SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment Number One to Annual Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
December 31, 1996 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 10020
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 399-8000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
Name of each exchange on
Title of each class which registered
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ____.
The aggregate market value of the registrant's voting stock
(exclusive of shares beneficially owned by persons referred to in
response to Item 12 hereof) was $4,248,362,576 as of March 24,
1997.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Common Stock outstanding at March 24, 1997: 81,512,748 shares.
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Item 8 of Part II of the Company's Form 10-K for the fiscal year
ended December 31, 1996, Item 14 of Part IV thereof, and Exhibit
13 are hereby amended solely for the purpose of amending the last
paragraph of Note 3 to the Company's Consolidated Financial
Statements. The full text of Exhibit 13 is annexed to this
Amended Report.
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SIGNATURE PAGE
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amended
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Registrant)
May 20, 1997 BY: Nicholas J. Camera
Nicholas J. Camera
Vice President,
General Counsel and
Secretary
<PAGE>
EXHIBIT 13
THE INTERPUBLIC GROUP OF COMPANIES, INC.
The Interpublic Group of Companies is one of the largest organizations of
advertising agencies and communications companies in the world. It
includes the parent company, The Interpublic Group of Companies, Inc.,
McCann-Erickson Worldwide, Ammirati Puris Lintas, The Lowe Group, Western
International Media, DraftDirect Worldwide and the Allied Communications
Group. The Interpublic Group employs more than 21,000 people and maintains
offices in over 110 countries.
TABLE OF CONTENTS
Financial Highlights
Chairman's Report to Shareholders
Financial Statements
Board of Directors and Executive Officers
Stockholders' Information
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FINANCIAL HIGHLIGHTS
(Dollars in Thousands Except Per Share Data)
______________________________________________________________________
Percent
1996 1995 Increase
_______________________________________________________________________
Operating Data
Gross income $ 2,537,516 $ 2,179,739 16.4%
Net Income 205,205 129,812 58.1
Per Share Data
Net Income 2.56 1.66 54.2
Cash dividends $ .665 $ .605 9.9
Weighted average number
of shares 80,293,178 78,180,072 2.7
Financial Position
Working capital $ 154,430 $ 147,701 4.6
Total assets 4,765,130 4,259,766 11.9
Stockholders'equity per share $ 10.73<F1> 9.42<F2> 13.9
Return on stockholders' average
equity 25.8%<F1> 18.4%<F2> 40.2%
Gross Income
1996 $2,537,516
1995 $2,179,739 1993 $1,793,856
1994 $1,984,255 1992 $1,855,971
_____________________________________________________________________
Earnings Per Share
1996 $ 2.56<F1>/2.46
1995 $ 2.15/1.66<F2> 1993 $ 1.67/1.66<F4>
1994 $ 1.87/1.53/1.24<F3> 1992 $ 1.50/1.17<F5>
_____________________________________________________________________
Cash Dividends Per Share
1996 $ .665
1995 $ .605 1993 $ .49
1994 $ .545 1992 $ .45
_____________________________________________________________________
Return On Average Stockholders' Equity
1996 25.8%<F1>/25.0%
1995 23.5%/18.4%<F2> 1993 23.3/23.2%<F4>
1994 22.6%/18.6/15.5%<F3> 1992 19.1/15.4%<F5>
<F1> Includes an after-tax gain of approximately $8.1 million or $.10
per share resulting from the sale of a portion of the Company's
shares in CKS Group, Inc.
<F2> Includes an after-tax charge of $38.2 million or $.49 per share
for the write-down of goodwill and related assets.
<F3> Includes an after-tax charge of $25.7 million or $.34 per share
for restructuring and an after-tax charge of $21,780,000 or $.29
per share for the cumulative effect of accounting change,
FAS 112, "Employers' Accounting for Postemployment Benefits".
<F4> Includes a charge of $512,000 or $.01 per share for the
cumulative effect of accounting change, FAS 109, "Accounting for
Income Taxes."
<F5> Includes an after-tax charge of $24,640,000 or $.33 per share for
cumulative effect of accounting change, FAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
Working capital increased by $6.7 million and $67.6 million in 1996 and
1995, respectively, and decreased $87.0 million in 1994. The increase in
working capital in 1996 and 1995 primarily resulted from the growth in the
Company's business, and the long-term refinancing of short-term debt. The
decline in working capital in 1994 was primarily due to acquisitions. The
ratio of current assets to current liabilities was approximately 1.1 to 1
in 1996 and 1995, and approximately 1.0 to 1 in 1994.
The Company's principal source of working capital during the three years
has been from operations. The Company's solid financial position provides
flexibility in obtaining short- and long-term financing on competitive
terms.
The Company and its domestic subsidiaries had credit lines aggregating
$199.6 million in 1996 and in 1995 and $203.6 million in 1994. At December
31, 1996, $15.2 million of these credit lines were utilized compared with
utilization of $36.2 million in 1995, and $11.5 million in 1994.
Subsidiaries outside the United States had credit lines totaling $215.2
million in 1996, $229.1 million in 1995, and $243.4 million in 1994. At
December 31, 1996, $86.6 million of these credit lines were utilized
compared with utilization of $73.5 million in 1995, and $86.5 million in
1994.
Approximately 53%, 56% and 59% of the Company's assets at December 31,
1996, 1995 and 1994, respectively, were outside the United States. Working
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capital was not significantly affected by the fluctuation of foreign
exchange rates during 1996, 1995 and 1994, but the continuation of this
trend is dependent upon the future movement of the dollar in relation to
foreign currencies.
The Company is not aware of any significant occurrences which could
negatively impact its liquidity. However, should such a trend develop, the
Company believes that there are sufficient funds available under its
existing lines of credit and from internal cash-generating capabilities to
adequately manage its liquidity requirements for the foreseeable future.
The principal use of the Company's working capital is to provide for the
operating needs of its advertising agencies, which includes payments for
space or time purchased from various media on behalf of clients. The
Company's practice is to bill and collect from its clients in sufficient
time to pay the amounts due media on a timely basis. Other uses of working
capital include the repurchase of the Company's stock, payment of cash
dividends, capital expenditures, and acquisitions.
During 1996, the Company acquired 1,926,872 shares ($86.9 million) of its
own common stock for purposes of fulfilling its obligations under various
compensation plans. The Company acquired 1,910,555 shares ($69.7 million)
in 1995 and 1,264,761 shares ($44.5 million) in 1994 which were used for
similar purposes.
Quarterly dividends paid to shareholders increased to $51.8 million (17.0
cents per share) in 1996 from $46.1 million (15.5 cents per share) in 1995
and $40.4 million (14.0 cents per share) in 1994.
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The Company's capital expenditures in 1996 were $79.1 million, an increase
of 14% from 1995. Capital expenditures for 1995 were $69.6 million, an
increase of 25% from 1994. The primary purpose of expenditures has been to
modernize the offices and upgrade the computer and communications systems
to better serve clients.
During 1996, 1995 and 1994, the Company acquired several advertising
agencies and related companies with cash and shares of the Company's common
stock. Some of these acquisitions provide for deferred payments which are
contingent upon future revenues or profits of the companies acquired.
Return on stockholders' average equity was 25.8%, 18.4% and 15.5% in 1996,
1995 and 1994, respectively. The return on stockholders' average equity in
1995 excluding the effect of the write-down of goodwill and other related
assets was 23.5%. Excluding the effect of FAS 112, "Employer's Accounting
for Postemployment Benefits" and restructuring charges, return on
stockholders' average equity was 18.6% in 1994.
Results of Operations
Worldwide income from commissions and fees increased 16.1% in 1996, 9.3%
in 1995 and 10.2% in 1994. The increase in 1996 was mainly due to the
continued expansion of the business through strategic acquisitions and
investments (See Note 3), in addition to net new business gains. The
increases in 1995 and 1994 were also primarily attributable to acquisitions
coupled with net new business gains. International revenue increased $89.7
million in 1996 to $1,429 million (59% of worldwide revenue), $136.4
million in 1995 to $1,339 million (64% of worldwide revenue)and $45.3
million in 1994 to $1,203 million (63% of worldwide revenue). Commissions
and fees from domestic operations increased 32.7% in 1996, 5.8% in 1995 and
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22.6% in 1994. These increases were largely attributable to acquisitions
and net new business gains.
Other income increased 24.6% in 1996, 26.6% in 1995 and 25.5% in 1994. The
increases in 1996 and 1995 were primarily due to the proceeds from the sale
of assets, including CKS and Spotlink in 1996 and Fremantle in 1995. The
1994 increase is primarily due to interest income from international
operations.
Total costs and expenses worldwide increased 13%, 8% and 14% in 1996, 1995
and 1994, respectively. Costs and expenses outside the United States
increased 5% in 1996, 9% in 1995 and 7% in 1994. Domestic costs increased
29% in 1996, 6% in 1995 and 29% in 1994. A significant portion of the
Company's expenses relate to employee compensation and various employee
incentive and benefit programs which are based primarily upon operating
results. Cost increases for both domestic and international are generally
in line with increases in revenue. The increase in 1994 primarily resulted
from the restructuring charges.
The Company recorded restructuring charges of approximately $48.7 million
in the fourth quarter of 1994. The net effect of such charges on net
income in 1994 was $25.7 million or $.34 per share. These restructuring
charges, which were of a one-time nature, related principally to
terminations and office consolidations resulting from the merger of the
Lintas New York and Ammirati & Puris agencies and various other
international offices. These charges have permitted the Company to operate
effectively and efficiently in serving its
growing list of clients and to concentrate its resources on creative talent
and client service.
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Restructuring charges included severance costs of $38.3 million for
involuntary terminations of approximately 600 employees. The Company
realized a reduction of $16.9 million in salary costs in 1995 from these
terminations. As a direct result of the Lintas New York and Ammirati &
Puris merger, the Company sold its Fahlgren Martin and GS&B operations,
incurring charges of $6.7 million. Other costs related to the
consolidation of the Lintas New York and Ammirati & Puris agencies amounted
to $3.7 million.
At December 31, 1994, the liability related to these restructuring charges
amounted to $29.6 million, which consisted of $27.6 million for severance
and $2.0 million for the consolidation of facilities. The amount of cash
payments made during 1995 was approximately $27.8 million. At December 31,
1995, the Company's liability related to these restructuring charges
totaled $1.3 million for severance which was paid in 1996.
Interest expense increased 7.2%, 15.5% and 24.5% in 1996, 1995 and 1994,
respectively. The increases are primarily attributable to additional
borrowings.
Equity in net income of unconsolidated affiliates increased in 1996, 1995
and 1994. The 1996 and 1995 increases were primarily due to the Company's
investment in Campbell Mithun Esty. The increase in 1994 primarily
resulted from the Company's investment in All American Communications Inc.
Income applicable to minority interests increased in 1996 and 1995 after a
decrease in 1994. The increases in 1996 and 1995 were primarily
attributable to acquisitions. The decrease in 1994 was attributable to the
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sale of Fremantle and the purchase of the remaining interest in McCann
Hakuhodo, Inc. in the latter part of 1993.
In 1995, the Company wrote down goodwill and other related assets and
recorded a charge of $38.2 million or $.49 per share. On January 1, 1994,
the Company adopted FAS 112, "Employers' Accounting for Postemployment
Benefits", and recorded a net charge of $21.8 million or $.29 per share.
The Company's effective income tax rates were 42.0% in 1996, 48.3% in 1995
and 43.0% in 1994. The higher rate in 1995 was primarily attributable to
the impact of the write-down of goodwill and other related assets of $38.2
million.
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FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash and cash equivalents (includes
certificates of deposit: 1996-$83,680;
1995-$114,182) $ 468,526 $ 418,448
Marketable securities, at cost which
approximates market 35,408 38,926
Receivables (net of allowance for doubtful
accounts: 1996-$33,301; 1995-$21,941) 2,646,259 2,320,248
Expenditures billable to clients 130,185 108,165
Prepaid expenses and other
current assets 73,081 88,611
Total current assets 3,353,459 2,974,398
Other Assets:
Investment in unconsolidated affiliates 102,711 119,473
Deferred taxes on income 79,371 103,497
Other investments and miscellaneous
assets 173,308 144,963
Total other assets 355,390 367,933
Fixed Assets, at cost:
Land and buildings 82,332 76,813
Furniture and equipment 413,029 360,653
495,361 437,466
Less: accumulated depreciation 276,448 240,274
218,913 197,192
Unamortized leasehold improvements 88,045 82,075
Total fixed assets 306,958 279,267
Intangible Assets (net of accumulated
amortization: 1996-$186,189;
1995-$157,673) 749,323 638,168
Total Assets $4,765,130 $4,259,766
</TABLE>
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FINANCIAL STATEMENTS
INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current Liabilities:
Payable to banks $ 121,655 $ 162,524
Accounts payable 2,626,695 2,291,208
Accrued expenses 317,157 256,408
Accrued income taxes 133,522 116,557
Total current liabilities 3,199,029 2,826,697
Noncurrent Liabilities:
Long-term debt 231,760 170,262
Convertible subordinated debentures 115,192 113,235
Deferred compensation and reserve
for termination allowances 210,670 235,325
Accrued postretirement benefits 46,726 46,461
Other noncurrent liabilities 66,457 102,909
Minority interests in consolidated
subsidiaries 23,281 15,171
Total noncurrent liabilities 694,086 683,363
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 - 90,940,361;
1995 - 89,630,568 9,094 8,963
Additional paid-in capital 465,945 446,931
Retained earnings 859,660 704,946
Adjustment for minimum pension liability (12,979) (9,088)
Cumulative translation adjustment (82,978) (93,436)
1,238,742 1,058,316
Less:
Treasury stock, at cost:
1996 - 9,808,095 shares;
1995 - 10,002,567 shares 319,377 268,946
Unamortized expense of restricted
stock grants 47,350 39,664
Total stockholders' equity 872,015 749,706
Commitments and Contingencies (see Note 15)
Total Liabilities and Stockholders'
Equity $4,765,130 $4,259,766
</TABLE>
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FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Income:
Commissions and fees $2,430,508 $2,093,832 $1,916,376
Other income 107,008 85,907 67,879
Gross income 2,537,516 2,179,739 1,984,255
Costs and Expenses:
Salaries and related expenses 1,344,238 1,149,964 1,040,579
Office and general expenses 795,367 699,423 661,238
Interest expense 40,765 38,020 32,924
Write-down of goodwill and other
related assets - 38,177 -
Restructuring charges - - 48,715
Total costs and expenses 2,180,370 1,925,584 1,783,456
Income before provision for
income taxes and effect of
accounting change 357,146 254,155 200,799
Provision for Income Taxes: 150,003 122,743 86,333
Income of consolidated
companies 207,143 131,412 114,466
Income applicable to minority
interests (14,382) (7,686) (3,262)
Equity in net income of
unconsolidated affiliates 12,444 6,086 4,043
Income before effect of
accounting change 205,205 129,812 115,247
Effect of accounting change:
Postemployment benefits - - (21,780)
Net Income $ 205,205 $ 129,812 $ 93,467
Per Share Data:
Income before effect of
accounting changes $ 2.56 $ 1.66 $ 1.53
Effect of accounting change:
Postemployment benefits - - (.29)
Net Income $ 2.56 $ 1.66 $ 1.24
</TABLE>
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<TABLE> FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
<S> (Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: <C>1996 <C>1995 <C>1994
Net Income $205,205 $129,812 $ 93,467
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization of fixed assets 60,457 49,967 45,565
Amortization of intangible assets 28,516 27,628 18,335
Amortization of restricted stock awards 14,451 13,558 11,694
Provision for deferred income taxes 4,072 (18,535) (16,609)
Equity in net income of unconsolidated affiliates (12,444) (6,086) (4,043)
Income applicable to minority interests 14,382 7,686 3,262
Translation losses 3,484 4,071 13,962
Effect of accounting change - - 21,780
Restructuring charges, non-cash - - 14,001
Write-down of goodwill and other related assets - 38,177 -
Sale of investments (35,043) - -
Other (6,513) (9,526) (8,272)
Change in assets and liabilities, net of acquisitions
Receivables (243,701) (243,109) (114,077)
Expenditures billable to clients (12,720) (2,107) (2,120)
Prepaid expenses and other assets (36,496) (30,008) 3,207
Accounts payable and accrued expenses 263,859 182,580 192,600
Accrued income taxes 22,538 11,633 3,233
Deferred compensation and reserve for termination allowances (21,021) 8,638 9,293
Net cash provided by operating activities 249,026 164,379 285,278
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (51,348) (64,224) (54,926)
Capital expenditures (79,081) (69,562) (55,925)
Proceeds from sales of assets 39,398 1,722 34,057PAGE
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Net proceeds from (net purchase of) sales of marketable
securities 1,037 (8,524) 5,161
Investment in unconsolidated affiliates 17,210 (14,044) -
Net cash used in investing activities (72,784) (154,632) (71,633)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term borrowings (25,178) 17,565 (44,007)
Proceeds from long-term debt 75,514 67,858 33,026
Payments of long-term debt (51,581) (14,682) (24,528)
Treasury stock acquired (86,949) (69,720) (44,520)
Issuance of common stock 19,588 31,206 12,977
Cash dividends (51,786) (46,124) (40,360)
Net cash used in financing activities (120,392) (13,897) (107,412)
Effect of exchange rates on cash and cash equivalents (5,772) 8,889 15,208
Increase in cash and cash equivalents 50,078 4,739 121,441
Cash and cash equivalents at beginning of year 418,448 413,709 292,268
Cash and cash equivalents at end of year $468,526 $418,448 $413,709
</TABLE>
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<TABLE> FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three-Year Period Ended December 31, 1996
(Dollars in Thousands)
Unamortized
Additional Minimum Cumulative Expense
Common Paid-In Retained Pension Translation Treasury of Restricted
Stock Capital Earnings Liability Adjustment Stock Stock Grants
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 $8,963 $446,931 $704,946 $( 9,088) $(93,436) $268,946 $ 39,664
Net income 205,205
Cash dividends (51,786)
Foreign currency translation
adjustment 10,458
Awards of common stock under Company
plans:
Management Incentive Compensation Plan 172
Achievement Stock Award Plan 159 (103)
1986 Stock Incentive
Plan - Restricted Stock 50 22,831 23,247
Employee Stock Purchase Plan 19 7,273
Exercise of stock options 61 12,738
Purchase of Company's own stock 86,949
Tax benefit relating to
exercise of stock options 4,381
Restricted Stock: Forfeitures (1) 1,244 (1,110)
Amortization (14,451)
Issuance of shares for acquisitions
and pooling of interests (29,463) 1,295 (37,659)
Conversion of Convertible Debt 2 923
Adjustment for minimum pension
liability ( 3,891)
Balances, December 31, 1996 $9,094 $465,945 $859,660 $(12,979) $(82,978) $319,377 $ 47,350
/TABLE><PAGE
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<TABLE> FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three-Year Period Ended December 31, 1996
(Dollars in Thousands)
Unamortized
Additional Minimum Cumulative Expense
Common Paid-In Retained Pension Translation Treasury of Restricted
Stock Capital Earnings Liability Adjustment Stock Stock Grants
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 $8,771 $383,678 $619,627 $(6,422) $ (97,587) $222,698 $35,942
Net income 129,812
Cash dividends (46,124)
Foreign currency translation
adjustment 4,151
Awards of common stock under Company
plans:
Achievement Stock Award Plan 167 (98)
1986 Stock Incentive
Plan - Restricted Stock 50 18,256 18,306
Employee Stock Purchase Plan 15 5,073
Exercise of stock options 127 28,849
Purchase of Company's own stock 75,229
Tax benefit relating to
exercise of stock options 5,809
Restricted Stock: Forfeitures 1,608 (1,026)
Amortization (13,558)
Issuance of shares for acquisitions
and pooling of interests 5,099 1,631 (30,491)
Adjustment for minimum pension
liability (2,666)
Balances, December 31, 1995 $8,963 $446,931 $704,946 $(9,088) $(93,436) $268,946 $39,664
</TABLE>
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<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
(Dollars in Thousands)
Unamortized
Additional Minimum Cumulative Expense
Common Paid-In Retained Pension Translation Treasury of Restricted
Stock Capital Earnings Liability Adjustment Stock Stock Grants
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 $8,630 $335,340 $570,267 $ (704) $(116,432) $208,821 $24,265
Net income before effect of
accounting change 115,247
Effect of accounting change (21,780)
Cash dividends (40,360)
Foreign currency translation
adjustment 18,845
Awards of common stock under Company
plans:
Achievement Stock Award Plan 209 (119)
1986 Stock Incentive
Plan - Restricted Stock 63 23,386 (1,749) 25,087
Employee Stock Purchase Plan 15 3,910
Exercise of stock options 63 8,988
Purchase of Company's own stock 44,520
Tax benefit relating to
exercise of stock options 2,923
Restricted Stock: Forfeitures 2,283 (1,716)
Amortization (11,694)
Issuance of shares for acquisitions
and pooling of interests 8,922 (3,747) (31,058)
Adjustment for minimum pension
liability (5,718)
Balances, December 31, 1994 $8,771 $383,678 $619,627 $ (6,422) $ (97,587) $222,698 $35,942
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: The Company is a worldwide provider of advertising
agency and related services. The business is conducted through three
worldwide advertising agency systems, (McCann-Erickson Worldwide,
Ammirati Puris Lintas, and The Lowe Group) as well as other related
services through Western International Media and DraftDirect Worldwide.
Interpublic also has arrangements through association with local
agencies in various parts of the world. Other activities conducted by
the Company within the area of "marketing communications" include market
research, sales promotion, product development, direct marketing,
telemarketing and other related services.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiaries, most of which
are wholly owned. The Company's investment in unconsolidated affiliates
is carried on the equity basis.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Translation of Foreign Currencies: Balance sheet accounts are
translated principally at rates of exchange prevailing at the end of the
year except for fixed assets and related depreciation in countries with
highly inflationary economies which are translated at rates in effect on
dates of acquisition. Revenue and expense accounts are translated at
average rates of exchange in effect during each year. Translation
adjustments are included as a separate component of stockholders' equity
except for countries with highly inflationary economies, which are
included in current operations.PAGE
<PAGE>
Commissions, Fees and Costs: Commissions and fees are generally
recognized when media placements appear and production costs are
incurred. Salaries and other agency costs are generally expensed as
incurred.
Depreciation and Amortization: Depreciation is computed principally
using the straight-line method over estimated useful lives of the
related assets, ranging generally from 3 to 20 years for furniture and
equipment and from 10 to 45 years for various component parts of
buildings.
Leasehold improvements and rights are amortized over the terms of
related leases. Company policy provides for the capitalization of all
major expenditures for renewal and improvements and for current charges
to income for repairs and maintenance.
Intangible Assets: The excess of purchase price over the value of net
tangible assets acquired is amortized on a straight-line basis over
periods not exceeding 40 years.
Recoverability of the carrying value of long-lived assets is evaluated
whenever events or changes in circumstances indicate that the net book
value may not be recoverable. If the sum of projected future
undiscounted cash flows is less than the carrying value, an impairment
loss is recognized. The impairment loss is measured by the excess of
the carrying value over fair value based on estimated discounted future
cash flows or other valuation measures.
Income Taxes: Deferred income taxes reflect the impact of temporary
differences between the amount of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for income tax
purposes.
Earnings per Common and Common Equivalent Share: Earnings per share are
based on the weighted average number of common shares outstanding during
each year and, if dilutive, common equivalent shares applicable to
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grants under the stock incentive and stock option plans, and assumed
conversion of Convertible Subordinated Debentures.
Treasury Stock: Treasury stock is acquired at market value and is
recorded at cost. Issuances are accounted for on a first in, first out
basis.
Concentrations of Credit Risk: The Company's clients are in various
businesses, located primarily North America, Latin America, Europe and
the Pacific Region. The Company performs ongoing credit evaluations of
its clients. Reserves for credit losses are maintained at levels
considered adequate by management. The Company invests its excess cash
in deposits with major banks and in money market securities. These
securities typically mature within 90 days and bear minimal risk.
NOTE 2: STOCKHOLDERS' EQUITY
In May 1995, the Company's certificate of incorporation was amended to
increase the number of authorized shares of common stock from
100,000,000 to 150,000,000.
The Company has a Preferred Share Rights Plan designed to deter coercive
takeover tactics. Pursuant to this plan, common stockholders are
entitled to purchase 1/100 of a share of preferred stock at an exercise
price of $100 if a person or group acquires or commences a tender offer
for 15% or more of Interpublic's Common Stock. Rights holders (other
than the 15% stockholder) will also be entitled to buy, for the $100
exercise price, shares of Interpublic's Common Stock with a market value
of $200 in the event a person or group actually acquires 15% or more of
Interpublic's Common Stock. Rights may be redeemed at $.01 per right
under certain circumstances.
NOTE 3: ACQUISITIONS AND RELATED COSTS
During 1996, the Company acquired several advertising agencies and
related companies for an aggregate purchase price of approximately $172
million. This amount includes the acquisition of DraftDirect Worldwide
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for 1,824,609 shares of the Company's common stock in exchange for all
of the issued and outstanding common stock of DraftDirect Worldwide.
The Company issued 330,664 shares of the Company's common stock in
exchange for all of the issued and outstanding common stock of the Weber
Group. The Company also issued 191,291 shares of the Company's common
stock in exchange for all of the issued and outstanding common stock of
Torre Renta Lazur. These acquisitions were accounted for as poolings of
interests; however, the
Company's financial statements were not restated for the prior periods
as the Company's consolidated results would not have changed
significantly. In addition, the Company purchased Angotti Thomas Hedge
for approximately $4 million which included a cash payment of $3.4
million and issuance of 14,767 shares of the Company's common stock.
The Company purchased Jay Advertising for a cash payment of $3.8
million and issuance of 30,012 shares of the Company's common stock.
The Company acquired Media Inc. and McAdams Healthcare for cash payments
of $7 million and $10.3 million, respectively. The Company acquired a
49% interest in GGK for $5.7 million and also acquired a 49% interest in
Goldberg Moser O'Neill for a cash payment of $6.8 million and the
issuance of 48,154 shares of the Company's common stock. During 1996,
the Company made deferred payments of $16.0 million related to prior
year acquisitions.
During 1996, the Company sold its 50% investment in Mark Goodson
Productions for approximately $29 million and sold part of its 28%
investment in the CKS Group for $37.6 million. The Company also sold
its investment in Spotlink for $11.7 million in shares of the
purchaser's common stock.
During 1995, the Company acquired several advertising agencies and
related companies for an aggregate purchase price of approximately
$140.1 million. This amount includes the acquisition of Anderson &
Lembke effective October 1995 for 587,842 shares of the Company's common
stock in exchange for all of the issued and outstanding common stock of
Anderson & Lembke. The Company issued 260,756 shares of the Company's
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<PAGE>
common stock in exchange for all the issued and outstanding common stock
of Addison Whitney. These acquisitions were accounted for as poolings
of interests; however, the Company's financial statements were not
restated for the prior periods as the Company's consolidated results
would not have changed significantly. In addition, the Company acquired
all the outstanding stock of Hasan & Partners for approximately $11.6
million which included cash payments of $6.9 million and the issuance of
121,160 shares of the Company's common stock. The Company acquired 80%
of the outstanding stock of Bosch & Butz for 63,720 shares of the
Company's common stock and a cash payment of $2.6 million. During
1995, the Company purchased Newspaper Services of America Inc. ("NSA")
and Kevin Morley Marketing ("KMM").
The purchase price for NSA was comprised of cash payments of $5.3
million and 48,882 shares of the Company's common stock. The purchase
price of the KMM acquisition amounted to cash payments of $8.0 million.
The Company acquired 50% ownership in Mark Goodson Productions for
656,167 shares of the Company's common stock. Also, the Company
acquired 50% ownership in Campbell Mithun Esty for a cash payment of
$3.2 million. Additionally, the Company acquired a 28% interest in the
CKS Group for cash payments totaling $9.6 million. During 1995, the
Company made deferred payments of $26.9 million related to prior year
acquisitions.
During 1994, the Company acquired several advertising agencies and
related companies for an aggregate purchase price of approximately
$100.2 million. The 1994 acquisitions included Ammirati & Puris, Alice
France, Adam Turkey, the minority interest in Fremantle International
and a pooling of interests with Western International Media. The
Company acquired Ammirati & Puris effective September 1994 for $56.0
million, which included cash
payments of $21.9 million and the issuance of 1,092,629 shares of the
Company's common stock. The Company acquired a 50% interest in Alice
France for $7.7 million. The Company purchased the remaining 20%
ownership interest in Fremantle for $6.3 million and the issuance of
112,000 shares of the Company's Common Stock. The Company subsequently
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<PAGE>
sold Fremantle for $31.5 million in cash and a 39% ownership interest in
All American Communications Inc. valued at $31.5 million. In 1994, the
Company issued 1,472,393 shares of common stock in exchange for all the
issued and outstanding common stock of Western International Media.
This acquisition was accounted for as a pooling of interests; however,
the Company's financial statements were not restated for prior periods
as the Company's consolidated results would not have changed
significantly. During 1994, the Company made deferred payments of $18.3
million relating to prior year acquisitions.
For each of the three years presented, the Company's consolidated
results would not have changed significantly had the revenue and net
income of the companies acquired as purchases been fully included in
each year.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (FAS) No 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", which establishes accounting standards for recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets. The Company elected
to adopt the Statement in the fourth quarter of 1995.
In the fourth quarter of 1995, the Company recorded a non-cash charge of
$38.2 million for impairment of assets (including investments in and
advances to certain unconsolidated companies) and related goodwill.
This write-down is comprised of goodwill of $25.8 million and
investments and advances of $12.4 million and is reported as the
write-down of goodwill and other related assets in the consolidated
statement of income.
The write-down related to 16 separate operating units, primarily
advertising and promotion agencies. All but two of these units are
located in Europe or North America and were acquired between 1978 and
1994. The reason for the write-down was that the carrying value of the
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assets exceeded management's estimate of the fair value of these
operations which was based primarily on discounted projected cash flows.
In determining the fair values, among other factors, management
considered the profitability and trend in profitability of each of the
units, the effects of economic recessions in various markets, changes in
client relationships and spending patterns, the effect of the strong
U.S. dollar versus certain foreign currencies and other economic and
legal factors where applicable. In some instances strategies had been
implemented to improve operating results which did not prove successful
and in some instances management reached a decision in 1995 to sell,
merge or discontinue the operations.
NOTE 4: PROVISION FOR INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". This
Statement applies an asset and liability approach that requires the
recognition of deferred tax assets and liabilities with respect to the
expected future tax consequences of events that have been recognized in
the consolidated financial statements and tax returns.
The components of income before taxes are as follows:
(Dollars in Thousands) 1996 1995 1994
Domestic $169,919 $107,431 $ 70,135
Foreign 187,227 146,724 130,664
Total $357,146 $254,155 $200,799
The provision for income taxes consisted of:
(Dollars in Thousands) 1996 1995 1994
Federal income taxes (including foreign
withholding taxes):
Current $ 56,289 $ 37,149 $ 29,657
Deferred 246 3,751 (2,841)
56,535 40,900 26,816
State and local income taxes:
Current 19,830 11,741 12,293
Deferred 2,824 625 (2,431)
22,654 12,366 9,862
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Foreign income taxes:
Current 69,812 61,255 60,992
Deferred 1,002 8,222 (11,337)
70,814 69,477 49,655
Total $150,003 $122,743 $ 86,333
At December 31, 1996 and 1995 the deferred tax assets and (liabilities)
consisted of the following items:
1996 1995
Postretirement/postemployment benefits $ 38,588 $ 36,695
Deferred compensation 9,759 7,066
Pension costs 6,785 10,060
Depreciation (7,733) (4,695)
Rent 10,364 26,902
Interest 6,051 5,048
Accrued reserves 4,551 12,388
Tax loss/tax credit carryforwards 22,510 24,833
Other 3,016 4,279
Total deferred tax assets 93,891 122,576
Deferred tax valuation allowance 14,520 19,079
Net deferred tax assets $ 79,371 $103,497
The valuation allowance of $14,520,000 and $19,079,000 at December 31,
1996 and 1995, respectively, represents a provision for uncertainty as
to the realization of certain deferred tax assets, including U.S. tax
credit and net operating loss carryforwards in certain jurisdictions.
The change during 1996 in the deferred tax valuation allowance primarily
relates to the utilization of the tax credit and net operating loss
carryforwards. At December 31, 1996 there were $8,809,000 of tax credit
carryforwards with expiration periods through 2001 and net operating
loss carryforwards with a tax effect of $13,701,000 with various
expiration periods. The Company has concluded that based upon expected
future results, it is more likely than not that the net deferred tax
asset balance will be realized.
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A reconciliation of the effective income tax rate as shown in the
consolidated statement of income to the federal statutory rate is as
follows:
1996 1995 1994
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefit 2.9 3.2 2.5
Impact of foreign operations, including
withholding taxes 1.1 3.8 5.4
Goodwill and intangible assets 2.5 7.3 3.1
Other 0.5 (1.0) (3.0)
Effective tax rate 42.0% 48.3% 43.0%
The total amount of undistributed earnings of foreign subsidiaries for
income tax purposes was approximately $331.8 million at December 31,
1996. No provision has been made for foreign withholding taxes or
United States income taxes which may become payable if undistributed
earnings of foreign subsidiaries were paid as dividends to the Company,
since a major portion of these earnings has been reinvested in working
capital and other business needs. The additional taxes on that portion
of undistributed earnings which is available for dividends are not
practicably determinable.
NOTE 5: LONG-TERM PERFORMANCE INCENTIVE PLAN
Under the Long-Term Performance Incentive Plan (the "Plan"), grants
consisting of performance units are awarded to certain key employees of
the Company and its subsidiaries. The ultimate value of these
performance units is contingent upon the annual growth of profit (as
defined in the Plan) of the Company, its operating components or both,
over a four-year performance period (the 1993-1996 Plan and the
1995-1998 Plan), and is generally payable in cash. The projected value
of these units is accrued by the Company and charged to expense over the
four-year performance period.
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The Plan also provides that a portion of each participant's grant may be
issued as the equivalent of "phantom" shares of the Company's common
stock, at the rate of thirty-six phantom shares for each performance
unit. The value of phantom shares is a function of the amount, if any,
by which the market value of the Company's common stock increases during
the performance period and is payable either in cash or in shares of the
Company's common stock. The increase in the value of these units is
accrued and expensed over the four-year performance period. No phantom
share awards have been made subsequent to the 1991-1994 Plan.
The cash equivalent to quarterly dividends on the Company's common stock
was paid on options relating to the 1993-1996 Plan and was expensed.
There are no payments on options relating to the 1995-1998 Plan.
The Plan cost charged to income was $13.6 million in 1996, $9.6 million
in 1995 and $8.5 million in 1994. As of December 31, 1996, the
Company's liability for the 1993-1996 and 1995-1998 performance periods
was $29.8 million, which represents the estimated amounts payable for
the two Plans. As of December 31, 1995, the Company's liability was
$24.1 million. The Company's payout to participants for the 1993-1996
performance period as of December 31, 1996 was approximately $20.2
million, of which $7.9 million was paid in December 1996, with the
remaining $12.3 million to be paid in the first quarter of 1997.
NOTE 6: EMPLOYEE STOCK PLANS
The Company has established various stock option plans, with similar
terms, for key employees of the Company and its subsidiaries. Options
are generally granted at prices not less than 100% of the fair market
value of the Company's common stock on the date of grant. Options are
exercisable on the basis of a schedule determined by the Compensation
Committee of the Board of Directors. Awards generally become
exercisable either in three annual installments of 40% in the first year
and 30% in the succeeding two years commencing on the third anniversary
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of the grant or after two to four and one half years from the date of
the grant. Options generally expire ten years from grant date.
The 1996 Stock Incentive Plan ("1996 Plan") was adopted by the
stockholders to replace the 1986 Stock Incentive Plan ("1986 Plan")
which expired on May 20, 1996. Under the 1996 Plan, 25,000,000 shares
of common stock of the Company are reserved for issuance. Both the 1996
and 1986 Plans incorporate stock option and restricted stock award
features. Shares of restricted stock awarded under these Plans are
subject to certain restrictions and vesting requirements, generally five
to seven years. No monetary consideration is paid by a recipient for a
restricted stock award. The cost of these shares is amortized over the
restriction periods. The Plans authorize the Compensation Committee to
direct that discretionary tax assistance payments may be made to
recipients when the restrictions lapse. Such payments are expensed as
awarded. At December 31, 1996, there were outstanding a total of
2,399,689 shares of restricted stock. During 1996 and 1995, the Company
awarded 480,602 shares and 497,228 shares of restricted stock under
these Plans with a weighted-average grant date fair value of $46.70 and
$36.82, respectively.
The 1986 United Kingdom Stock Option Plan expired in 1996 and was not
replaced. Under the 1988 Stock Option Plan, the Company can grant,
through 1998, options to purchase 600,000 shares of the Company's common
stock to key employees who are employed outside the United States. As
permitted under this Plan, certain options were granted at prices less
than the market value of the Company's common stock.
The Company also maintains a stock plan for outside directors who are
not current employees. The Interpublic Outside Directors' Stock
Incentive Plan (previously the Interpublic Outside Directors' Stock
Option Plan) was amended in 1996 to incorporate both stock option and
restricted stock award features. Under the Plan, 200,000 shares of
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common stock of the Company are reserved for issuance. Stock options
under this Plan are awarded at the fair market value of the Company's
common stock on the date the option is granted. Options generally
become exercisable three years after the date of grant and expire ten
years from the date of grant.
Restricted shares under the Outside Directors' Plan are subject to
certain restrictions and vesting requirements, generally five years. No
monetary consideration is paid by a recipient for a restricted stock
award. The cost of these shares is being amortized over the restriction
periods. At December 31, 1996, there were 10,000 shares of restricted
stock outstanding. During 1996, the Company awarded 10,000 shares under
this Plan with a weighted-average grant date fair value of $46.75.
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Following is a summary of stock option transactions during the
three-year period ended December 31, 1996:
Number of Weighted
Shares Average
Under Option Exercise Price
Balance, December 31, 1993 6,727,220 $22
New Awards 387,324 31
Exercised (627,374) 15
Canceled (397,028) 27
Balance, December 31, 1994 6,090,142 23
Exercisable, December 31, 1994 1,563,498 16
New Awards 2,076,797 33
Exercised (1,269,033) 21
Canceled (273,138) 30
Balance, December 31, 1995 6,624,768 33
Exercisable, December 31, 1995 3,025,655 17
New Awards 2,335,720 47
Exercised (605,244) 21
Canceled (311,282) 33
Balance, December 31, 1996 8,043,962 33
Exercisable, December 31, 1996 2,564,001 21
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<TABLE>
The following table summarizes information about stock options outstanding at December 31, 1996:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
<S> <C> <C> <C> <C> <C>
$7.37 to $23.99 2,181,863 4.41 $20 2,155,151 $20
24.00 to 31.99 1,504,026 6.18 29 327,250 $28
32.00 to 41.99 2,096,801 7.98 33 81,600 $34
42.00 to 49.19 2,261,272 9.41 47 - -
</TABLE>
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Under the Employee Stock Purchase Plan (ESPP), employees may purchase
common stock of the Company through payroll deductions not exceeding 10%
of their compensation. The price an employee pays for a share of stock
is 85% of the market price on the last business day of the month.
During 1996, 1995 and 1994, respectively, 186,586 shares, 158,547 shares
and 144,662 shares were issued. An additional 5,724,820 shares were
reserved for issuance at December 31, 1996.
Under the Company's Achievement Stock Award Plan, awards may be made up
to an aggregate of 1,248,000 shares of common stock together with cash
awards to cover any applicable withholding taxes. During 1996, 1995 and
1994, respectively, 5,670 shares, 7,185 shares and 10,580 shares were
awarded. The weighted-average fair value on the date of grant in 1996
and 1995 was $46.29 and $37.10, respectively.
The Company has adopted Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (FAS 123). As permitted by
the provisions of FAS 123, the Company applies APB Opinion 25
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for its stock-based employee compensation plans.
Accordingly, no compensation cost has been recognized for the Company's
stock options or for purchase under the Company's stock purchase plan.
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The cost recorded for restricted stock and achievement stock awards in
1996, 1995 and 1994 was $14,527,086, $13,738,872 and $12,021,746,
respectively. If compensation cost for the Company's stock option plans
and its stock purchase plan had been determined based on the fair value
at the grant dates as defined by FAS 123, the Company's pro forma net
income and earnings per share would have been as follows:
1996 1995
Net Income As reported $205,205 $129,812
Pro forma $198,219 $125,636
Earnings per share
As reported $2.56 $1.66
Pro forma $2.47 $1.61
For purposes of this pro forma information, the fair value of shares
issued under the Employee Stock Purchase Plan was based on the 15%
discount received by the employees. The weighted-average fair value on
the date of purchase for stock purchased under this Plan was $6.90 and
$5.58 in 1996 and 1995, respectively.
For purposes of this pro forma information, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
used for grants in 1996 and 1995, respectively: dividend yield of 1.41%
and 1.72%; expected volatility of 20.71% and 22.08%; risk-free interest
rate of 6.43% and 7.66%; and expected life of 6 years for both years.
The weighted average fair value on the date of grant for options granted
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in 1996 and 1995 was $14.45 and $10.89, respectively. As required by FAS
123, this pro forma information is based on stock awards made beginning
in 1995 and accordingly is not likely to be representative of the pro
forma effects in future years because options vest over several years
and additional awards generally are made each year.
NOTE 7: RETIREMENT PLANS
Domestic Retirement Plan
The Company and certain of its domestic subsidiaries have a defined
benefit plan ("Domestic Plan") which covers substantially all regular
employees. The Company's policy is to fund pension costs as permitted
by applicable tax regulations. Pension costs are determined by the
projected unit credit
method based upon career average pay. Funding requirements for the
Domestic Plan are determined using the accrued benefit unit credit
method. The Domestic Plan was amended as of January 1, 1992 to provide
that pension benefits accrued after that date would be calculated under
a new "cash balance" formula. Under the cash balance formula, the
participant's account balance is credited each year with an amount equal
to a percentage of that year's annual compensation, plus interest
credits. Participants in the Domestic Plan on December 31, 1991 who
continued to work for the Company after that date had their normal
retirement benefits under the plan as of that date converted on an
actuarial basis into an opening account balance as of January 1, 1992.
In accordance with FAS 87, "Employers' Accounting for Pensions", the
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Company recorded an additional minimum pension liability for the
Domestic Plan of $23.3 million and $19.5 million at December 31, 1996
and 1995, respectively, representing the excess of unfunded accumulated
benefit obligation over previously recorded pension cost liabilities. A
corresponding amount was recognized as an intangible asset to the extent
of unrecognized prior service cost and net transition obligation, with
the balance recorded as a separate reduction of stockholders' equity.
In 1996 and 1995, the Company recorded an intangible asset of $10.4
million and $10.5 million, respectively and a reduction to stockholders'
equity of $13.0 million and $9.1 million, respectively.
Net pension costs for the Domestic Plan for 1996, 1995 and 1994 included
the following components:
(Dollars in Thousands) 1996 1995 1994*
Service cost-benefits earned
during the year $ 4,057 $ 3,322 $ 3,688
Interest cost on projected benefit
obligation 10,248 10,398 9,768
Actual return on plan assets (10,983) (20,622) 2,457
Amortization of unrecognized
transition obligation 1,887 1,887 1,887
Amortization of unrecognized
prior service cost (1,769) (1,769) (1,738)
Amortization of unrecognized
losses 1,005 309 -
Deferred investment loss(gain) 129 10,874 (13,174)
Total pension cost $ 4,574 $ 4,399 $ 2,888
* Disaggregated for comparative purposes.
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The following table sets forth the funded status and amounts recognized
for the Domestic Plan in the Company's consolidated balance sheet at
December 31, 1996 and 1995:
(Dollars in Thousands) 1996 1995
Actuarial present value of accumulated
benefit obligation (including vested
benefits of $128,649 in 1996 and
$124,701 in 1995) $132,110 $127,964
Actuarial present value of projected benefit
obligation 139,142 135,458
Plan assets at fair value 112,284 110,730
Projected benefit obligation in excess of
plan assets (26,858) (24,728)
Unrecognized net losses 20,010 16,582
Unrecognized prior service cost 902 (867)
Unrecognized net transition obligation 9,437 11,324
Additional minimum liability (23,317) (19,545)
Accrued pension liability
$(19,826) $(17,234)
At December 31, 1996, Domestic Plan assets were primarily invested in
fixed income and equity securities. Prior service costs are being
amortized over the estimated average remaining service period of active
employees. The initial net transition obligation is being amortized over
15 years.
A discount rate of 7.5% in 1996, 7.25% in 1995 and 8.5% in 1994 and a
salary increase assumption of 6% in 1996, 1995 and 1994 were used in
determining the actuarial present value of the projected benefit
obligation. The expected return on assets was 10% in 1996, 1995 and
1994.
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Foreign Retirement Plans
The Company has several foreign pension plans in which benefits are
based primarily on years of service and employee compensation. It is
the Company's policy to fund these plans in accordance with local laws
and income tax regulations.
Net pension costs for foreign pension plans for 1996, 1995 and 1994
included the following components:
(Dollars in Thousands) 1996 1995 1994*
Service cost-benefits earned during
the year $ 4,900 $ 5,276 $ 6,215
Interest cost on projected benefit
obligation 10,084 11,054 9,726
Actual return on plan assets (9,077) (8,738) 5,109
Net amortization and deferral 1,251 1,372 (12,690)
Unrecognized net(gain)loss (2,026) (1,367) 23
Other (50) - 59
Total pension cost $ 5,082 $ 7,597 $ 8,442
* Disaggregated for comparative purposes.
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<TABLE>
The following table sets forth the funded status and amounts recognized for the
foreign pension plans in the Company's consolidated balance sheet at December 31, 1996 and 1995:
(Dollars in Thousands) 1996 1995
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation
(including vested benefits of:
1996 - $76,092 and $66,113;
1995 - $57,723 and $70,747) $ 76,293 $ 71,779 $57,806 $ 77,075
Actuarial present value of
projected benefit obligation 84,404 79,290 64,974 89,844
Plan assets at fair value 129,488 6,336 103,438 11,440
Projected benefit obligation
less than (in excess of)
plan assets 45,084 (72,954) 38,464 (78,404)
Unrecognized net loss (27,517) (1,884) (27,370) (4,745)
Unrecognized prior service
cost 4,519 - 4,174 46
Unrecognized net (asset)
obligation (1,492) 5,777 (1,807) 7,171
Prepaid (accrued) pension cost at
December 31, 1996 and 1995 $ 20,594 $ (69,061) $13,461 $(75,932)
</TABLE>
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Foreign plans utilized discount rates ranging from 5.5% to 12.0% in
both 1996 and 1995 and salary increase assumptions ranging from 2.5% to
10.0% in 1996, and from 2.0% to 10.0% in 1995, to determine the
actuarial present value of the projected benefit obligation. The
expected rates of return on assets of foreign plans ranged from 4.0% to
12.0% in both 1996 and 1995.
The Company also has Special Deferred Benefit Arrangements with certain
key employees. Vesting is based upon the age of the employee and the
terms of the employee's contract. Life insurance contracts have been
purchased in amounts which may be used to fund these arrangements.
NOTE 8: POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Postretirement Benefit Plans
The Company and its subsidiaries provide certain postretirement health
care benefits for employees who were in the employ of the Company as of
January 1, 1988, and life insurance benefits for employees who were in
the employ of the Company as of December 1, 1961. The plans cover
employees in the United States and certain key employees in foreign
countries. Effective January 1, 1993, the Company's plan covering
postretirement medical benefits was amended to place a cap on annual
benefits payable to retirees. Such coverage is self-insured, but is
administered by an insurance company.
The Company accrues the expected cost of postretirement benefits other
than pensions over the period in which the active employees become
eligible for such postretirement benefits.
PAGE
<PAGE>
The components of periodic expense for these postretirement benefits
for 1996 and 1995 were as follows:
(Dollars in Thousands) 1996 1995
Service cost - benefits earned during the year $ 610 $ 583
Interest cost on accumulated postretirement
benefit obligation 2,824 3,047
Amortization of prior service cost (934) (934)
Total periodic expense $2,500 $2,696
The following table sets forth the funded status and amounts recognized
for the Company's postretirement benefit plans in the consolidated
balance sheet at December 31, 1996 and 1995:
(Dollars in Thousands)
1996 1995
Accumulated postretirement benefit
obligation:
Retirees $ 21,227 $ 28,505
Fully eligible active plan participants 5,110 5,614
Other active plan participants 12,420 8,133
Total accumulated postretirement
benefit obligation 38,757 42,252
Plan assets at fair value - -
Accumulated postretirement benefit
obligation in excess of plan assets (38,757) (42,252)
Unrecognized net (loss)gain (3,272) 1,423
Unrecognized prior service cost (4,697) (5,632)
Accrued postretirement benefit liability $(46,726) $(46,461)
PAGE
<PAGE>
A discount rate of 7.50% in 1996 and 7.25% in 1995 and a salary
increase assumption of 6.0% in 1996 and 1995, were used in determining
the accumulated postretirement benefit obligation. A 10.0% and a 9.5%
increase in the cost of covered health care benefits were assumed for
1996 and 1995, respectively. This rate is assumed to decrease
incrementally to 5.5% in the year 2002 and remain at that level
thereafter. The health care cost trend rate assumption does not have a
significant effect on the amounts reported. For example, a 1% increase
in the health care cost trend rate would increase the accumulated
postretirement benefit obligation at December 31, 1996 by approximately
$1.7 million, and the net periodic cost for 1996 by approximately $0.2
million.
Postemployment Benefits
Effective January 1, 1994, the Company adopted FAS 112, "Employer's
Accounting for Postemployment Benefits", and recognized a one-time
after-tax charge of $21.8 million. This Statement requires the Company
to accrue the costs of certain benefits, including severance, worker's
compensation and health care coverage over an employee's service life.
The Company's liability for postemployment benefits totaled $32.8
million and $36.2 million at December 31, 1996 and 1995, respectively,
and is included in deferred compensation and reserve for termination
allowances. The net periodic expense recognized in 1996 and 1995 was
$21.1 million and $8.8 million, respectively.
NOTE 9: SHORT-TERM BORROWINGS AND FINANCIAL INSTRUMENTS
The Company and its domestic subsidiaries have lines of credit with
various banks. These credit lines permit borrowings at fluctuating
interest rates determined by the banks. Short-term borrowings by
subsidiaries outside the United States principally consist of drawings
PAGE
<PAGE>
against bank overdraft facilities and lines of credit. These
borrowings bear interest at the prevailing local rates. Where
required, the Company has guaranteed the repayment of the borrowings.
Unused lines of credit by the Company and its subsidiaries at December
31, 1996 and 1995 aggregated $313.0 million and $319.0 million,
respectively. The weighted average interest rate on outstanding
balances at December 31, 1996 was 5.9%. Current maturities of long-term
debt are included in the payable to banks balance.
The Company occasionally uses forwards and options to hedge a portion
of its net investment in foreign subsidiaries and certain intercompany
transactions in order to mitigate any impact of changes in foreign
exchange rates on working capital. The amount of such hedges at the
end of the year was not significant.
NOTE 10: LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
(Dollars in Thousands) 1996 1995
Convertible Subordinated Debentures - 3.75% $115,192 $113,235
Term loans- 6.5% to 14.0%.(5.5% to 14.0%
in 1995) 202,414 158,333
Mortgage notes payable and other long-term loans-
7.6% to 9.0% (7.5% to 9.0% in 1995) 45,513 44,604
363,119 316,172
Less: current portion 16,167 32,675
Long-term debt $346,952 $283,497
The increase in long-term debt during 1996 primarily resulted from an
additional private placement with the Prudential Insurance Company
(Prudential) of $30.0 million at 7.31%, and additional term loans of
$25.0 million at 6.97% with SunTrust Bank and $20.0 million at 6.67%
with Wachovia Bank and a money market rate loan with Chase Bank of $5.0
PAGE
<PAGE>
million at a variable rate from 5.6% to 6.5%. This debt represents
long-term refinancing of short-term debt.
The Convertible Subordinated Debentures were issued in April 1992 and
mature on April 1, 2002 with a face value of $135.0 million. The terms
of the bond offering included an issuance price equal to 77% of the
face value with a coupon of 3.75%. The debentures are convertible into
common stock of the Company at a rate of 22.238 shares per each U.S.
$1,000 principal amount. Fair value of the Convertible Subordinated
Debentures as of December 31, 1996 was approximately $142 million. The
fair value was estimated by obtaining quotes from brokers.
Term loans at December 31, 1996 consisted of $114.1 million of private
placements with Prudential, $25.0 million in term loans with First
Chicago NBD, $40.0 million in term loans with SunTrust Bank, $20.0
million in term loans with Wachovia Bank and a $3.3 million private
placement loan with Massachusetts Mutual. The private placements with
Prudential have payments due in 1997 through 1998 and 2002 through
2006. The other term loans have payments due in 1997 through 2003.
Mortgage notes payable and other long-term loans at December 31, 1996
primarily related to a $35.3 million mortgage which was used to finance
the purchase of a building and land by one of the Company's
subsidiaries during 1993. The terms of the mortgage call for annual
payments of approximately $0.6 million from 1997-2002 with a balloon
payment of $31.6 million thereafter.
PAGE
<PAGE>
Under various loan agreements, the Company must maintain specified
levels of net worth and meet certain cash flow requirements, and is
limited in the level of indebtedness. The Company has complied with
the limitations under the terms of these loan agreements.
Long-term debt maturing over the next five years is as follows: 1997-
$16.2 million; 1998-$25.5 million; 1999-$26.4 million; 2000-$5.8
million; and 2001-$14.0 million. Of the remaining debt of $274.2
million, $212.6 million matures during the years 2002-2005 while $61.6
million matures in subsequent years.
All material financial instruments are carried in the consolidated
balance sheet at amounts which approximate fair values unless otherwise
disclosed. The fair value was estimated by obtaining quotes from
brokers.
NOTE 11: DISCLOSURES UNDER FAS 95
This Statement requires disclosures of specific cash payments and
non-cash 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 and Interest Payments
Cash paid for income taxes was approximately $101.8 million, $80.8
million and $67.1 million, in 1996, 1995 and 1994, respectively.
Interest payments were approximately $27.1 million in 1996, $25.0
million in 1995 and $23.0 million in 1994.
PAGE
<PAGE>
Acquisitions
As more fully described in Note 3, in 1996 the Company issued 1,824,609
shares, 330,664 shares and 191,291 shares of its common stock in
exchange for all of the issued and outstanding stock of DraftDirect
Worldwide, The Weber Group and Torre Renta Lazur, respectively.
Additionally, the Company issued in conjunction with the acquisitions
of Goldberg Moser O'Neill, Jay Advertising and Live Communications
48,154 shares, 30,012 shares and 21,490 shares of its common stock,
respectively. In 1995, the Company issued 587,842 shares and 260,756
shares of its common stock in exchange for all the issued and
outstanding stock of Anderson & Lembke and Addison Whitney,
respectively. Additionally, the Company issued in conjunction with the
acquisitions of Hasan & Partners, Bosch & Butz, and Newspaper Services
of America, Inc., 121,160 shares, 63,720 shares, and 48,882 shares of
its common stock, respectively. In 1994, the Company issued 1,092,629
shares of its common stock in conjunction with the acquisition of
Ammirati & Puris and a total of 1,472,393 shares of its common stock in
connection with the pooling of interest with Western International
Media.
Details of businesses acquired in transaction accounted for as
purchases were as follows:
(Dollars in Thousands) 1996 1995 1994
Fair value of assets acquired $182,072 $ 73,142 $163,423
Liabilities assumed 106,289 11,170 64,998
Net assets acquired 75,783 61,972 98,425
Less: non-cash consideration 7,568 9,637 38,525
Less: cash acquired 16,867 5,481 4,974
Net cash paid for acquisitions $ 51,348 $ 46,854 $ 54,926
PAGE
<PAGE>
The fair value of assets acquired in 1996 contains approximately $66.8
million of intangible assets. The 1996 amounts shown in the previous
table exclude deferred payments of $2.6 million in connection with the
acquisition of various advertising agencies, which are payable in 1997
and thereafter, but includes $13.0 million of deferred payments made
during 1996 relating to various prior year acquisitions.
The 1995 amounts shown above exclude deferred payments of $3.2 million
in connection with the acquisition of various advertising agencies,
which are payable in 1996 and thereafter, but include $26.9 million of
deferred payments made during 1995 relating to various prior year
acquisitions.
The 1994 amounts shown above exclude deferred payments of $9.5 million
in connection with the acquisition of various advertising agencies,
which are payable in future years, but include $18.3 million of
deferred payments made during 1994 relating to various acquisitions.
PAGE
<PAGE>
<TABLE>
NOTE 12: RESULTS BY QUARTER (UNAUDITED)
___________________________________________________________________________________________________________________
(Dollars in Thousands 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Except Per Share Data) 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross income $506,160 $460,420 $675,345 $557,154 $567,718 $492,486 $788,293 $669,679
Operating expenses 466,109 425,592 521,568 435,588 509,036 444,909 642,892 543,298
Write-down of goodwill and
other related assets - - - - - - - 38,177
Provision for income
taxes 13,126 11,567 61,248 47,390 20,527 15,953 55,102 47,833
Net income 17,832 15,176 82,928 63,768 27,471 22,181 76,974 28,687
Per Share Data:
Net income .23 .20 1.04 .82 .34 .28 .95 .36
Cash dividends per share .155 .140 .17 .155 .17 .155 .17 .155
Price range per share:
High 47 1/4 37 3/8 49 3/4 39 48 1/2 40 50 43 3/8
Low $40 $32 3/8 $45 5/8 $35 1/4 $41 3/4 $36 $44 3/8 $37 3/8
</TABLE>
PAGE
<PAGE>
NOTE 13: GEOGRAPHIC AREAS
Total assets, income from commissions and fees and income before
provision for income taxes are presented below by major geographic
area:
(Dollars in Thousands) 1996 1995 1994
Total Assets:
United States $2,236,168 $1,864,095 $1,559,768
International
Europe 1,626,966 1,554,283 1,372,466
Asia Pacific 544,287 515,219 560,965
Latin America 224,683 193,592 183,701
Other 133,026 132,577 116,518
Total International 2,528,962 2,395,671 2,233,650
Total Consolidated $4,765,130 $4,259,766 $3,793,418
Income From Commissions and Fees:
United States $1,001,545 $ 754,576 $ 713,497
International
Europe 882,746 837,006 719,881
Asia Pacific 309,161 281,961 268,124
Latin America 170,024 152,503 153,469
Other 67,032 67,786 61,405
Total International 1,428,963 1,339,256 1,202,879
Total Consolidated $2,430,508 $2,093,832 $1,916,376
PAGE
<PAGE>
(Dollars in Thousands) 1996 1995 1994
Income Before Provision for Income Taxes:
Operating income:
United States $ 197,793 $ 131,194 $ 88,208
International
Europe 96,948 73,424 56,281
Asia Pacific 57,439 48,292 43,376
Latin America 35,578 31,626 40,975
Other 10,153 7,638 4,884
Total International 200,118 160,980 145,516
Items not allocated to operations,
principally interest expense:
United States (27,874) (23,763) (18,073)
International (12,891) (14,256) (14,852)
Total Consolidated $ 357,146 $ 254,155 $ 200,799
The largest client of the Company contributed approximately 11% in 1996
and 1995, and 10% in 1994 to income from commissions and fees. The
Company's second largest client contributed approximately 8% in 1996,
1995 and 1994 to income from commissions and fees.
Dividends received from foreign subsidiaries were $35.2 million in
1996, $31.8 million in 1995 and $43.6 million in 1994. Net assets of
foreign subsidiaries were approximately $677 million, $584 million and
$558 million at December 31, 1996, 1995 and 1994, respectively.
Consolidated net income includes losses from exchange and translation
of foreign currencies of $4.1 million, $4.7 million and $10.6 million
in 1996, 1995 and 1994, respectively. PAGE
<PAGE>
NOTE 14: RESTRUCTURING CHARGES
In the fourth quarter of 1994, the Company recorded restructuring
charges of $48.7 million in connection with the elimination of
duplicate facilities and excess personnel resulting primarily from the
merger of Lintas New York and Ammirati & Puris agencies and certain
international offices. This amount included $38.3 million of severance
charges for involuntary terminations of approximately 600 employees,
$6.7 million related to the abandonment of operations and $3.7 million
for the consolidation of facilities. At December 31, 1995, the
Company's liability related to these restructuring charges totaled $1.3
million for severance, and is included in accrued expenses. The amount
of cash payments made during 1995 was approximately $27.8 million. The
remaining liability was paid in 1996.
NOTE 15: COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1996, the Company's subsidiaries operating outside the
United States were contingently liable for discounted notes receivable
of approximately $13.8 million.
The Company and its subsidiaries lease certain facilities and
equipment. Gross rental expense amounted to approximately $180 million
for 1996, $164 million for 1995 and $141 million for 1994, which was
reduced by sublease income of $29.1 million, $19.5 million and $10.8
million in 1996, 1995 and 1994, respectively.
PAGE
<PAGE>
During 1995, the Company entered into a transaction whereby it acquired
the leasing operations of a third party at a cost of approximately $7
million. These leasing operations include equipment leased from the
equipment owner (the "Owner"), which has in turn been leased to a third
party (the "Sublessee"). Both leases are accounted for by the Company
as operating leases. The Sublessee has prepaid $46.6 million of its
obligations under the sublease agreement. This prepayment is held in
an interest-bearing escrow account and is to be used to meet the
Company's lease obligations to the Owner. At December 31, 1996, the
remaining escrow balance of $30.1 million is reflected in prepaid
expenses and miscellaneous assets and the unearned sublease income
amount of $23.1 million is reflected in other noncurrent liabilities.
The deferred tax asset attributable to the prepaid sublease obligation
amounts to $18.8 million at December 31, 1996.
Minimum rental commitments for the rental of office premises and
equipment under noncancellable leases, some of which provide for rental
adjustments due to increased property taxes and operating costs for
1995 and thereafter, are as follows:
(Dollars in Thousands) Gross Sublease
Period Amount Income
1997 $153,043 $24,150
1998 120,191 13,427
1999 98,704 6,423
2000 84,163 4,744
2001 69,991 3,900
2002 and thereafter 220,418 4,871
Certain of the Company's acquisition agreements provide for the payment
by the Company of future contingent consideration based upon future
revenues or profits of the companies acquired.PAGE
<PAGE>
The Company and certain of its subsidiaries are party to various tax
examinations, some of which have resulted in assessments. The Company
intends to vigorously defend any and all assessments and believes that
additional taxes (if any) that may ultimately result from the
settlement of such assessments and open examinations would not have a
material adverse effect on the consolidated financial statements.
PAGE
<PAGE>
_______________________________________________________________________
REPORT OF INDEPENDENT ACCOUNTANTS
_______________________________________________________________________
1177 Avenue of the Americas
New York, New York 10036
To the Board of Directors and Stockholders of
The Interpublic Group of Companies, Inc. February 14, 1997
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of stockholders' equity and
of cash flows present fairly, in all material respects, the financial
position of The Interpublic Group of Companies, Inc. and its
subsidiaries (the "Company") at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 3 and 8 to the consolidated financial statements,
during 1995, the Company changed its method of accounting for
long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121, and effective January 1, 1994, the Company changed
its method of accounting for postemployment benefits as required by
Statement of Financial Accounting Standards No. 112.
Price Waterhouse LLPPAGE
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA FOR FIVE YEARS
__________________________________________________________________________________________________
(Dollars in Thousands
Except Per Share Data) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Data
Gross income $ 2,537,516 $ 2,179,739 $ 1,984,255 $ 1,793,856 $ 1,855,971
Operating expenses 2,139,605 1,849,387 1,701,817 1,535,651 1,615,592
Restructuring charges - - 48,715 - -
Write-down of goodwill and other
related assets - 38,177 - - -
Interest expense 40,765 38,020 32,924 26,445 33,221
Provision for income taxes: 150,003 122,743 86,333 99,819 91,335
Income before effect of accounting
change 205,205 129,812 115,247 125,279 111,913
Effect of accounting changes:
Postemployment benefits <F1> - - (21,780) - -
Income taxes <F2> - - - (512) -
Postretirement benefits <F3> - - - - (24,640)
Net Income 205,205 129,812 93,467 124,767 87,273
Cash dividends 51,786 46,124 40,360 35,901 32,483
Per Share Data
Income before effect of accounting
changes 2.56 1.66 1.53 1.67 1.50
Effect of accounting changes:
Postemployment benefits <F1> - - (.29) - -
Income taxes <F2> - - - (.01) -
Postretirement benefits <F3> - - - - (.33)
Net Income 2.56 1.66 1.24 1.66 1.17
Cash dividends .665 .605 .545 .49 .45
Financial Position
Working capital 154,430 147,701 80,134 167,175 224,534
Total assets 4,765,130 4,259,766 3,793,418 2,869,817 2,623,345
Long-term debt 346,952 283,497 241,803 226,085 200,237
Stockholders' equity per share $ 10.73 $ 9.42 $ 8.36 $ 7.54 $ 6.81
PAGE
<PAGE>
Other Data
Weighted average number
of shares 80,293,178 78,180,072 75,570,445 75,215,521 74,974,618
Number of employees 21,700 19,700 18,100 17,600 16,800
<FN>
<F1> Reflects the cumulative effect of adopting FAS 112, "Employers' Accounting for Postemployment Benefits."
<F2> Reflects the cumulative effect of FAS 109, "Accounting for Income Taxes."
<F3> Reflects the cumulative effect of FAS 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions."
</TABLE>
PAGE
<PAGE>
VICE CHAIRMAN'S REPORT OF MANAGEMENT
The financial statements, including the financial analyses and
all other information in this Annual Report, were prepared by
management, who is responsible for their integrity and
objectivity. Management believes the financial statements, which
require the use of certain estimates and judgements, reflect the
Company's financial position and operating results in conformity
with generally accepted accounting principles. All financial
information in this Annual Report is consistent with the
financial statements.
Management maintains a system of internal accounting controls
which provides reasonable assurance that, in all material
respects, assets are maintained and accounted for in accordance
with management's authorization and transactions are recorded
accurately in the books and records. To assure the effectiveness
of the internal control system, the organizational structure
provides for defined lines of responsibility and delegation of
authority.
The Finance Committee of the Board of Directors, which is
comprised of the Company's Chairman and Vice Chairman and three
outside Directors, is responsible for defining these lines of
responsibility and delegating the authority to management to
conduct the day-to-day financial affairs of the Company. In
carrying out its duties, the Finance Committee primarily focuses
on the setting and monitoring of financial and operational goals;
establishing guidelines, approving and monitoring specific
proposals for acquisitions; working capital, cash and balance
sheet management; and overseeing the hedging of foreign exchange,
interest-rate and other financial risks. The Committee meets
regularly to review presentations and reports on these and other
financial matters, to the Board. It also works closely with, but
is separate from, the Audit Committee of the Board of Directors.
The Company has formally stated and communicated policies
requiring of employees high ethical standards in their conduct of
its business. As a further enhancement of the above, the
Company's comprehensive internal audit program is designed for
continual evaluation of the adequacy and effectiveness of its
internal controls and measures adherence to established policies
and procedures.
The Audit Committee of the Board of Directors is comprised of
three directors who are not employees of the Company. The
Committee reviews audit plans, internal controls, financial
reports and related matters, and meets regularly with management,
internal auditors and independent accountants. The independent
accountants and internal auditors have free access to the Audit
Committee, without management being present, to discuss the
results of their audits or any other matters.
The independent accountants, Price Waterhouse LLP, are
recommended by the Audit Committee of the Board of Directors and
selected by the Board of Directors, and their appointment is
ratified by the shareholders. The independent accountants have
examined the financial statements of the Company and their
opinion is presented on page 48.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
The Interpublic Group of Companies, Inc.
Our audits of the consolidated financial statements referred to in
our report dated February 14, 1997 appearing in the 1996 Annual
Report to Stockholders of The Interpublic Group of Companies, Inc.
(which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also
included an audit of the Financial Statement Schedules listed in
Item 14 (a) of this Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
New York, New York
February 14, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 of The Interpublic Group of
Companies, Inc. (the "Company"), of our report dated February 14,
1997, appearing in the 1996 Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K: Registration
Statements No. 2-79071; No. 2-43811; No. 2-56269; No. 2-61346; No.
2-64338; No. 2-67560; No. 2-72093; No. 2-88165; No. 2-90878,
No. 2-97440 and No. 33-28143, relating variously to the Stock Option
Plan (1971), the Stock Option Plan (1981), the Stock Option Plan
(1988) and the Achievement Stock Award Plan of the Company;
Registration Statements No. 2-53544; No. 2-91564, No. 2-98324, No.
33-22008, No. 33-64062 and No. 33-61371, relating variously to the
Employee Stock Purchase Plan (1975), the Employee Stock Purchase
Plan (1985) and the Employee Stock Purchase Plan of the Company
(1995); Registration Statements No. 33-20291 and No. 33-2830
relating to the Management Incentive Compensation Plan of the
Company; Registration Statements No. 33-5352, No. 33-21605, 333-4747
and 333-23603 relating to the 1986 Stock Incentive Plan, the 1986
United Kingdom Stock Option Plan and the 1996 Stock Incentive Plan,
of the Company; and Registration Statements No. 33-10087 and
No. 33-25555 relating to the Long-Term Performance Incentive Plan of
the Company. We hereby consent to the incorporation by reference in
the Prospectuses constituting part of the Registration Statements on
Form S-3 (No. 33-37346 and 333-22899) of The Interpublic Group of
Companies, Inc. of our report dated February 14, 1997 appearing in
the 1996 Annual Report to Stockholders which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedules, which
appears above.
PRICE WATERHOUSE LLP
New York, New York
May 20, 1997<PAGE>
