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 ended March 31, 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 April 30, 1996: 79,230,414 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, 1996 and December 31, 1995 3-4 Consolidated Income Statement Three months ended March 31, 1996 and 1995 5 Consolidated Statement of Cash Flows Three months ended March 31, 1996 and 1995 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, 1996 1995 Current Assets: Cash and cash equivalents (includes certificates of deposit: 1996-$106,717; 1995-$114,182) $ 322,874 $ 418,448 Marketable securities, at cost which approximates market 44,760 38,926 Receivables (less allowance for doubtful accounts: 1996-$22,593; 1995-$21,941) 2,078,745 2,320,248 Expenditures billable to clients 135,684 108,165 Prepaid expenses and other current assets 95,172 88,611 Total current assets 2,677,235 2,974,398 Other Assets: Investment in unconsolidated affiliates 126,766 119,473 Deferred taxes on income 100,862 103,497 Other investments and miscellaneous assets 143,604 144,963 Total other assets 371,232 367,933 Fixed Assets, at cost: Land and buildings 75,568 76,813 Furniture and equipment 369,206 360,653 444,774 437,466 Less accumulated depreciation 248,685 240,274 196,089 197,192 Unamortized leasehold improvements 83,268 82,075 Total fixed assets 279,357 279,267 Intangible Assets (less accumulated amortization: 1996-$164,056; 1995-$157,673) 655,114 638,168 Total assets $3,982,938 $4,259,766 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, 1996 1995 Current Liabilities: Payable to banks $ 148,649 $ 162,524 Accounts payable 2,064,824 2,291,208 Accrued expenses 235,095 256,408 Accrued income taxes 111,074 116,557 Total current liabilities 2,559,642 2,826,697 Noncurrent Liabilities: Long-term debt 194,086 170,262 Convertible subordinated debentures 113,923 113,235 Deferred compensation and reserve for termination allowances 228,798 235,325 Accrued postretirement benefits 47,687 46,461 Other noncurrent liabilities 92,947 102,909 Minority interests in consolidated subsidiaries 18,160 15,171 Total noncurrent liabilities 695,601 683,363 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 - 89,979,141 1995 - 89,630,568 8,998 8,963 Additional paid-in capital 460,123 446,931 Retained earnings 710,862 704,946 Adjustment for minimum pension liability (9,088) (9,088) Cumulative translation adjustments (102,200) (93,436) 1,068,695 1,058,316 Less: Treasury stock, at cost: 1996 - 10,723,107 shares 1995 - 10,002,567 shares 301,553 268,946 Unamortized expense of restricted stock grants 39,447 39,664 Total stockholders' equity 727,695 749,706 Total liabilities and stockholders' equity $3,982,938 $4,259,766 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 (Dollars in Thousands Except Per Share Data) 1996 1995 Revenue $ 492,209 $ 447,436 Other income 13,951 12,984 Gross income 506,160 460,420 Costs and expenses: Operating expenses 466,109 425,592 Interest 9,525 7,927 Total costs and expenses 475,634 433,519 Income before provision for income taxes 30,526 26,901 Provision for income taxes: United States - federal 8,418 5,941 - state and local 2,084 2,560 Foreign 2,624 3,066 Total provision for income taxes 13,126 11,567 Income of consolidated companies 17,400 15,334 Income applicable to minority interests (1,828) (788) Equity in net income of unconsolidated affiliates 2,260 630 Net income $ 17,832 $ 15,176 Weighted average number of common shares 79,252,013 77,578,599 Earnings per common and common equivalent share $ .23 $ .20 Cash dividends per common share $ .155 $ .14 See accompanying notes to consolidated financial statements 5 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: 1996 1995 Net income $ 17,832 $ 15,176 Adjustments to reconcile net income to cash used in operating activities: Depreciation and amortization of fixed assets 13,127 14,945 Amortization of intangible assets 6,383 6,578 Amortization of restricted stock awards 4,025 3,749 Equity in net income of unconsolidated affiliates (2,260) (630) Income applicable to minority interests 1,828 788 Translation losses 560 952 Other (5,438) (6,351) Changes in assets and liabilities, net of acquisitions: Receivables 201,093 221,942 Expenditures billable to clients (27,594) (4,247) Prepaid expenses and other assets (9,331) (7,588) Accounts payable and accrued expenses (213,114) (310,690) Accrued income taxes 1,541 (13,655) Deferred income taxes (7,183) (1,153) Deferred compensation and reserve for termination allowances (8,294) (838) Net cash used in operating activities (26,825) (81,022) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions (9,589) (1,661) Capital expenditures (14,251) (16,236) Proceeds from sales of assets 177 (127) Net purchases of marketable securities (6,897) (1,533) Other investments and miscellaneous assets (2,350) (2,643) Investments in unconsolidated affiliates (5,998) (5,868) Net cash used in investing activities (38,908) (28,068) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 921 7,990 Proceeds from long-term debt 25,000 15,000 Payments of long-term debt (13,487) (13,486) Treasury stock acquired (30,180) (18,303) Issuance of common stock 5,542 13,583 Cash dividends (11,916) (10,635) Net cash used in financing activities (24,120) (5,851) Effect of exchange rates on cash and cash equivalents (5,721) 12,446 Decrease in cash and cash equivalents (95,574) (102,495) Cash and cash equivalents at beginning of year 418,448 413,709 Cash and cash equivalents at end of quarter $322,874 $311,214 See accompanying notes to consolidated financial statements. 6
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, 1996, the consolidated income statements for the three months ended March 31, 1996 and 1995 and the consolidated statement of cash flows for the three months ended March 31, 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 March 31, 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's") 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 $12.5 million and $19.6 million in the first three months of 1996 and 1995, respectively. Interest payments during the first three months were approximately $5.9 million and $6.1 million in 1996 and 1995, respectively. 7
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 1996 1995 Net income $ 17,832 $ 15,176 Add: Dividends paid net of related income tax applicable to restricted stock 76 93 Net income, as adjusted $ 17,908 $ 15,269 Weighted average number of common shares outstanding 76,995,040 75,293,122 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,256,973 2,285,477 Total 79,252,013 77,578,599 Earnings per common and common equivalent share $ .23 $ .20 Three Months Ended March 31 Fully Diluted <F1> 1996 1995 Net income $ 17,832 $ 15,176 Add: Dividends paid net of related income tax applicable to restricted stock 89 106 Net income, as adjusted $ 17,921 $ 15,282 Weighted average number of common shares outstanding 76,995,040 75,293,122 Weighted average number of incremental shares in connection with restricted stock and assumed exercise of stock options 2,610,143 2,684,497 Total 79,605,183 77,977,619 Earning per common and common equivalent share $ .23 $ .20 <F1> 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, 1996 was $117.6 million, a decrease of $30.1 million from December 31, 1995. The ratio of current assets to current liabilities remained relatively unchanged from December 31, 1995 at approximately 1.0 to 1. 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 1996, the Company acquired 693,301 shares of its own stock for approximately $30.2 million for the purpose of fulfilling the Company's obligations under its various compensation plans. 9
RESULTS OF OPERATIONS Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995 Total revenue for the three months ended March 31, 1996 increased $44.8 million, or 10.0%, to $492.2 million compared to the same period in 1995. Domestic revenue increased 18.1% from 1995 levels. Foreign revenue increased 5.3% during the first quarter of 1996 compared to 1995. Other income increased by $1.0 million during the first quarter of 1996. Operating expenses increased $40.5 million or 9.5% during the three months ended March 31, 1996 compared to the same period in 1995. Interest expense increased by $1.6 million during the first quarter of 1996, as compared to the same period in 1995. Net losses from exchange and translation of foreign currencies for the three months ended March 31, 1996 were approximately $.5 million versus $.8 million for the same period in 1995. The decrease in 1996 is primarily due to decreased translation losses in Brazil. The effective tax rate for the three months ended March 31, 1996 and 1995 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
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10(a) Supplemental Agreement Made As Of January 1, 1996 To An Executive Severance Agreement Between The Interpublic Group of Companies, Inc. and Frank B. Lowe. Exhibit 10(b) Credit Agreement dated March 14, 1996, between The Interpublic Group of Companies, Inc. And Suntrust Bank, Atlanta. Exhibit 10(c) Note, dated March 14, 1996, of Registrant 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 March 31, 1996. 11 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 15, 1996 By /S/ PHILIP H. GEIER, JR PHILIP H. GEIER, JR. Chairman of the Board President and Chief Executive Officer Date: May 15, 1996 By /S/ EUGENE P. BEARD EUGENE P. BEARD Vice Chairman - Finance and Operations 12
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES INDEX TO EXHIBITS Exhibit No. Description Exhibit 10(a) Supplemental Agreement Made As Of January 1, 1996 To An Executive Severance Agreement Between The Interpublic Group of Companies, Inc. and Frank B. Lowe. Exhibit 10(b) Credit Agreement dated March 14, 1996, between The Interpublic Group of Companies, Inc. And Suntrust Bank, Atlanta. Exhibit 10(c) Note, dated March 14, 1996, of Registrant. Exhibit 11 Computation of Earnings Per Share Exhibit 27 Financial Data Schedule 13