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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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)
Registrant's telephone number, including area code (212) 399-8000
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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
October 31, 1999: 280,651,942 shares.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
I N D E X
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
September 30, 1999 (unaudited) and
December 31, 1998 3-4
Consolidated Income Statement
Three months ended September 30, 1999
and 1998 (unaudited) 5
Consolidated Income Statement
Nine months ended September 30, 1999
and 1998 (unaudited) 6
Consolidated Statement of Comprehensive Income
Three months ended September 30, 1999
and 1998 (unaudited) 7
Consolidated Statement of Comprehensive Income
Nine months ended September 30, 1999
and 1998 (unaudited) 8
Consolidated Statement of Cash Flows
Nine months ended September 30, 1999
and 1998 (unaudited) 9
Notes to Consolidated Financial Statements (unaudited) 10-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
September 30, December 31,
1999 1998
(unaudited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents (includes
certificates of deposit: 1999-$220,428;
1998-$152,064) $ 763,245 $ 808,803
Marketable securities, at cost which
approximates market 46,408 31,733
Receivables (less allowance for doubtful
accounts: 1999-$46,998; 1998-$53,093) 3,903,323 3,522,616
Expenditures billable to clients 376,645 276,610
Prepaid expenses and other current assets 148,171 137,183
---------- ----------
Total current assets 5,237,792 4,776,945
---------- ----------
OTHER ASSETS:
Investment in unconsolidated affiliates 60,132 47,561
Deferred taxes on income 81,759 97,350
Other investments and miscellaneous assets 372,183 299,967
---------- ---------
Total other assets 514,074 444,878
---------- ---------
FIXED ASSETS, at cost:
Land and buildings 88,329 95,228
Furniture and equipment 694,586 650,037
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782,915 745,265
Less: accumulated depreciation 458,854 420,864
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324,061 324,401
Unamortized leasehold improvements 126,368 115,200
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Total fixed assets 450,429 439,601
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INTANGIBLE ASSETS (net of accumulated
amortization: 1999-$555,122;
1998-$504,787) 1,455,380 1,281,399
---------- ----------
TOTAL ASSETS $7,657,675 $6,942,823
========== ==========
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998<F1>
(unaudited)
------------ ------------
CURRENT LIABILITIES:
Payable to banks $ 256,050 $ 214,464
Accounts payable 3,897,163 3,613,699
Accrued expenses 505,769 624,517
Accrued income taxes 242,867 205,672
---------- ----------
Total current liabilities 4,901,849 4,658,352
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NONCURRENT LIABILITIES:
Long-term debt 339,543 298,691
Convertible subordinated notes 514,940 207,927
Deferred compensation and reserve
for termination liabilities 327,202 319,526
Accrued postretirement benefits 49,046 48,616
Other noncurrent liabilities 84,829 88,691
Minority interests in
consolidated subsidiaries 63,748 55,928
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Total noncurrent liabilities 1,379,308 1,019,379
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock, no par value
shares authorized: 20,000,000
shares issued: none
Common Stock, $.10 par value
shares authorized: 550,000,000
shares issued:
1999 - 296,284,686
1998 - 291,445,158 29,628 29,145
Additional paid-in capital 794,725 652,692
Retained earnings 1,276,061 1,101,792
Accumulated other comprehensive income (202,882) (160,476)
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1,897,532 1,623,153
Less: Treasury stock, at cost:
1999 - 15,278,368 shares
1998 - 12,374,344 shares 436,672 286,713
Unamortized expense of restricted
stock grants 84,342 71,348
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TOTAL STOCKHOLDERS' EQUITY 1,376,518 1,265,092
---------- ----------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,657,675 $6,942,823
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<F1> All share data adjusted to reflect two-for-one stock split effective July
15, 1999.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands Except Per Share Data)
(unaudited)
1999 1998<F1>
---- ----
Revenue $ 1,021,357 $ 886,453
Other income, net 22,646 24,077
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Gross income 1,044,003 910,530
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Costs and expenses:
Operating expenses 914,821 804,912
Interest 17,478 16,029
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Total costs and expenses 932,299 820,941
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Income before provision for income taxes 111,704 89,589
Provision for income taxes 47,698 38,603
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Income of consolidated companies 64,006 50,986
Income applicable to minority interests (5,981) (5,490)
Equity in net income of unconsolidated
affiliates 1,019 1,491
----------- -----------
Net income $ 59,044 $ 46,987
=========== ===========
Weighted average shares:
Basic 274,301,278 270,915,168
Diluted 284,743,575 280,464,242
Earnings Per Share:
Basic $ .22 $ .17
Diluted $ .21 $ .17
Dividends per share $ .085 $ .075
The accompanying notes are an integral part of these consolidated financial
statements.
<F1> All share data adjusted to reflect two-for-one stock split effective July
15, 1999.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands Except Per Share Data)
(unaudited)
1999 1998<F1>
---- ----
Revenue $ 3,026,058 $ 2,706,573
Other income, net 77,458 67,382
----------- -----------
Gross income 3,103,516 2,773,955
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Costs and expenses:
Operating expenses 2,618,122 2,365,428
Interest 47,921 43,394
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Total costs and expenses 2,666,043 2,408,822
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Income before provision for income taxes 437,473 365,133
Provision for income taxes 180,192 150,767
----------- -----------
Income of consolidated companies 257,281 214,366
Income applicable to minority interests (18,485) (14,689)
Equity in net income of unconsolidated
affiliates 4,442 3,560
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Net income $ 243,238 $ 203,237
=========== ===========
Weighted average shares:
Basic 273,565,998 270,908,867
Diluted 284,086,231 281,068,263
Earnings Per Share:
Basic $ .89 $ .75
Diluted $ .86 $ .72
Dividends per share $ .245 $ .215
The accompanying notes are an integral part of these consolidated financial
statements.
<F1> All share data adjusted to reflect two-for-one stock split effective July
15, 1999.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
1999 1998
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Net Income $ 59,044 $ 46,987
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Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments 13,636 (3,343)
Net Unrealized Gains on Securities 25,293 30,049
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Other Comprehensive Income 38,929 26,706
--------- ---------
Comprehensive Income $ 97,973 $ 73,693
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
1999 1998
---- ----
Net Income $ 243,238 $ 203,237
--------- ---------
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments (67,019) 12,530
Net Unrealized Gains/(Losses) on Securities 24,613 (2,388)
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Other Comprehensive (Loss)/Income (42,406) 10,142
--------- ---------
Comprehensive Income $ 200,832 $213,379
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $243,238 $ 203,237
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization of fixed assets 79,065 68,175
Amortization of intangible assets 50,335 41,727
Amortization of restricted stock awards 13,986 14,634
Equity in net income of unconsolidated affiliates (4,443) (3,560)
Income applicable to minority interests 18,485 14,689
Translation losses 1,183 (7,999)
Net gain from sale of investments (13,952) (7,579)
Other (9,732) (2,764)
Changes in assets and liabilities, net of acquisitions:
Receivables (384,465) (102)
Expenditures billable to clients (83,286) (70,733)
Prepaid expenses and other assets (12,341) (29,472)
Accounts payable and other liabilities 161,280 (69,526)
Accrued income taxes 7,570 4,918
Deferred income taxes (7,881) (1,755)
Deferred compensation and reserve for
termination allowances 11,202 2,249
--------- ---------
Net cash provided by operating activities 70,244 156,139
CASH FLOWS FROM INVESTING ACTIVITIES: --------- ---------
Acquisitions (179,241) (83,857)
Proceeds from sale of investments 39,734 22,841
Capital expenditures (89,457) (85,554)
Net purchases of marketable securities (17,174) (9,331)
Other investments and miscellaneous assets 10,358 (4,146)
Investments in unconsolidated affiliates (8,251) (7,923)
--------- ---------
Net cash used in investing activities (244,031) (167,970)
CASH FLOWS FROM FINANCING ACTIVITIES: --------- ---------
Increase in short-term borrowings 41,488 84,919
Proceeds from long-term debt 362,161 6,535
Payments of long-term debt (20,910) (23,796)
ESOP Payment 7,420
Treasury stock acquired (209,024) (148,639)
Issuance of common stock 51,687 26,795
Cash dividends - pooled companies - (2,861)
Cash dividends - Interpublic (67,534) (56,557)
--------- ---------
Net cash provided by/(used in) financing activities 157,868 (106,184)
--------- ---------
Effect of exchange rates on cash and cash
equivalents (29,639) 3,680
--------- ---------
Increase/(decrease) in cash and cash equivalents (45,558) (114,335)
Cash and cash equivalents at
beginning of year 808,803 738,112
--------- ---------
Cash and cash equivalents at end of period $763,245 $ 623,777
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
(a) In the opinion of management, the consolidated balance sheet as of
September 30, 1999, the consolidated income statements for the three
months and nine months ended September 30, 1999 and 1998, the
consolidated statements of comprehensive income for the three months
and nine months ended September 30, 1999 and 1998, and the
consolidated statement of cash flows for the nine months ended
September 30, 1999 and 1998, contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at September
30, 1999 and for all periods presented. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Interpublic Group of
Companies, Inc.'s (the "Company") December 31, 1998 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
$118.9 million and $139.5 million in the first nine months of 1999 and
1998, respectively. Interest payments during the first nine months of
1999 and 1998 were approximately $32.8 million for each period.
(c) In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 will require the Company to record all derivatives on
the balance sheet at fair value. Changes in derivative fair values
will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments
or, for forecasted transactions, deferred and later recognized in
earnings at the same time as the related hedged transactions. The
impact of SFAS 133 on the Company's financial statements will depend
on a variety of factors, including future interpretative guidance from
the FASB, the future level of forecasted and actual foreign currency
transactions, the extent of the Company's hedging activities, the
types of hedging instruments used and the effectiveness of such
instruments. However, the Company does not believe the effect of
adopting SFAS 133 will be material to its financial condition. In June
1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 137 defers the effective date of SFAS 133 for one year to
fiscal years beginning after June 15, 2000.
<PAGE>
(d) On May 17, 1999, the Board of Directors announced a 2 for 1 stock
split, payable July 15, 1999, to shareholders of record at the close
of business on June 29, 1999. All share data has been restated in the
accompanying consolidated financial statements to reflect the 2 for 1
stock split.
(e) On October 29, 1999, the Company announced the merger of two of its
agency networks - Ammirati Puris Lintas and Lowe & Partners Worldwide.
The new agency network will be called Lowe Lintas & Partners
Worldwide. The Company is currently assessing the potential financial
implications of this merger.
(f) On November 9, 1999, the Company announced an offer to acquire Brands
Hatch Leisure Plc, a leading promoter of motorsport events, as well as
an operator of leisure venues, in the United Kingdom. A Registration
Statement on Form S-4 was filed on that date on behalf of the
Registrant.
<PAGE>
Item 2
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 September 30, 1999 was $335.9 million, an increase of $217.4
million from December 31, 1998. The increase in working capital was largely
attributable to net proceeds of approximately $295 million from the 1.87%
Convertible Subordinated Notes due 2006 issued in June, 1999. The ratio of
current assets to current liabilities was approximately 1.1 to 1 at September
30, 1999.
Historically, cash flow from operations has been the primary source of working
capital and management believes that it will continue to be so 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 nine months of 1999, the Company acquired
5,419,698 shares of its own stock for approximately $209 million for the purpose
of fulfilling the Company's obligations under its various compensation plans.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998.
Total revenue for the three months ended September 30, 1999 increased
$134.9 million, or 15.2%, to $1,021.4 million compared to the same period in
1998. Domestic revenue increased $101.7 million or 22.5% from 1998 levels.
Foreign revenue increased $33.2 million or 7.6% during the third quarter of 1999
compared to 1998. Foreign revenue would have increased 11.5%, except for the
strengthening of the U.S. dollar against certain major currencies. Other income,
net, decreased by $1.4 million during the third quarter of 1999 compared to the
same period in 1998.
Operating expenses increased $109.9 million or 13.7% during the three months
ended September 30, 1999 compared to the same period in 1998. Interest expense
increased 9% as compared to the same period in 1998.
Pretax income increased $22.1 million or 24.7% during the three months ended
September 30, 1999 compared to the same period in 1998.
The increase in total revenue, operating expenses, and pretax income is
primarily due to the effect of new business gains.
Net losses from exchange and translation of foreign currencies for the three
months ended September 30, 1999 were approximately $2.1 million versus $.4
million for the same period in 1998.
The effective tax rate for the three months ended September 30, 1999 was 42.7%,
as compared to 43.1% in 1998.
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.
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998.
Total revenue for the nine months ended September 30, 1999, increased $319.5
million, or 11.8%, to $3,026.1 million compared to the same period in 1998.
Domestic revenue increased $220 million or 15.8% from 1998 levels. Foreign
revenue increased $99.5 million or 7.6% during the first nine months of 1999
compared to 1998. Foreign revenue would have increased 11.2%, except for the
strengthening of the U.S. dollar against certain major currencies. Other income
increased $10.1 million in the first nine months of 1999 compared to the same
period in 1998.
Operating expenses increased $252.7 million or 10.7% during the nine months
ended September 30, 1999 compared to the same period in 1998. Interest expense
increased 10.4% during the nine months ended September 30, 1999 as compared to
the same nine-month period in 1998.
Pretax income increased $72.3 million or 19.8% during the nine months ended
September 30, 1999 compared to the same period in 1998.
The increase in total revenue, operating expenses, and pretax income is
primarily due to the effect of new business gains.
Net losses from exchange and translation of foreign currencies for the nine
months ended September 30, 1999 were approximately $3.2 million versus $2.6
million for the same period in 1998.
The effective tax rate for the nine months ended September 30, 1999 was 41.2%,
versus 41.3% for the same period in 1998.
Year 2000 Issue
The Year 2000 (or "Y2K") Issue refers to the problem caused by computer programs
that have been written to reflect two-digit years, with the century being
assumed as "19". This practice was widely accepted by the applications
development community in the 1960's through the early 1980's, with many of these
programs remaining in use today. As a result, programs that are date sensitive
may recognize the year "00" as 1900, rather than the year 2000. This may cause
programs to fail or cause them to incorrectly report and accumulate data.
The Company and its operating subsidiaries are in the final phases of executing
a Year 2000 readiness program with the goal of having all "mission critical"
systems functioning properly prior to January 1, 2000. Many of the subsidiaries
in the Company's larger markets are dependent upon third party systems
providers, while subsidiaries in the secondary markets rely primarily on
off-the-shelf applications or home-grown applications. Considerable progress has
been made with third party systems providers in larger markets with respect to
remediating their Year 2000 issues. Although the secondary markets present a
greater challenge, they typically involve smaller offices that are less
dependent upon automated solutions.
In 1997, the Company established a Y2K Project Management Office and shortly
thereafter created a Y2K Task Force, comprised of representatives from the
operating companies. Through the Y2K Task Force, the Company in conjunction with
outside consultants, is working to address the impact of the Year 2000 Issue on
the Company. The Company has inventoried and assessed date sensitive computer
software applications, and approximately 35% of systems were identified as
<PAGE>
requiring some degree of remediation. In addition, the Company has reviewed all
of its hardware believed to contain embedded chips, including personal
computers, file servers, mid-range and mainframe computers, telephone switches
and routers. The Company has also investigated its security systems, life safety
systems, HVAC systems and elevators in the majority of its facilities. As part
of this effort, the Company has identified those systems and applications that
are deemed "mission critical", which are being handled on a priority basis and
has developed a detailed project and remediation plan that includes system
testing schedules and contingency planning. To date the Company has completed
approximately 97% of its remediation and compliance testing for "mission
critical" applications, with the remaining 3% scheduled for completion by
November 30, 1999. The Company's Board of Directors, through the Audit
Committee, has been monitoring the progress of this project. Project progress
reports are given to the Audit Committee at each regularly scheduled Audit
Committee meeting.
The Company estimates that the modification and testing of its hardware and
software will cost approximately $20 million, of which approximately 90% has
been spent to date. Approximately 50% of the unexpended portion is allocated to
the retention of Y2K consultants that Interpublic will retain through the end of
1999. These costs are being expensed. In addition, the Company has accelerated
the implementation of a number of business process re-engineering projects over
the past few years that have provided both Year 2000 readiness and increased
functionality of certain systems. The Company estimates that the hardware and
software costs incurred in connection with these projects are approximately $53
million, which are being capitalized. Included in the above-mentioned Y2K costs
are internal costs incurred for the Y2K project which are primarily payroll
related costs for the information systems groups. A substantial portion of these
estimated costs relates to systems and applications that were anticipated and
budgeted.
The Company is also in the process of developing contingency plans for affected
areas of its operations. The Y2K Project Management Office has drafted a
Contingency Plan Guideline. This guideline requires the development of
contingency plans for applications, vendors, facilities, business partners and
clients. The contingency plans continue to be developed and refined to cover
those elements of the business that have been deemed "mission critical" and
extend beyond software applications. The contingency plans include procedures
for workforce mobilization, crisis management, facilities management, disaster
recovery and damage control, and are scheduled for completion by November 30,
1999. The Company nevertheless recognizes that contingency plans may need to be
adjusted thereafter and therefore considers them working documents.
The Company is assessing the Year 2000 readiness of material third parties by
asking all critical vendors, business partners and facility managers to provide
letters of compliance. In addition to having sent out over 70,000 vendor
compliance letters, the Company is conducting detailed tests and face to face
Y2K working sessions with those identified as key vendors with respect to
"mission critical" systems. Furthermore, the Company is working with the
American Association of Advertising Agencies and other trade associations to
form Year 2000 working groups that are addressing the issues on an industry
level.
The Company's efforts to address the Year 2000 Issue are designed to avoid any
material adverse effect on its operations or financial condition.
Notwithstanding these efforts, however, there is no assurance that the Company
will not encounter difficulties due to the Year 2000 Issue. The "most reasonably
likely worst case scenario" would be a significant limitation on the Company's
ability to continue to provide business services for an undetermined duration in
<PAGE>
those offices encountering difficulties. The Company also recognizes that it is
dependent upon infrastructure services and third parties, including suppliers,
broadcasters, utility providers and business partners, whose failure may also
significantly impact its ability to provide business services.
Cautionary Statement
Statements by the Company in this document and in other contexts concerning its
Year 2000 compliance efforts that are not historical fact are forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those anticipated in
the forward-looking statements, including, but not limited to, the following:
(i) uncertainties relating to the ability of the Company to identify and address
Year 2000 issues successfully and in a timely manner and at costs that are
reasonably in line with the Company's estimates; and (ii) the ability of the
Company's vendors, suppliers, other service providers and customers to identify
and address successfully their own Year 2000 issues in a timely manner.
Conversion to the Euro
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency (the "Euro"). The Company conducts business in member
countries. The transition period for the introduction of the Euro will be
between January 1, 1999, and June 30, 2002. The Company is addressing the issues
involved with the introduction of the Euro. The major important issues facing
the Company include: converting information technology systems; reassessing
currency risk; negotiating and amending contracts; and processing tax and
accounting records.
Based upon progress to date the Company believes that use of the Euro will not
have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the Euro is not expected to have a material effect on the
Company's financial condition or results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 2(c). CHANGES IN SECURITIES
(1) On July 5, 1999, a subsidiary of the Registrant acquired 100% of
the capital stock of a foreign company in consideration for which Registrant
paid $319,669.49 in cash and issued without registration 1,862 shares of the
Common Stock, $.10 par value of Registrant (the "Interpublic Stock") to the
shareholders of the acquired company. The shares of Interpublic Stock were
valued at $82,044.38 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act of 1933, as
amended, (the "Securities Act").
(2) On July 9, 1999, the Registrant issued 2,373 shares of Interpublic
Stock and on July 13, 1999 the Registrant paid $257,496 in cash to the former
shareholder of a company which was previously acquired. This represented a
deferred payment of the purchase price. The shares of Interpublic Stock were
valued at $85,832 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) under the Securities Act, based on the
sophistication of the acquired company's former stockholder.
(3) On July 9, 1999, a subsidiary of the Registrant acquired
substantially all of the assets and assumed substantially all the liabilities of
a domestic company in consideration for which the Registrant paid $1,310,000 in
cash and issued a total of 29,124 shares of Interpublic Stock to the security
holders of the company. The shares of Interpublic Stock had a market value of
$1,250,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4 (2) under the Securities Act, based on the
sophistication of the acquired company's former stockholders.
(4) On July 13, 1999, a subsidiary of the Registrant acquired 10.44% of
the capital stock of a foreign company in consideration for which Registrant
paid $493,803.69 in cash and issued 6,066 shares of Interpublic Stock to the
shareholder of the foreign company. The shares of Interpublic Stock were valued
at $265,387.50 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(5) On July 19, 1999, Registrant acquired 25% of the capital stock of a
foreign company in consideration for which Registrant paid $705,854 in cash and
issued 6,704 shares of Interpublic Stock to the shareholders of the company. The
shares of Interpublic Stock were valued at $576,251 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(6) On July 21, 1999, the Registrant issued 123,442 shares of
Interpublic Stock to shareholders of a foreign company as an additional payment
of the purchase price for 100% of the capital stock of the foreign company. The
Interpublic Stock had a market value of U.S. $5,360,000 on the date of issuance.
<PAGE>
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(7) On July 22, 1999, a subsidiary of the Registrant acquired 100% of
the capital stock of a foreign company in consideration for which Registrant
paid $3,468,375.16 in cash and issued 24,012 shares of Interpublic Stock to the
shareholders of the acquired company. The shares of Interpublic Stock were
valued at $985,992.75 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(8) On August 11, 1999, the Registrant issued 6,974 shares of
Interpublic Stock as a deferred payment to shareholders of a foreign company
previously acquired by a subsidiary of Registrant. The shares of Interpublic
Stock were valued at $275,908.88 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b)(3) of Regulation S under the Securities Act.
(9) On August 20, 1999, a subsidiary of the Registrant acquired 100% of
the issued and outstanding shares of a company in consideration for which the
Registrant paid $400,000 in cash and issued 4,874 shares of Interpublic Stock to
the acquired company's shareholders. The shares of Interpublic Stock had a
market value of $200,000 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) of the Securities Act.
(10) On August 23, 1999, the Registrant made a deferred payment of
purchase price of $263,000 and issued 55,657 shares of Interpublic Stock to the
former shareholder of a company. The shares of Interpublic Stock were valued at
$2,191,494 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) under the Securities Act, based on the
sophistication of the acquired company's former stockholder.
(11) On August 31, 1999, a subsidiary of the Registrant acquired 80% of
the assets of a company in consideration for which the Registrant paid
$3,500,000 in cash and issued 37,724 shares of Interpublic Stock to the selling
company. The shares of Interpublic stock had a market value of $1,500,000 on the
date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) of the Securities Act.
(12) On September 16, 1999, the Registrant issued a total of 140,194
shares of Interpublic Stock to the former shareholders of a domestic company.
These shares represented (i) a deferred payment of purchase price for 49% of the
equity of the company and (ii) the first payment for an additional 31% of the
shares of the company. In connection with the purchase of additional shares, the
Registrant also paid $8,952,390 in cash on August 3, 1999. The shares of
Interpublic Stock were valued at $5,327,372 on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) under the Securities Act, based on the
sophistication of the acquired company's former stockholders.
<PAGE>
(13) On September 28, 1999, the Registrant paid $3,097,000 and issued a
total of 26,657 shares of Interpublic Stock to shareholders of a foreign company
as a deferred payment of the purchase price for 60% of the capital stock of the
foreign company. The Interpublic Stock issued had a market value of $1,038,624
on the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in an "offshore transaction" and solely to "non-U.S. persons" in
reliance on Rule 903(b) (3) of Regulation S under the Securities Act.
(14) On September 29, 1999, the Registrant made an initial payment of
$750,000 and issued 6,581 shares of Interpublic Stock to shareholders of a
domestic company in connection with the acquisition of all of the assets of the
domestic company. The Interpublic Stock issued had a market value of $250,000 on
the date of issuance.
The shares of Interpublic Stock were issued by the Registrant without
registration in reliance on Section 4(2) of the Securities Act.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
EXHIBIT 10 Supplemental Agreement made as of July 28, 1999 to an Executive
Special Benefits Agreement made as of April 1, 1996 between the
Registrant and Martin Puris.
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 on behalf of the Registrant during
the quarter ended September 30, 1999.
<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: November 15, 1999 BY /S/ PHILIP H. GEIER, JR.
Philip H. Geier, Jr.
Chairman of the Board
President and Chief Executive
Officer
Date: November 15, 1999 BY /S/ EUGENE P. BEARD
Eugene P. Beard
Vice Chairman -
Finance and Operations
Date: November 15, 1999 BY /S/ FREDERICK MOLZ
Frederick Molz
Chief Accounting Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
EXHIBIT 10 Supplemental Agreement made as of July 28, 1999 to an Executive
Special Benefits Agreement made as of April 1, 1996 between the
Registrant and Martin Puris
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
EXHIBIT 10
SUPPLEMENTAL AGREEMENT
----------------------
SUPPLEMENTAL AGREEMENT made as of July 28, 1999 by and between
THE INTERPUBLIC GROUP OF COMPANIES, INC., a corporation of the State of Delaware
(hereinafter referred to as "Interpublic"), and MARTIN PURIS (hereinafter
referred to as "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Interpublic and Executive are parties to an Executive
Special Benefit Agreement made as of April 1, 1996 (hereinafter referred to as
the "Agreement"); and
WHEREAS, Interpublic and Executive desire to amend the
Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein
and in the Agreement set forth, the parties hereto, intending to be legally
bound, agree as follows:
1. Section 1.04 of the Agreement is hereby amended, effective
as of July 28, 1999, so as to delete "on or after Executive's sixty-fifth
birthday" and substitute, "on or after Executive's sixty-third birthday".
2. Section 1.05 of the Agreement is hereby amended, effective
as of July 28, 1999 so as to delete "Executive's sixty-third birthday but prior
to Executive's sixty-fifth birthday", and substitute "Executive's sixty-first
birthday but prior to Executive's sixty-third birthday" and delete
Last Day of Employment Annual Rate
- ---------------------- -----------
On or after 63rd birthday but prior to 64th birthday $230,000
On or after 64th birthday but prior to 65th birthday $265,000
and substitute
Last Day of Employment Annual Rate
- ---------------------- -----------
On or after 61st birthday but prior to 62nd birthday $230,000
On or after 62nd birthday but prior to 63rd birthday $265,000
<PAGE>
3. Section 2.01 of the Agreement is hereby amended, effective
as of July 28, 1999 so as to delete "Executive's sixty-third birthday" and
substitute "Executive's sixty-first birthday".
4. This Supplemental Agreement shall be governed by the
laws of the State of New York. Except as hereinabove
amended, the Agreement shall continue in full force
and effect.
THE INTERPUBLIC GROUP COMPANIES, INC.
By: /S/ C. KENT KROEBER
-----------------------------
C. KENT KROEBER
/S/ MARTIN PURIS
---------------------------------
MARTIN PURIS
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 September 30
-------------------------------
Basic 1999 1998<F1>
------------ ------------
Net income $ 59,044 $ 46,987
Weighted average number of common shares
outstanding 274,301,278 270,915,168
Earnings per common and
common equivalent share $ .22 $ .17
============ ============
Three Months Ended September 30
-------------------------------
Diluted 1999 1998<F1>
------------ ------------
Net income $ 59,044 $ 46,987
Add:
Dividends paid net of related income tax
applicable to restricted stock 163 129
------------ ------------
Net income, as adjusted $ 59,207 $ 47,116
============ ============
Weighted average number of common shares
outstanding 274,301,278 270,915,168
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 10,442,297 9,549,074
------------ ------------
Total 284,743,575 280,464,242
============ ============
Earnings per common and common equivalent
share $ .21 $ .17
============ ============
Note: The computation of diluted EPS for 1999 excludes the assumed conversion
of the 1.87% and 1.80% Convertible Subordinated Notes because they were
antidilutive. Similarly, the computation of diluted EPS for 1998 excludes
the assumed conversion of the 1.80% Convertible Subordinated Notes as they
were antidilutive.
<F1> All share data adjusted to reflect two-for-one stock split effective July
15, 1999.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands Except Per Share Data)
Nine Months Ended September 30
------------------------------
Basic 1999 1998 <F1>
----------- -----------
Net income $ 243,238 $ 203,237
Weighted average number of common shares
outstanding 273,565,998 270,908,867
Earnings per common share $ .89 $ .75
=========== ===========
Nine Months Ended September 30
------------------------------
Diluted 1999 1998 <F1>
----------- -----------
Net income $ 243,238 $ 203,237
Add:
After tax interest savings on assumed
conversion of subordinated debentures and notes - -
Dividends paid net of related income tax
applicable to restricted stock 466 405
----------- -----------
Net income, as adjusted $ 243,704 $ 203,642
=========== ===========
Weighted average number of common shares
outstanding 273,565,998 270,908,867
Weighted average number of incremental shares
in connection with restricted stock
and assumed exercise of stock options 10,520,233 10,152,302
Assumed conversion of subordinated
debentures and notes - 7,094
----------- -----------
Total 284,086,231 281,068,263
=========== ===========
Earnings per common and common equivalent share $ .86 $ .72
=========== ===========
Note: The computation of diluted EPS for 1999 excludes the assumed conversion
of the 1.87% and 1.80% Convertible Subordinated Notes because they were
antidilutive. Similarly, the computation of diluted EPS for 1998 excludes
the assumed conversion of the 1.80% Convertible Subordinated Notes as they
were antidilutive.
<F1> All share data adjusted to reflect two-for-one stock split effective July
15, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS. THE EPS PRIMARY NUMBER BELOW REFLECTS THE BASIC
EARNINGS PER SHARE AS REQUIRED BY FINANCIAL ACCOUNTING STANDARDS NUMBER 128.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 763,245 623,777
<SECURITIES> 46,408 46,440
<RECEIVABLES> 3,903,323 3,205,398
<ALLOWANCES> 46,998 53,776
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,237,792 4,362,123
<PP&E> 782,915 824,807
<DEPRECIATION> 458,854 414,480
<TOTAL-ASSETS> 7,657,675 6,309,527
<CURRENT-LIABILITIES> 4,901,849 4,174,089
<BONDS> 514,940 201,847
0 0
0 0
<COMMON> 29,628 14,536
<OTHER-SE> 1,376,518 1,161,208
<TOTAL-LIABILITY-AND-EQUITY> 7,657,675 6,309,527
<SALES> 0 0
<TOTAL-REVENUES> 3,103,516 2,773,955
<CGS> 0 0
<TOTAL-COSTS> 2,666,043 2,408,822
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,921 43,394
<INCOME-PRETAX> 437,473 365,133
<INCOME-TAX> 180,192 150,767
<INCOME-CONTINUING> 243,238 203,237
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 243,238 203,237
<EPS-BASIC> .89 .75
<EPS-DILUTED> .86 .72
</TABLE>
