46,800,233 5,171,991 6,957,275 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10(a) 1996 Stock Incentive Plan. Exhibit 10(b) The Interpublic Outside Directors' Stock Incentive Plan (formerly named The Interpublic Outside Directors' Stock Option Plan). Exhibit 10(c) Credit Agreement, dated as of June 25, 1996, between the Interpublic Group of Comapnies, Inc. ("Interpublic") and Chemical Bank. Exhibit 10(d) Promissory Note, dated June 25, 1996 and executed by the Interpublic. Exhibit 10(e) Money Market Note, dated June 25, 1996 and executed by Interpublic. Exhibit 10(f) Promissory Note, dated June 25, 1996 and executed by DraftDirect Worldwide, Inc. Exhibit 10(g) Guaranty, dated June 25, 1996 and executed by Interpublic. Exhibit 11 Computation of Earnings Per Share. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1996. 15 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: August 14, 1996 By /S/ Eugene P. Beard Eugene P. Beard Vice Chairman - Finance and Operations Date: August 14, 1996 By /S/ Joseph M. Studley Joseph M. Studley Vice President & Controller - Chief Accounting Officer 16 PAGE
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES INDEX TO EXHIBITS Exhibit No. Description Exhibit 10(a) 1996 Stock Incentive Plan. Exhibit 10(b) The Interpublic Outside Directors' Stock Incentive Plan (formerly named The Interpublic Outside Directors' Stock Option Plan). Exhibit 10(c) Credit Agreement, dated as of June 25, 1996, between the Interpublic Group of Companies, Inc. ("Interpublic") and Chemical Bank. Exhibit 10(d) Promissory Note, dated June 25, 1996 and executed by the Interpublic. Exhibit 10(e) Money Market Note, dated June 25, 1996 and executed by Interpublic. Exhibit 10(f) Promissory Note, dated June 25, 1996 and executed by DraftDirect Worldwide, Inc. Exhibit 10(g) Guaranty, dated June 25, 1996 and executed by Interpublic. Exhibit 11 Computation of Earnings Per Share. Exhibit 27 Financial Data Schedule. 17