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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report Commission file number
January 5, 2001 1-6686
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THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1024020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1271 Avenue of the Americas, New York, New York 10020
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 399-8000
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Item 5. OTHER EVENTS
In November 2000, the Interpublic Group of Companies, Inc. (the "Company")
acquired Deutsch, Inc. and its affiliate companies ("Deutsch") in a transaction
accounted for as a pooling of interests. This report on Form 8-K includes the
Company's supplemental consolidated financial statements and other financial
information restated to reflect the effect of the pooling of Deutsch.
These combined results will become the historical results of the Company upon
publication of financial results for a period inclusive of at least 30 days of
the financial results of Deutsch subsequent to the date of consummation of the
Deutsch transaction. This report may be incorporated by reference into other
reports or registration statements filed with the Securities and Exchange
Commission.
In April 2000, the Company acquired NFO Worldwide, Inc. ("NFO") in a transaction
accounted for as a pooling of interests. The results of NFO and several other
recent acquisitions, all of which have been accounted for as poolings of
interests, have been included in previously restated financial statements filed
on Form 8-K on September 15, 2000.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Other Exhibits
Exhibit 99 Financial Statements, Financial Information and Exhibits
Financial Highlights
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Supplemental Consolidated Financial Statements
Report of Independent Accountants
- PricewaterhouseCoopers LLP
- Arthur Andersen LLP
- Soteriou Banerji
- Ernst & Young
- Ernst & Young LLP
- J. H. Cohn LLP
Supplemental Consolidated Balance Sheet
December 31, 1999 and 1998
Supplemental Consolidated Statement of Income for the Years Ended
December 31, 1999, 1998 and 1997
Supplemental Consolidated Statement of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997
Supplemental Consolidated Statement of Stockholders' Equity and
Comprehensive Income For the Years Ended December 31, 1999, 1998
and 1997
Notes to Supplemental Consolidated Financial Statements
Selected Financial Data For Five Years
Results by Quarter (Unaudited)
Supplemental Consolidated Financial Statement Schedule
Schedule VIII: Valuation and Qualifying Accounts
Supplemental Consolidated Financial Statements
Supplemental Consolidated Balance Sheet
September 30, 2000 (unaudited) and December 31, 1999
Supplemental Consolidated Statement of Income for the Nine Months
Ended September 30, 2000 and 1999 (unaudited)
Supplemental Consolidated Statement of Comprehensive Income for
the Nine Months Ended September 30, 2000 and 1999 (unaudited)
<PAGE>
Supplemental Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (unaudited)
Notes to Supplemental Consolidated Financial Statements (unaudited)
Management's Discussion and Analysis of
Financial Condition and Results of Operations (unaudited)
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
For the Years Ended December 31, 1995, 1996, 1997, 1998 and 1999
For the Three Months Ended September 30, 2000 and 1999
For the Nine Months Ended September 30, 2000 and 1999
Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
Arthur Andersen LLP
Soteriou Banerji
Ernst & Young
Ernst & Young LLP
J. H. Cohn LLP
Exhibit 27 RESTATED FINANCIAL DATA SCHEDULE
For the Nine Months Ended September 30, 2000 and 1999
For the Years Ended December 31, 1999, 1998 and 1997
<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: January 5, 2001 BY /S/ FREDERICK MOLZ
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Frederick Molz
Vice President and Controller
<PAGE>
FINANCIAL HIGHLIGHTS
(Amounts in Thousands Except Per Share Data)
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December 31
Percent
Increase/
1999 1998 (decrease)
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Operating Data
Revenue $ 4,977,823 $ 4,218,657 18.0%
Net Income $ 331,287 $ 339,907 (2.5%)
Net Income Excluding
Restructuring(1) $ 382,724 $ 339,907 12.6%
Per Share Data(2)
Diluted EPS $ 1.07 $ 1.12 (4.5%)
Diluted EPS Excluding
Restructuring (1) $ 1.24 $ 1.12 10.7%
Cash Dividends $ .33 $ .29 13.8%
Share Price at December 31 $ 57 11/16 $ 39 7/8 44.7%
Weighted-average shares
Diluted 308,840 305,134 1.2%
Diluted Excluding
Restructuring(1) 315,532 305,134 3.4%
Financial Position
Cash and Cash Equivalents $ 1,029,076 $ 801,207 28.4%
Total Assets $ 9,247,044 $ 7,526,563 22.9%
Book Value Per Share(2) $ 5.75 $ 4.71 22.1%
Return on Average
Stockholders' Equity:
As Reported 20.7% 26.2%
Excluding Restructuring(1) 23.6% 26.2%
Revenue
1999 $4,977,823
1998 $4,218,657
1997 $3,610,706
Diluted Earnings Per Share(2)
1999 As Reported $ 1.07
1999 Excluding Restructuring(1) $ 1.24
1998 $ 1.12
1997 $ .76
Cash Dividends Per Share(2)
1999 $ .33
1998 $ .29
1997 $ .25
Return On Average Stockholders' Equity
1999 As Reported 20.7%
1999 Excluding Restructuring(1) 23.6%
1998 26.2%
1997 21.4%
All periods have been restated to reflect the aggregate effect of the
acquisitions accounted for as poolings of interests. (See Notes 15 and 16).
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[FN]
(1) Excludes the impact of restructuring and other merger-related costs.
(2) All share data for 1998 and 1997 has been adjusted to reflect the two-
for-one stock split effective July 15, 1999.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In November 2000, The Interpublic Group of Companies, Inc. (the "Company")
acquired Deutsch, Inc. and its affiliate companies ("Deutsch") in a transaction
accounted for as a pooling of interests. Deutsch is a full service advertising
agency servicing a broad range of clients. The Company's consolidated financial
statements and other financial information have been restated to reflect the
effect of the Deutsch pooling. In April 2000, the Company acquired NFO
Worldwide, Inc. ("NFO") in a transaction accounted for as a pooling of
interests. The results of NFO and several other recent acquisitions, all of
which have been accounted for as poolings of interests have been included in
previously restated financial statements. The following discussion relates to
the combined results of the Company after giving effect to all of the pooled
companies.
The Company reported net income of $331.3 million or $1.07 diluted earnings per
share for the year ended December 31, 1999. Excluding the impact of
restructuring and other merger related costs, which are described in a
subsequent section of this discussion, net income would have been $382.7 million
or $1.24 diluted earnings per share, compared to $339.9 million or $1.12 diluted
earnings per share for the year ended December 31, 1998 and $224.2 million or
$.76 diluted earnings per share for the year ended December 31, 1997.
The following table sets forth net income and earnings per share before and
after the restructuring and other merger related costs:
(Dollars in thousands)
1999 1998 1997
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Net income as reported $ 331,287 $ 339,907 $ 224,184
Earnings per share
Basic $ 1.11 $ 1.15 $ .79
Diluted $ 1.07 $ 1.12 $ .76
Net income before restructuring
and other merger related costs $ 382,724 $ 339,907 $ 224,184
Earnings per share
Basic $ 1.28 $ 1.15 $ .79
Diluted $ 1.24 $ 1.12 $ .76
Revenue
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Worldwide revenue for 1999 was $5.0 billion, an increase of $759 million or
18.0% over 1998. Domestic revenue, which represented 51% of worldwide revenue in
1999, increased $401 million or 18.6% over 1998. International revenue, which
represented 49% of worldwide revenue in 1999, increased $358 million or 17.4%
over 1998. International revenue would have increased 22% excluding the effect
of the strengthening of the U.S. dollar against major currencies. The increase
in worldwide revenue is a result of both growth from new business gains and
growth from acquisitions. Exclusive of acquisitions, worldwide revenue on a
constant dollar basis increased 9% over 1998.
<PAGE>
Revenue from other specialized marketing services, which include media buying,
market research, relationship (direct) marketing, public relations, sports and
event marketing, healthcare marketing and e-business consulting and
communications, comprised approximately 44% of total worldwide revenue in 1999,
compared to 38% in 1998.
Worldwide revenue for 1998 was $4.2 billion, an increase of $608 million or
16.8% over 1997. Domestic revenue, which represented 51% of worldwide revenue,
increased $306 million or 16.5% over 1997. International revenue increased $302
million or 17.2% over 1997. International revenue would have increased 23%
excluding the effect of the strengthening of the U.S. dollar against major
currencies.
Operating Expenses
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Worldwide operating expenses for 1999, excluding restructuring and other merger
related costs, were $4.3 billion, an increase of 18.4% over 1998. Operating
expenses outside the United States increased 16.7%, while domestic operating
expenses increased 20.0%. These increases were commensurate with the increases
in revenue. Worldwide operating expenses for 1998 were $3.6 billion, an increase
of 13.0% over 1997, comprised of an 17.8% increase in international expenses and
an 8.5% increase in domestic expenses.
Significant portions of the Company's expenses relate to employee compensation
and various employee incentive and benefit programs, which are based primarily
upon operating results. Salaries and related expenses were $2.7 billion in 1999
or 55.2% of revenue as compared to $2.3 billion in 1998 or 55.4% of revenue and
$2.0 billion in 1997 or 56.0% of revenue. The year over year dollar increase is
a result of growth from acquisitions and new business gains.
In 1997, as part of its continuing cost containment efforts, the Company
announced that it was curtailing its domestic pension plan effective April 1,
1998, and recorded pre-tax charges of approximately $16.7 million. The Company
continues to sponsor a domestic defined contribution plan.
Office and general expenses were $1.5 billion in 1999, $1.2 billion in 1998, and
$1.1 billion in 1997. The year over year increase is a result of the continued
growth of the Company.
In the fourth quarter of 1999, NFO recorded special charges of $22 million as a
result of the difficult competitive environment due to client consolidation in
the financial services industry. Approximately $16 million of the special
charges related to the write-off of intangible assets which were deemed
permanently impaired.
Income from Operations
----------------------
Income from operations for 1999 was $578 million. Excluding restructuring and
other merger related costs, income from operations for 1999 was $663 million, an
increase of $90 million or 16% over 1998. Exclusive of acquisitions, foreign
exchange fluctuations and amortization of intangible assets, income from
operations increased 16% for 1999 compared to 1998.
Income from operations for 1998 was $573 million compared to $383 million in
1997, an increase of 50%. The increase is a result of growth from acquisitions
and new business gains.
Special Compensation Charges
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During 1997, Hill, Holliday, Connors, Cosmopulos, Inc. ("Hill Holliday"), a
company acquired in a pooling of interests transaction in the second quarter of
1998, recorded special compensation charges of approximately $32 million.
<PAGE>
Restructuring and Other Merger Related Costs
--------------------------------------------
In October 1999, the Company announced the merger of two of its advertising
networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris
Lintas were combined to form a new agency network called Lowe Lintas & Partners
Worldwide. The merger involves the consolidation of operations in Lowe Lintas
agencies in approximately 24 cities in 22 countries around the world. Once
complete, the newly merged agency network will have offices in over 80 countries
around the world.
During the fourth quarter of 1999, the Company began execution of a
comprehensive restructuring plan in connection with the merger. The plan
includes headcount reductions, consolidation of real estate and the sale or
disposition of certain investments, and is expected to be completed by June 30,
2000. The Company is pleased with the progress of the merger to date and expects
the total costs to be in line with its original estimate.
The total pre-tax cost of the restructuring plan is expected to be between $170
and $190 million, ($100 to $115 million, net of tax). In the fourth quarter of
1999, the Company recognized pre-tax costs of $84.2 million ($51.4 million, net
of tax or $.17 per diluted share), with the remainder expected to be recognized
in the first two quarters of 2000.
A summary of the components of the total restructuring and other merger related
costs, together with an analysis of the cash and non-cash elements, is as
follows:
(Dollars in millions)
1999 Cash Non-Cash
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TOTAL BY TYPE
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Severance and termination costs $44.9 $27.0 $17.9
Fixed asset write-offs 11.1 -- 11.1
Lease termination costs 3.8 3.8 --
Investment write-offs and other 24.4 1.1 23.3
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Total $84.2 $31.9 $52.3
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The severance and termination costs recorded in 1999 relate to approximately 230
employees who have been terminated or notified that they will be terminated. The
employee groups affected include executive and regional management,
administrative, account management, creative and media production personnel,
principally in the U.S. and U.K. The charge related to these individuals
includes the cost of voluntary programs in certain locations and includes
substantially all senior executives that will be terminated. As of December 31,
1999, the amount accrued related to severance and termination was approximately
$42.6 million. During the fourth quarter of 1999, cash payments of $2.3 million
were made.
The fixed assets write-off relates largely to the abandonment of leasehold
improvements as part of the merger. The amount recognized in 1999 relates to
fixed asset write-offs in 6 offices principally in the United States.
Lease termination costs relate to the offices vacated as part of the merger. The
lease terminations are expected to be completed by mid-to-late 2000, with the
cash portion to be paid out over a period of up to five years. As of December
31, 1999, the amount accrued related to these termination costs was $3.8
million.
<PAGE>
The investment write-offs relate to the loss on sale or closing of certain
business units. In 1999, $23 million has been recorded as a result of the
decision to sell or abandon 4 European businesses. In the aggregate, the
businesses being sold or abandoned represent an immaterial portion of the
revenue and operations of Lowe Lintas & Partners. The write-off amount was
computed based upon the difference between the estimated sales proceeds (if any)
and the carrying value of the related assets. These sales or closures are
expected to be completed by mid 2000.
The Company expects to benefit from the resulting reduction in employee related
costs, compensation, benefits and space occupancy. These benefits will begin to
be realized in the second half of 2000. It is anticipated that a significant
portion of the savings will be offset by investments in creative talent,
technology and other capabilities to support the acceleration of growth in the
future. The Company anticipates that beginning 2001 its after-tax results of
operations will benefit by between $20 to $25 million.
Interest Expense
----------------
Interest expense was $81 million in 1999, $64 million in 1998 and $60 million in
1997. The increase in 1999 was attributable to the issuance of the 1.87%
Convertible Subordinated Notes due 2006, issued in June 1999, in addition to
other borrowings to fund a portion of the acquisition of Infratest Burke
Aktiengesellschaft Holdings, one of the top custom marketing research firms in
Europe, in November 1998.
Other Income, Net
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Other income, net primarily consists of interest income, investment income and
net gains from equity investments. Other income, net included gains from the
Company's investments in various interactive based companies, including
Nicholson NY, Inc., Lycos and USWEB in 1999, gains related to investments in
USWEB, CKS Group, Inc. and Lycos in 1998, and gains on the sale of investments,
including All American Communications, Inc. and CKS Group, Inc. in 1997. In the
aggregate, annual net equity gains remained relatively constant during the
three-year period.
Other Items
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Income applicable to minority interests increased by $5.5 million in 1999 and by
$3.7 million in 1998. The 1999 and 1998 increases were primarily due to the
strong performance of companies that were not wholly owned, as well as the
acquisition of additional such entities during 1999 and 1998.
The Company's effective income tax rate was 40.6% in 1999, 40.5% in 1998 and
44.9% in 1997. The higher rate in 1997 was largely attributable to the special
compensation charges recorded by Hill Holliday.
As described in Note 4, prior to acquisition, Deutsch had elected to be treated
as an "S" Corporation and accordingly, its income tax expense was lower than it
would have been had Deutsch been treated as a "C" Corporation. Deutsch became a
"C" Corporation upon acquisition. Assuming Deutsch had been a "C" Corporation
since 1997, the pro forma effective tax rate of the Company would have been
41.7%, 40.9% and 45.2% respectively for 1999, 1998 and 1997.
<PAGE>
Cash Based Earnings
-------------------
Management believes that cash based earnings are a relevant measure of financial
performance as it better illustrates the Company's performance and ability to
support growth. The Company defines cash based earnings as net income, adjusted
to exclude amortization of intangible assets, net of tax where applicable. Cash
based earnings are not calculated in the same manner by all companies and are
intended to supplement, not replace, the other measures calculated in accordance
with generally accepted accounting principles. Cash based earnings for the three
years ending December 31, 1999, 1998, and 1997 were as follows:
(Amounts in thousands except per share data)
1999 1998 1997
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Net income as reported $331,287 $339,907 $224,184
Restructuring and other
merger related costs, net of tax 51,437 -- --
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Net income, as adjusted 382,724 339,907 224,184
Add back amortization
of intangible assets 99,326 61,396 45,682
Less related tax effect (13,031) (6,146) (5,228)
---------------------------------------
Cash based earnings (as
defined above) $469,019 $395,157 $264,638
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Per share amounts (diluted) $1.51 $1.30 $.90
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong during 1999, with cash and cash
equivalents at December 31, 1999, of $1.0 billion, an increase of $227.9 million
over the 1998 year-end balance. Working capital at December 31, 1999, was $171.0
million, which was $74.1 million higher than the level at the end of 1998. The
increase in working capital was largely attributable to proceeds of
approximately $300 million from the 1.87% Convertible Subordinated Notes due
2006 issued in June, 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.
Net cash provided by operating activities was $610 million, $552 million and
$292 million for the years ended December 31, 1999, 1998, and 1997,
respectively. The Company's working capital is used primarily to provide for the
operating needs of its subsidiaries, 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 for
media on a timely basis. Other uses of working capital include the repurchase of
the Company's common stock, payment of cash dividends, capital expenditures and
acquisitions.
The Company acquires shares of its stock on an ongoing basis. During 1999, the
Company purchased approximately 6.5 million shares of its common stock, compared
to 4.9 million shares in 1998. The Company repurchases its stock for the purpose
of fulfilling its obligations under various compensation plans.
<PAGE>
The Company, excluding pooled entities, paid $90.4 million ($.33 per share) in
dividends to stockholders in 1999, as compared to $76.9 million ($.29 per share)
paid during 1998.
The Company's capital expenditures in 1999 were $186.7 million compared to
$159.6 million in 1998 and $123.3 million in 1997. The primary purposes of these
expenditures were to upgrade computer and telecommunications systems to better
serve clients and to modernize offices.
During 1999, the Company paid approximately $559 million in cash and stock for
new acquisitions, including a number of marketing communications companies to
complement its existing agency systems and to optimally position itself in the
ever-broadening communications marketplace. This amount includes the value of
stock issued for pooled companies.
The Company and its subsidiaries maintain credit facilities in the United States
and in countries where they conduct business to manage their future liquidity
requirements. The Company's available short-term credit facilities were $510
million, of which $80 million were utilized at December 31, 1999, and $576
million, of which $118 million were utilized at December 31, 1998.
Return on average stockholders' equity was 20.7% in 1999 and 26.2% in 1998.
Excluding restructuring and other merger related costs, return on average
stockholders' equity was 23.6% in 1999. The decline in 1999 was primarily
attributable to a $159 million increase in net unrealized holding gains on
equity investments, which are included in stockholders' equity.
As discussed in Note 12, revenue from international operations was 49% of total
revenue in 1999, 1998 and 1997. The Company continuously evaluates and attempts
to mitigate its exposure to foreign exchange, economic and political risks. The
notional value and fair value of all outstanding forwards and options contracts
at the end of the year were not significant. In addition, the economic
developments in Brazil, which did not have a significant negative impact on the
Company, were partially offset by the favorable impact due to the economic
recovery in Japan.
The Company is not aware of any significant occurrences that 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 meet future needs.
OTHER MATTERS
Internet-Services Companies
---------------------------
During 1999, the Company expanded its investment in internet-service and related
companies. In December 1999, the Company announced the establishment of Zentropy
Partners, a new global internet-services company that integrates the building
and marketing of digital businesses. At its formation, Zentropy Partners had
annualized revenue exceeding $50 million and was positioned to serve clients out
of 11 offices in Europe and North America.
In April 1999, the Company invested $20 million for a minority interest in Icon
Medialab International AB ("Icon"), a Swedish based internet consultancy. Later
in the year, the Company increased its investment in Icon through the
contribution of other investments and through additional cash purchases.
<PAGE>
On October 19, 1999, NFO announced the formation of InsightExpress, LLC, a new
Internet company formed to provide real-time consumer input to the desktops of
decision-makers in companies of all sizes worldwide. InsightExpress is a fully
automated web-enabled survey system that will allow its customers to test new
ideas, screen new concepts, gauge customer satisfaction, survey employees, test
advertising, and gather insight into the needs, attitudes, and behaviors of
consumers. InsightExpress is designed to provide these capabilities at a
fraction of the time and the cost of existing market research methods while
leveraging the worldwide client experience and panel expertise of NFO. To fund
its development and growth, InsightExpress has raised a total of $25 million in
new venture capital from General Atlantic Partners and Engage Technologies.
In addition to the above, the Company maintains internet-service and related
divisions at several of its major operating divisions and has made strategic
investments in fourteen companies whose objectives revolve around consulting on
the use of technology to benefit customers.
Year 2000 Issue
---------------
Pursuant to the Year 2000 issue, the Company had developed programs to address
the possible exposures related to the impact of computer systems incorrectly
recognizing the year 2000 or "00" as 1900. As a result of implementation of its
programs, the Company did not experience any significant Year 2000 disruptions
during the transition from 1999 to 2000, and since entering 2000, the Company
has not experienced any significant Year 2000 disruptions to its business. In
addition, the Company is not aware of any significant disruptions impacting its
customers or suppliers. The Company will continue to monitor its computer
systems over the next several months. However, the Company does not anticipate
any significant impact related to Year 2000 problems that may affect its
internal computer systems. The Company will also continue to monitor the
activities of its business partners and critical suppliers and has developed
contingency plans should business partners or critical suppliers experience any
Year 2000 disruptions in the coming months.
Costs incurred to achieve Year 2000 readiness, which included modification to
existing systems, replacement of non-compliant systems and consulting resources
totaled $73 million. A total of $47 million was capitalized (related primarily
to hardware and software that provided both Year 2000 readiness and increased
the functionality of certain systems), and $26 million was expensed.
Cautionary Statement
--------------------
This Report on Form 8-K (the "Report"), including Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements. Statements that are not historical facts, including
statements about Interpublic's beliefs and expectations, are forward-looking
statements. These statements are based on current plans, expectations, estimates
and projections, and therefore you should not place undue reliance on them.
Forward-looking statements speak only as of the date they are made, and
Interpublic undertakes no obligation to update publicly any of them in light of
new information, future events or otherwise.
Forward-looking statements involve inherent risks and uncertainties. Interpublic
cautions you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such
factors include, but are not limited to, those associated with the effect of
national and regional economic conditions, the ability of Interpublic to attract
new clients and retain existing clients, the financial success and other
developments of the clients of Interpublic, developments from changes in the
regulatory and legal environment for advertising companies around the world,
Interpublic's ability to effectively integrate recent acquisitions and
Interpublic's ability to attract and retain key management personnel.
<PAGE>
New Accounting Guidance
-----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which had an initial adoption date by the
Company of January 1, 2000. In June 1999, the FASB postponed the adoption date
of SFAS 133 until January 1, 2001. The Company does not believe the effect of
adopting SFAS 133 will be material to its financial condition or results of
operations.
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 has not, and is not expected to have a material effect on
the Company's financial condition or results of operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Interpublic Group of Companies, Inc.
In our opinion, based upon our audits and the reports of the other auditors, the
accompanying supplemental consolidated balance sheets and the related
supplemental consolidated statements of income, of cash flows, and of
stockholders' equity and comprehensive income present fairly, in all material
respects, the financial position of The Interpublic Group of Companies, Inc. and
its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America. 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 did not
audit the financial statements of International Public Relations plc ("IPR"), a
wholly-owned subsidiary, which statements reflect revenues constituting
approximately 6% of the related 1997 supplemental consolidated financial
statements. We did not audit the financial statements of Hill, Holliday,
Connors, Cosmopulos, Inc. ("Hill Holiday"), a wholly-owned subsidiary which
statements reflect total net loss constituting approximately 15% of the related
1997 supplemental consolidated financial statements. We did not audit the
financial statements of NFO Worldwide, Inc. ("NFO"), a wholly-owned subsidiary,
which statements reflect total assets constituting approximately 5% of the
related 1999 supplemental consolidated financial statements. Additionally, we
did not audit the financial statements of Deutsch, Inc. and Subsidiary and
Affiliates ("Deutsch"), a wholly-owned subsidiary, which statements reflect
total net income constituting approximately 5% of the related 1999 supplemental
consolidated financial statements. Those statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for IPR, Hill
Holiday, NFO and Deutsch, is based solely on the reports of the other auditors.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, 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 and the reports of other
auditors provide a reasonable basis for the opinion expressed above.
As described in Note 16, to the supplemental consolidated financial statements,
on November 30, 2000, the Company merged with Deutsch in a transaction accounted
for as a pooling of interests. The accompanying supplementary consolidated
financial statements give retroactive effect of the merger of the Company with
Deutsch. Accounting principles generally accepted in the United States of
America proscribe giving effect to a consummated business combination accounted
for by the pooling of interests method in financial statements that do not
include the date of consummation. These financial statements do not extend
through the date of consummation; however, they will become the historical
consolidated financial statements of the Company and its subsidiaries after
financial statements covering the date of consummation of the business
combination are issued.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2000, except for Note 15 which is as of July 13, 2000 and Note 16
which is as of December 22,2000
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NFO Worldwide, Inc.:
We have audited the consolidated balance sheets of NFO Worldwide, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1999. These
financial statements (not presented separately herein) are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 1997 financial
statements of The MBL Group plc, included in the consolidated financial
statements of NFO Worldwide, Inc., which statements reflect total revenues of 26
percent of the related 1997 consolidated total, after adjustment to reflect
translation into U.S. dollars and accounting principles generally accepted in
the United States. The financial statements of The MBL Group plc, prior to those
adjustments, were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for The MBL Group plc, is based solely on the report of the
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NFO Worldwide, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule referred to in Item 14 (not
presented separately herein) is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the consolidated financial statements and,
in our opinion, based on our audit and the report of other auditors, fairly
states in all material respects the financial data required to be set forth
therein in relation to the consolidated financial statements taken as a whole.
Arthur Andersen LLP
New York, New York,
February 25, 2000
<PAGE>
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF THE MBL GROUP plc
We have audited the financial statements of The MBL Group plc for the year ended
December 31, 1997, which have been prepared under the historical cost convention
and in accordance with generally accepted accounting principles applicable in
the United Kingdom.
Respective Responsibilities of Directors and Auditors
The Company's directors are responsible for the preparation of financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially the same as those followed in
the United States. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion, the financial statements give a true and fair view of the
group's profit and cash flows for the year ended December 31, 1997, and have
been properly prepared in accordance with generally accepted accounting
principles in the United Kingdom.
Soteriou Banerji
Registered Auditors and Chartered Accountants
253 Gray's Inn Road
London, WC1X 8QT
Date February 23, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
INTERNATIONAL PUBLIC RELATIONS PLC
We have audited the consolidated statements of income, shareholders' equity and
cash flows of International Public Relations plc and subsidiaries for the
fourteen-month period ended 31 December 1997, all expressed in pounds sterling.
These financial statements, which are not separately presented herein, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards,
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and the
consolidated cash flows of International Public Relations plc and subsidiaries
for the fourteen-month period ended 31 December 1997 in conformity with United
States generally accepted accounting principles.
Ernst & Young
London
3 February 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Hill, Holliday, Connors, Cosmopulos, Inc.
We have audited the consolidated statements of operations, stockholders' equity
(deficit) and cash flows of Hill, Holliday, Connors, Cosmopulos, Inc. and
Subsidiaries (the Company) for the twelve months ended December 31, 1997, not
separately presented herein. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Hill, Holliday, Connors, Cosmopulos, Inc. and Subsidiaries for the
twelve-month period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
March 13, 1998
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Stockholder
Deutsch, Inc. and Subsidiary and Affiliates
We have audited the combined balance sheet of Deutsch, Inc. and
Subsidiary and Affiliates as of December 31, 1999, and the related combined
statements of income, stockholder's equity (deficiency) and cash flows for the
year then ended, which financial statements are respectively presented herein.
These combined financial statements are not the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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 combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of Deutsch,
Inc. and Subsidiary and Affiliates as of December 31, 1999, and their results of
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The combined financial statements have been restated to reflect the
correct treatment of payments made to the Company's sole stockholder. In
financial statements previously issued for the years ended December 31, 1999,
1998 and 1997, certain payments had been classified as bonuses which, it has
been determined, should have been reflected as distributions to the Company's
sole stockholder. Accordingly, the Company has restated the financial statements
to reflect the correct accounting for the payments and the related tax effects.
J.H. Cohn LLP
Roseland, New Jersey
November 28, 2000
<PAGE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DECEMBER 31
(Dollars in Thousands Except Per Share Data)
ASSETS 1999 1998
--------------------------
CURRENT ASSETS:
Cash and cash equivalents (includes
certificates of deposit: 1999-$150,343;
1998-$152,064) $1,029,076 $ 801,207
Marketable securities 36,765 31,733
Receivables (net of allowance for doubtful
accounts: 1999-$60,565; 1998-$54,060) 4,442,229 3,661,076
Expenditures billable to clients 337,769 300,067
Prepaid expenses and other current assets 147,085 156,314
--------------------------
Total current assets 5,992,924 4,950,397
--------------------------
OTHER ASSETS:
Investment in unconsolidated affiliates 62,225 62,244
Deferred taxes on income -- 92,756
Other investments and miscellaneous assets 719,024 362,154
--------------------------
Total other assets 781,249 517,154
--------------------------
FIXED ASSETS, AT COST:
Land and buildings 164,678 117,105
Furniture and equipment 783,698 742,191
--------------------------
948,376 859,296
Less: accumulated depreciation (506,975) (440,190)
--------------------------
441,401 419,106
Unamortized leasehold improvements 151,870 119,461
--------------------------
Total fixed assets 593,271 538,567
--------------------------
Intangible assets (net of accumulated
amortization: 1999-$607,417; 1998-$525,792) 1,879,600 1,520,445
--------------------------
TOTAL ASSETS $9,247,044 $7,526,563
==========================
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DECEMBER 31
(Dollars in Thousands Except Per Share Data)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Payable to banks $ 262,483 $ 215,078
Accounts payable 4,629,415 3,699,783
Accrued expenses 769,566 720,274
Accrued income taxes 160,484 218,381
---------------------------
Total current liabilities 5,821,948 4,853,516
---------------------------
NONCURRENT LIABILITIES:
Long-term debt 530,117 498,517
Convertible subordinated debentures
and notes 518,490 207,927
Deferred compensation and reserve
for termination allowances 348,172 325,007
Deferred taxes on income 45,888 --
Accrued postretirement benefits 50,226 49,919
Other noncurrent liabilities 86,127 102,000
Minority interests in consolidated
subsidiaries 81,612 59,246
---------------------------
Total noncurrent liabilities 1,660,632 1,242,616
---------------------------
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 - 315,921,839;
1998 - 309,954,039 31,592 30,995
Additional paid-in capital 783,897 574,246
Retained earnings 1,392,224 1,166,785
Accumulated other comprehensive
loss, net of tax (76,695) (160,970)
--------------------------
2,131,018 1,611,056
Less:
Treasury stock, at cost:
1999 - 8,909,904 shares;
1998 - 6,411,028 shares 289,519 109,277
Unamortized expense of restricted stock grants 77,035 71,348
--------------------------
Total stockholders' equity 1,764,464 1,430,431
--------------------------
Commitments and contingencies
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,247,044 $7,526,563
===========================
All periods have been restated to reflect the aggregate effect of the
acquisitions accounted for as poolings of interests. (See Notes 15 and 16).
All share data for 1998 has been adjusted to reflect the two-for-one stock split
effective July 15, 1999.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
(Amounts in Thousands Except Per Share Data)
1999 1998 1997
-----------------------------------------
Revenue $ 4,977,823 $ 4,218,657 $ 3,610,706
Salaries and related expenses 2,745,956 2,339,894 2,020,243
Office and general expenses 1,469,862 1,244,771 1,129,639
Amortization of intangible assets 99,326 61,396 45,682
Special compensation charges -- -- 32,229
Restructuring and other merger
related costs 84,183 -- --
-----------------------------------------
Total operating expenses 4,399,327 3,646,061 3,227,793
-----------------------------------------
Income from operations 578,496 572,596 382,913
Interest expense (81,341) (64,296) (59,820)
Other income, net 103,562 98,555 117,150
-----------------------------------------
Income before provision
for income taxes 600,717 606,855 440,243
Provision for income taxes 243,971 245,636 197,665
-----------------------------------------
Income of consolidated companies 356,746 361,219 242,578
Income applicable to
minority interests (33,991) (28,503) (24,759)
Equity in net income of
unconsolidated affiliates 8,532 7,191 6,365
-----------------------------------------
Net Income $ 331,287 $ 339,907 $ 224,184
=========================================
Per Share Data:
Basic EPS $ 1.11 $ 1.15 $ .79
Diluted EPS $ 1.07 $ 1.12 $ .76
Weighted average shares:
Basic 297,992 294,756 283,796
Diluted 308,840 305,134 301,602
All periods have been restated to reflect the aggregate effect of the
acquisitions accounted for as poolings of interests. (See Notes 15 and 16).
All share data for 1998 and 1997 has been adjusted to reflect the two-for-one
stock split effective July 15, 1999.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
(Dollars in Thousands)
<CAPTION>
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 331,287 $ 339,907 $ 224,184
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization of fixed assets 128,302 110,086 88,847
Amortization of intangible assets 99,326 61,396 45,682
Amortization of restricted stock awards 25,926 20,272 16,222
Stock bonus plans/ESOP -- -- 1,389
Provision for (benefit of) deferred income taxes 9,316 (11,972) 7,432
Noncash pension plan charges -- -- 16,700
Equity in net income of unconsolidated affiliates (8,533) (7,191) (6,366)
Income applicable to minority interests 33,991 28,503 24,759
Translation losses/(gains) 690 1,034 (319)
Special compensation charges -- -- 31,553
Net gain on investments (43,390) (40,465) (44,626)
Restructuring costs, non-cash 52,264 -- --
Other (5,197) 12,667 (10,467)
Change in assets and liabilities,
net of acquisitions:
Receivables (820,510) (269,536) (357,380)
Expenditures billable to clients (24,413) (31,199) (51,247)
Prepaid expenses and other assets (121,945) (39,790) (30,892)
Accounts payable and accrued expenses 996,630 336,799 317,165
Accrued income taxes (64,423) 26,870 435
Deferred compensation and reserve for
termination allowances 20,496 14,537 18,571
------------------------------------
Net cash provided by operating activities 609,817 551,918 291,642
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net (248,406) (255,995) (110,317)
Capital expenditures (186,669) (159,596) (123,275)
Proceeds from sales of assets 72,542 28,346 114,494
Net (purchases of) proceeds from
marketable securities (9,114) 3,934 324
Other investments and miscellaneous assets (150) -- --
Investment in unconsolidated affiliates (10,531) (16,725) (9,191)
-------------------------------------
Net cash used in investing activities (382,328) (400,036) (127,965)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 47,592 15,304 31,188
Proceeds from long-term debt 405,927 220,494 280,847
Payments of long-term debt (70,126) (98,294) (36,404)
Proceeds from ESOP -- 7,420 --
Treasury stock acquired (300,524) (164,928) (144,094)
Issuance of common stock 66,130 35,239 38,664
Cash dividends - Interpublic (90,424) (76,894) (61,242)
Cash dividends - pooled companies (14,643) (16,461) (19,519)
------------------------------------
Net cash provided by (used in) financing activities 43,932 (78,120) 89,440
------------------------------------
Effect of exchange rates on
cash and cash equivalents (43,552) 10,998 (43,279)
------------------------------------
Increase in cash and cash equivalents 227,869 84,760 209,838
Cash and cash equivalents at beginning of year 801,207 716,447 506,609
-----------------------------------
Cash and cash equivalents at end of year $1,029,076 $ 801,207 $ 716,447
====================================
All periods have been restated to reflect the aggregate effect of the
acquisitions accounted for as poolings of interests. (See Notes 15 and 16).
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
(Dollars in Thousands)
<CAPTION>
Accumulated Unamortized
Common Additional Other Expense Unearned
Stock Paid-In Retained Comprehensive Treasury of Restricted ESOP
(par value $.10) Capital Earnings Income (loss) Stock Stock Grants Plan Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1998 $30,995 $574,246 $1,166,785 $(160,970) $(109,277) $(71,348) $ -- $1,430,431
Comprehensive income:
Net income $ 331,287 $ 331,287
Adjustment for minimum pension
liability 18,596 18,596
Change in market value of
securities available-for-sale 158,607 158,607
Foreign currency translation
adjustment (92,928) (92,928)
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $415,562
Cash dividends - IPG (90,424) (90,424)
Cash dividends - pooled companies (14,643) (14,643)
Equity adjustments - pooled companies (594) (594)
Awards of stock under
Company plans:
Achievement stock and
incentive awards 198 333 531
Restricted stock,
net of forfeitures 66 36,902 (7,927) (5,687) 23,354
Employee stock purchases 40 19,068 19,108
Exercise of stock options,
including tax benefit 276 81,539 81,815
Purchase of Company's own stock (300,524) (300,524)
Issuance of shares
for acquisitions 63,447 127,876 191,323
Par value of shares issued
for two-for-one stock split 187 (187) --
Other issuances 28 8,497 8,525
------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $31,592 $783,897 $1,392,224 $ (76,695) $(289,519) $(77,035) $ -- $1,764,464
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
(Dollars in Thousands)
<CAPTION>
Accumulated Unamortized
Common Additional Other Expense Unearned
Stock Paid-In Retained Comprehensive Treasury of Restricted ESOP
(par value $.10) Capital Earnings Income (loss) Stock Stock Grants Plan Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 $30,564 $431,872 $920,448 $(159,064) $ -- $(56,634) $(7,420) $1,159,766
Comprehensive income:
Net income $339,907 $ 339,907
Adjustment for minimum pension
liability (24,013) (24,013)
Change in market value of
securities available-for-sale (2,576) (2,576)
Foreign currency translation
adjustment 24,683 24,683
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $ 338,001
Cash dividends - IPG (76,894) (76,894)
Cash dividends - pooled companies (16,461) (16,461)
Awards of stock under
Company plans:
Achievement stock and
incentive awards 274 110 384
Restricted stock,
net of forfeitures 63 36,619 (2,406) (14,714) 19,562
Employee stock purchases 26 13,325 13,351
Exercise of stock options,
including tax benefit 123 42,518 42,641
Purchase of Company's own stock (164,928) (164,928)
Issuance of shares
for acquisitions 36,714 57,947 94,661
Conversion of convertible
debentures 3 1,002 1,005
Payments from ESOP 7,420 7,420
Par value of shares issued
for two-for-one stock split 215 (215) --
Other issuances 1 11,922 11,923
-----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 $30,995 $ 574,246 $1,166,785 $(160,970) $(109,277) $(71,348) $ -- $1,430,431
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1999
(Dollars in Thousands)
<CAPTION>
Accumulated Unamortized
Common Additional Other Expense Unearned
Stock Paid-In Retained Comprehensive Treasury of Restricted ESOP
(par value $.10) Capital Earnings Income (loss) Stock Stock Grants Plan Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 $15,501 $272,790 $791,383 $ (93,572) $ -- $(47,350) $(7,800) $ 930,952
Comprehensive income:
Net income $224,184 $ 224,184
Adjustment for minimum pension
liability 72 72
Change in market value of
securities available-for-sale 12,465 12,465
Foreign currency translation
adjustment (78,029) (78,029)
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income $158,692
Cash dividends - IPG (61,242) (61,242)
Cash dividends - pooled companies (19,519) (19,519)
Awards of stock under
Company plans:
Achievement stock and
incentive awards 787 175 962
Restricted stock,
net of forfeitures 53 27,821 (3,664) (9,284) 14,926
Employee stock purchases 23 9,684 9,707
Exercise of stock options,
including tax benefit 126 40,855 40,981
Purchase of Company's own stock (144,094) (144,094)
Issuance of shares
for acquisitions (72,129) 147,583 75,454
Conversion of convertible
debentures 443 118,357 118,800
Par value of shares issued
for three-for-two stock split 59 59
Payments from ESOP 380 380
Special compensation charges 27,324 27,324
Deferred stock bonus charges (4,876) (4,876)
Par value of shares issued for
two-for-one stock split 14,358 (14,358) --
Other issuances 1 11,259 11,260
-----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 $30,564 $431,872 $920,448 $(159,064) $ -- $(56,634) $(7,420) $1,159,766
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
All periods have been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.
(See Notes 15 and 16).
All share data for 1999, 1998 and 1997 has been adjusted to reflect the two-for-one stock split effective July 15, 1999.
</TABLE>
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a worldwide provider of advertising agency and related services.
The Company conducts business through the following subsidiaries:
McCann-Erickson WorldGroup, The Lowe Group, DraftWorldwide, Initiative Media
Worldwide, International Public Relations, Octagon, Zentropy Partners, NFO
Worldwide, Allied Communications Group, Deutsch, Inc. and other related
companies. The Company also has arrangements through association with local
agencies in various parts of the world. Other specialized marketing services
conducted by the Company include media buying, market research, relationship
(direct) marketing, public relations, sports and event marketing, healthcare
marketing and e-business consulting and communications.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, most of which are wholly owned. The Company also has certain
investments in unconsolidated affiliates that are carried on the equity basis.
The Company's consolidated financial statements, including the related notes,
have been restated as of the earliest period presented to include the results of
operations, financial position and cash flows of the 2000 pooled entities in
addition to all prior pooled entities.
The accompanying income statements have been prepared in a format different than
that used in the originally filed Form 10-K for the three years ended December
31, 1999. The changes made principally relate to the introduction of a new line
item - "Income from operations". Amounts previously included in "Other income,
net" as part of "Gross Income" are now included elsewhere in the Consolidated
Statement of Income.
Short-term and Long-term Investments
The Company's investments in marketable and equity securities are categorized as
available-for-sale securities, as defined by Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". Unrealized holding gains and losses are reflected as a net
amount within stockholders' equity until realized. The cost of securities sold
is based on the average cost of securities when computing realized gains and
losses.
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 within stockholders' equity except for
countries with highly inflationary economies, in which case they are included in
current operations.
<PAGE>
Revenues and Agency Costs
Revenues 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.
Long-lived Assets
The excess of purchase price over the fair value of net tangible assets acquired
is amortized on a straight-line basis over periods not exceeding 40 years.
Customer lists are amortized on a straight-line basis over the expected useful
life of the customer lists (generally 5 to 40 years).
The Company evaluates the recoverability of the carrying value of long-lived
assets whenever events or changes in circumstances indicate that the net book
value of an operation may not be recoverable. If the sum of projected future
undiscounted cash flows of an operation is less than its 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.
During 1999, the Company recorded a pre-tax charge of $16 million related to the
write-off of goodwill and customer lists within NFO's North American financial
services division. Cash flow analyses were performed, resulting in the
determination by management that the intangible assets within this division were
deemed to be permanently impaired.
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
The Company applies the principles of Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share". Basic earnings per share is
based on the weighted-average number of common shares outstanding during each
year. Diluted earnings per share also includes common equivalent shares
applicable to grants under the stock incentive and stock option plans and the
assumed conversion of convertible subordinated debentures and notes, if they are
determined to be dilutive.
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 in North
America, Latin America, Europe and the Asia 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.
<PAGE>
Segment Reporting
The Company provides advertising and many other closely related specialized
marketing services. All of these services fall within one reportable segment as
defined in Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information."
Accounting for Derivative Instruments and Hedging Activities In June 1998, the
FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which had an initial
adoption date by the Company of January 1, 2000. In June 1999, the FASB
postponed the adoption date of SFAS 133 until January 1, 2001. 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 the future level of forecasted and actual foreign
currency transactions, the extent of the Company's hedging activities, the type
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 or results of operations.
Reclassifications
Certain amounts for prior years have been reclassified to conform to current
year presentation.
NOTE 2: STOCKHOLDERS' EQUITY
On July 15, 1999, the stockholders approved a two-for-one stock split, effected
in the form of a payment of a 100 percent stock dividend to stockholders of
record on June 29, 1999. The number of shares of common stock reserved for
issuance pursuant to various plans under which stock is issued was increased by
100 percent. The two-for-one stock split has been reflected retroactively in the
consolidated financial statements and all per share data, shares, and market
prices of the Company's common stock included in the consolidated financial
statements and notes thereto have been adjusted to give effect to the stock
split.
<PAGE>
Comprehensive Income
Accumulated other comprehensive income (loss) amounts are reflected net of tax
in the consolidated financial statements as follows:
(Dollars in thousands)
Total
Accumulated
Foreign Unrealized Minimum Other
Currency Holding Pension Comprehensive
Translation Gains/ Liability Income/
Adjustment (Losses) Adjustment (Loss)
-------------------------------------------------
Balances, December 31, 1996 $ (80,270) $ -- $(13,302) $ (93,572)
Current-period change (78,029) 12,465 72 (65,492)
-----------------------------------------------
Balances, December 31, 1997 $(158,299) $ 12,465 $(13,230) $(159,064)
Current-period change 24,683 (2,576) (24,013) (1,906)
-----------------------------------------------
Balances, December 31, 1998 $(133,616) $ 9,889 $(37,243) $(160,970)
Current-period change (92,928) 158,607 18,596 84,275
-----------------------------------------------
Balances, December 31, 1999 $(226,544) $168,496 $(18,647) $ (76,695)
===============================================
The foreign currency translation adjustments are not tax-effected. See Note 13
for additional discussion of unrealized holding gains on investments.
<PAGE>
NOTE 3: EARNINGS PER SHARE
In accordance with SFAS 128, the following is a reconciliation of the components
of the basic and diluted EPS computations for income available to common
stockholders for the year ended December 31:
<TABLE>
(Dollars in Thousands Except Per Share Data)
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------------------
Per Per Per
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available
to common stockholders $331,287 297,992 $1.11 $339,907 294,756 $1.15 $224,184 283,796 $.79
Effect of Dilutive Securities:
Options 7,311 6,924 6,508
Restricted stock 631 3,537 541 3,454 447 3,277
3 3/4% Convertible
subordinated debentures -- -- -- -- 5,929 8,021
DILUTED EPS $331,918 308,840 $1.07 $340,448 305,134 $1.12 $230,560 301,602 $.76
-----------------------------------------------------------------------------------------------------
</TABLE>
The computation of diluted EPS for 1999, 1998, and 1997 excludes the assumed
conversion of the 1.80% Convertible Subordinated Notes and the 1999 computation
also excludes the 1.87% Convertible Subordinated Notes (See Note 10) because
they were antidilutive. In the fourth quarter of 1997, the Company redeemed
substantially all its 3 3/4% Convertible Subordinated Debentures due 2002.
All data for 1999, 1998, and 1997 has been restated to reflect the aggregate
effect of the acquisitions accounted for as poolings of interests. (See Notes 15
and 16).
All share data for 1998 and 1997 has been adjusted to reflect the two-for-one
stock split effective July 15, 1999.
NOTE 4: ACQUISITIONS
The Company acquired a number of advertising and communications companies during
the three-year period ended December 31, 1999. The aggregate purchase price,
including cash and stock payments for new acquisitions (including pooled
entities), was $559 million, $820 million and $378 million in 1999, 1998 and
1997, respectively. The aggregate purchase price for new acquisitions accounted
for as purchases and equity investments was $293 million, $405 million, and $144
million in 1999, 1998, and 1997, respectively.
<PAGE>
1999
In 1999, the Company paid $189 million in cash and issued 8,393,893 shares of
its common stock to acquire 56 companies. Of the acquisitions, 52 were accounted
for under the purchase method of accounting and 4 were accounted for under the
pooling of interests method. The Company also recorded a liability for
acquisition related deferred payments of $28 million, for cases where
contingencies related to acquisitions have been resolved.
For those entities accounted for as purchase transactions, the purchase price of
the acquisitions has been allocated to assets acquired and liabilities assumed
based on estimated fair values. The results of operations of the acquired
companies were included in the consolidated results of the Company from their
respective acquisition dates which occurred throughout the year. The companies
acquired in transactions accounted for as purchases included The Cassidy
Companies, Inc., Spedic France S.A., Mullen Advertising, Inc., and PDP
Promotions UK Ltd. None of the acquisitions was significant on an individual
basis.
In connection with the 1999 purchase transactions, goodwill of approximately
$254 million was recorded. The purchase price allocations made in 1999 are
preliminary and subject to adjustment. Goodwill related to the acquisitions is
being amortized on a straight-line basis over their estimated useful lives.
On December 1, 1999, the Company acquired Brands Hatch Leisure Plc. for
5,158,122 shares of stock. The acquisition has been accounted for as a pooling
of interests. Additionally, during 1999 the Company issued 641,596 shares to
acquire 3 other companies which have been accounted for as poolings of
interests.
The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the 1999 purchase acquisitions had been completed as
of January 1, 1998. The pro forma data give effect to actual operating results
prior to the acquisition, adjusted to include the estimated pro forma effect of
interest expense, amortization of intangibles and income taxes. These pro forma
amounts do not purport to be indicative of the results that would have actually
been obtained if the acquisitions occurred as of the beginning of the periods
presented or that may be obtained in the future.
For the year ended December 31, 1999
(Amounts in thousands except per share data)
Pre- Pro forma IPG
acquisition with 1999
IPG results acquisitions
(as reported) (unaudited) (unaudited)
------------- ----------- -----------
Revenues $4,977,823 $104,529 $5,082,352
Net income 331,287 7,101 338,388
Earnings per share:
Basic 1.11 1.14
Diluted 1.07 1.10
Net income amounts shown in the table above include restructuring and other
merger related costs of $51.4 million, net of tax.
<PAGE>
For the year ended December 31, 1998
(Amounts in thousands except per share data)
Results Pro forma IPG
of 1999 with 1999
IPG acquisitions acquisitions
(as reported) (unaudited) (unaudited)
------------- ----------- -----------
Revenues $4,218,657 $446,833 $4,665,490
Net income 339,907 15,819 355,726
Earnings per share:
Basic 1.15 1.21
Diluted 1.12 1.17
Unaudited pro forma consolidated results after giving effect to business
acquired in purchase transactions during 1998 would not have been materially
different from the reported amounts for 1998.
1998
In 1998, 14,956,534 shares of the Company's common stock were issued for
acquisitions accounted for as poolings of interests. The companies pooled and
the respective shares of the Company's common stock issued were: International
Public Relations Plc. - 5,280,346 shares, Hill Holliday - 4,124,868 shares, The
Jack Morton Company - 4,271,992 shares, Carmichael Lynch, Inc. - 973,808 shares
and KBA Marketing - 305,520 shares.
In 1998, the Company paid $282 million in cash and issued 2,718,504 shares of
its common stock to acquire 77 companies, all of which have been accounted for
as purchases. These acquisitions included Gillespie, Ryan McGinn, CSI, Flammini,
Gingko, Defederico, Herrero Y Ochoa, Infratest Burke AG, CF Group, MarketMind
Technologies, and Ross-Cooper-Lund. The Company also recorded a liability for
acquisition related deferred payments of $24 million.
1997
In 1997, the Company issued 10,789,079 shares of its common stock for
acquisitions accounted for as poolings of interests. Some of the companies
pooled and the respective shares of the Company's common stock issued were:
Complete Medical Group - 1,417,578 shares, The MBL Group plc - 1,126,114 shares,
Prognostics - 1,425,123 shares, Integrated Communications Corporation- 1,170,108
shares, Advantage International - 1,158,412 shares and Ludgate - 1,078,918
shares. Additional companies accounted for as poolings of interests include
Adler Boschetto Peebles, Barnett Fletcher, Davies Baron, Diefenbach Elkins, D.L.
Blair, Rubin Barney & Birger, Inc. and Technology Solutions Inc.
In 1997, the Company also paid $101.1 million in cash and issued 2,792,950
shares of its common stock for acquisitions accounted for as purchases and
equity investments. These acquisitions included Marketing Corporation of
America, Medialog, The Sponsorship Group, Kaleidoscope and Addis Wechsler (51%
interest). The Company increased its interest in Campbell Mithun Esty by 25%.
The Company also recorded a liability for acquisition related deferred payments
of $38 million.
Deferred Payments
Certain of the Company's acquisition agreements provide for deferred payments by
the Company, contingent upon future revenues or profits of the companies
acquired. Deferred payments of both cash and shares of the Company's common
stock for prior years' acquisitions were $210 million, $84 million, and $51
million in 1999, 1998 and 1997, respectively. Such payments are capitalized and
recorded as goodwill.
<PAGE>
Investments
During 1999, the Company sold a portion of its investments in Lycos and USWEB
for combined proceeds of approximately $56 million. Additionally, the Company
sold its minority investment in Nicholson NY, Inc. to Icon for $19 million in
shares of Icon's common stock.
During 1998, the Company sold a portion of its investments in USWEB, CKS Group,
Inc. and Lycos with combined proceeds of approximately $20 million. These
investments are being accounted for as available-for-sale securities, pursuant
to the requirements of SFAS 115.
During 1997, the Company sold its investment in All American Communications,
Inc. for approximately $77 million.
Restatement
As discussed in Note 16, the Company acquired Deutsch in November 2000 in a
transaction which was accounted for as a pooling of interests. The accompanying
consolidated financial statements, including the related notes, have been
restated as of the earliest period presented to include the results of
operations, financial position and cash flows of Deutsch.
In April 2000, the Company acquired NFO in a transaction accounted for as a
pooling of interests. The results of NFO and several other recent acquisitions
accounted for as poolings of interests have been included in previously restated
financial statements.
Revenue and net income for Deutsch included in the supplemental consolidated
statement of income for the years ending December 31, 1999, 1998 and 1997 are
summarized below.
Net Income/
Revenue (Loss)
---------- -----------
For the year ended December 31, 1999:
As Previously Restated $4,892,912 $315,243
Deutsch 84,911 16,044
As Restated $4,977,823 $331,287
For the year ended December 31, 1998:
As Previously Restated $4,167,788 $333,593
Deutsch 50,869 6,314
As Restated $4,218,657 $339,907
For the year ended December 31, 1997:
As Previously Restated $3,582,601 $220,211
Deutsch 28,105 3,973
As Restated $3,610,706 $224,184
Prior to its acquisition by the Company, Deutsch elected to be treated as an "S"
Corporation under applicable sections of the Internal Revenue Code as well as
for state income tax purposes. Accordingly, income tax expense was lower than
would have been the case had Deutsch been treated as a "C" Corporation. Deutsch
became a "C" Corporation upon its acquisition by the Company. On a pro forma
basis, assuming "C" Corporation status, net income for Deutsch and the Company
would have been as follows:
<PAGE>
(Dollars in thousands)
1999 1998 1997
-------------------------------
Deutsch, as reported $ 16,044 $ 6,314 $ 3,973
Deutsch, pro forma 9,518 3,833 2,431
-------------------------------
Pro forma tax adjustment (6,526) (2,481) (1,542)
-------------------------------
IPG, as restated 331,287 339,907 224,184
-------------------------------
IPG, pro forma $324,761 $337,426 $222,642
===============================
NOTE 5: PROVISION FOR INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 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 provision for income taxes are as follows:
(Dollars in thousands) 1999 1998 1997
------ ---- ----
Domestic $365,118 $322,651 $201,359
Foreign 235,599 284,204 238,884
---------------------------------------
Total $600,717 $606,855 $440,243
=======================================
The provision for income taxes consisted of:
Federal Income Taxes (Including
Foreign Withholding Taxes):
Current $ 92,018 $110,226 $ 75,736
Deferred 19,891 4,335 3,683
---------------------------------------
111,909 114,561 79,419
---------------------------------------
State and Local Income Taxes:
Current 23,168 23,713 24,384
Deferred 4,252 802 286
---------------------------------------
27,420 24,515 24,670
---------------------------------------
Foreign Income Taxes:
Current 119,469 123,669 90,113
Deferred (14,827) (17,109) 3,463
---------------------------------------
104,642 106,560 93,576
---------------------------------------
Total $243,971 $245,636 $197,665
=======================================
<PAGE>
At December 31, 1999 and 1998 the deferred tax assets/(liabilities) consisted of
the following items:
(Dollars in thousands) 1999 1998
---- ----
Postretirement/postemployment benefits $ 52,317 $ 49,207
Deferred compensation 4,940 34,285
Pension costs 10,036 13,715
Depreciation (8,537) (10,953)
Rent (8,674) (6,424)
Interest 4,100 4,598
Accrued reserves 9,399 9,155
Investments in equity securities (140,320) (10,677)
Tax loss/tax credit carryforwards 47,783 47,293
Restructuring and other merger related costs 9,497 --
Other (196) (6,032)
-----------------------
Total deferred tax assets / (liabilities) (19,655) 124,167
Deferred tax valuation allowance 26,233 31,411
-----------------------
Net deferred tax assets / (liabilities) $(45,888) $ 92,756
=======================
The valuation allowance of $26.2 million and $31.4 million at December 31, 1999
and 1998, respectively, represents a provision for uncertainty as to the
realization of certain deferred tax assets, including U.S. tax credits and net
operating loss carryforwards in certain jurisdictions. The change during 1999 in
the deferred tax valuation allowance primarily relates to changes in the
deferred compensation tax item, net operating loss carryforwards and tax
credits. At December 31, 1999, there were $9.7 million of tax credit
carryforwards with expiration periods through 2004 and net operating loss
carryforwards with a tax effect of $38.1 million with various expiration
periods.
A reconciliation of the effective income tax rate as shown in the consolidated
statement of income to the federal statutory rate is as follows:
1999 1998 1997
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income tax benefit 2.8 3.7 4.1
Impact of foreign operations, including
withholding taxes 0.8 0.4 0.3
Goodwill and intangible assets 3.6 2.8 2.7
Effect of pooled companies 0.3 (0.8) 2.7
Other (1.9) (0.6) 0.1
------------------------
Effective tax rate 40.6% 40.5% 44.9%
========================
The Company's effective income tax rate was 40.6% in 1999, 40.5% in 1998 and
44.9% in 1997. The higher rate in 1997 was largely attributable to the special
compensation charges recorded by Hill Holliday.
<PAGE>
As described in Note 4, prior to its acquisition by the Company, Deutsch had
elected to be treated as an "S" Corporation and accordingly, its income tax
expense was lower than it would have been had Deutsch been treated as an "S"
Corporation. Deutsch became a "C" Corporation upon its acquisition by the
Company. Assuming Deutsch had been a "C" Corporation since 1997, the pro forma
effective tax rate for the Company would have been 41.7%, 40.9% and 45.2%
respectively for 1999, 1998 and 1997.
The total amount of undistributed earnings of foreign subsidiaries for income
tax purposes was approximately $585 million at December 31, 1999. It is the
Company's intention to reinvest undistributed earnings of its foreign
subsidiaries and thereby indefinitely postpone their remittance. Accordingly, 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. The additional taxes on that portion of
undistributed earnings which is available for dividends are not practicably
determinable.
NOTE 6: SUPPLEMENTAL CASH FLOW INFORMATION
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, 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 $186 million, $200 million and $133
million in 1999, 1998 and 1997, respectively. Interest payments were
approximately $57 million, $40 million and $32 million in 1999, 1998, and 1997,
respectively.
Noncash Financing Activity
During 1997, the Company redeemed all outstanding issues under the 3 3/4%
Convertible Subordinated Debentures due 2002. Substantially all of the
outstanding debentures were converted into approximately 8.6 million shares of
the Company's common stock.
Acquisitions
As more fully described in Note 4, the Company issued 8,393,893 shares,
17,942,578 shares, and 10,518,628 shares of the Company's common stock in
connection with acquisitions during 1999, 1998 and 1997, respectively. Details
of businesses acquired in transactions accounted for as purchases were as
follows:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Fair value of assets acquired $627,005 $726,601 $303,969
Liabilities assumed 148,637 319,676 90,303
-----------------------------------
Net assets acquired 478,368 406,925 213,666
Less: noncash consideration 186,210 91,077 96,814
Less: cash acquired 43,752 59,853 6,535
-----------------------------------
Net cash paid for acquisitions $248,406 $255,995 $110,317
===================================
<PAGE>
The amounts shown above exclude future deferred payments due in subsequent
years, but include cash deferred payments of $120 million, $55 million and $30
million made during 1999, 1998 and 1997, respectively.
NOTE 7: INCENTIVE PLANS
The 1997 Performance Incentive Plan ("1997 PIP Plan") was approved by the
Company's stockholders in May 1997 and includes both stock and cash based
incentive awards. The maximum number of shares of the Company's common stock
which may be granted in any year under the 1997 PIP Plan is equal to 1.85% of
the total number of shares of the Company's common stock outstanding on the
first day of the year adjusted for additional shares as defined in the 1997 PIP
Plan document (excluding management incentive compensation performance awards).
The 1997 PIP Plan also limits the number of shares available with respect to
awards made to any one participant as well as limiting the number of shares
available under certain awards. Awards made prior to the 1997 PIP Plan remain
subject to the respective terms and conditions of the predecessor plans. Except
as otherwise noted, awards under the 1997 PIP Plan have terms similar to awards
made under the respective predecessor plans.
Stock Options
Outstanding options are generally granted at the fair market value of the
Company's common stock on the date of grant and are exercisable as determined by
the Compensation Committee of the Board of Directors (the "Committee").
Generally, options become exercisable between two and five years after the date
of grant and expire ten years from the grant date.
Following is a summary of stock option transactions during the three-year period
ended December 31:
1999 1998 1997
--------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
--------------------------------------------------------
Shares under option,
beginning of year 29,505 $ 19 25,466 $ 13 25,230 $ 11
Options granted 4,743 39 8,399 32 4,830 19
Options exercised (4,497) 11 (3,108) 8 (3,549) 8
Options cancelled (2,124) 25 (1,252) 15 (1,045) 12
------ ------ ------
Shares under option,
end of year 27,627 $ 23 29,505 $ 19 25,466 $ 13
====== ====== ======
Options exercisable
at year-end 7,955 $ 13 6,954 $ 11 9,158 $ 9
<PAGE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:
(Shares in thousands)
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
-------------------------------------------------------------------------------
$ 4.33 to $9.99 2,990 2 $ 7 2,865 $ 8
10.00 to 14.99 3,422 5 11 3,093 11
15.00 to 24.99 9,996 7 17 1,666 20
25.00 to 56.28 11,220 9 36 612 30
Employee Stock Purchase Plan
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. The Company issued
approximately .5 million shares in 1999, 1998, and 1997, respectively, under the
ESPP. An additional 15.5 million shares were reserved for issuance at December
31, 1999.
SFAS 123 Disclosures
The Company applies the disclosure principles of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". As permitted by the provisions of SFAS 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.
If compensation cost for the Company's stock option plans and its ESPP had been
determined based on the fair value at the grant dates as defined by SFAS 123,
the Company's pro forma net income and earnings per share would have been as
follows:
(Dollars in Thousands Except Per Share Data)
1999 1998 1997
---- ---- ----
Net Income As reported $331,287 $339,907 $224,184
Pro forma $303,645 $322,084 $211,223
Earnings Per Share
Basic As reported $ 1.11 $ 1.15 $ .79
Pro forma $ 1.02 $ 1.09 $ .74
Diluted As reported $ 1.07 $ 1.12 $ .76
Pro forma $ 0.99 $ 1.06 $ .72
For purposes of this pro forma information, the fair value of shares issued
under the ESPP was based on the 15% discount received by employees. The
weighted-average fair value (discount) on the date of purchase for stock
purchased under this plan was $5.28, $3.82, and $2.68 in 1999, 1998, and 1997,
respectively.
<PAGE>
The weighted average fair value of options granted during 1999, 1998, and 1997
was $12.94, $8.85, and $5.91, respectively. The fair value of each option grant
has been estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
1999 1998 1997
---- ---- ----
Expected option lives 6 years 6 years 6 years
Risk free interest rate 5.72% 4.87% 6.51%
Expected volatility 19.73% 19.17% 19.17%
Dividend yield .81% .95% 1.3%
As required by SFAS 123, this pro forma information is based on stock awards
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.
Restricted Stock
Restricted stock issuances are subject to certain restrictions and vesting
requirements as determined by the Committee. The vesting period is generally
five to seven years. No monetary consideration is paid by a recipient for a
restricted stock award and the grant date fair value of these shares is
amortized over the restriction periods. At December 31, 1999, there was a total
of 7.0 million shares of restricted stock outstanding. During 1999, 1998 and
1997, the Company awarded .9 million shares, 1.3 million shares and 1.4 million
shares of restricted stock with a weighted-average grant date fair value of
$40.03, $28.99 and $19.48, respectively. The cost recorded for restricted stock
awards in 1999, 1998 and 1997 was $25.9 million, $20.3 million, and $16.2
million, respectively.
Performance Units
Performance units have been awarded to certain key employees of the Company and
its subsidiaries. The ultimate value of these performance units is contingent
upon the annual growth in profits (as defined) of the Company, its operating
components or both, over the performance periods. The awards are generally paid
in cash. The projected value of these units is accrued by the Company and
charged to expense over the performance period. The Company expensed
approximately $27 million, $20 million and $20 million in 1999, 1998, and 1997,
respectively.
Hill Holliday
Due to the merger of Hill Holliday and the Company, Hill Holliday recognized a
one-time compensation charge of approximately $32 million in 1997. Hill Holliday
had an Equity Participation Plan and certain other agreements for various
members of management, which provided for participants to receive a portion of
the proceeds in the event of the sale or merger of Hill Holliday. Also included
in the charge were costs primarily relating to consulting and supplemental
retirement agreements.
NOTE 8: RETIREMENT PLANS
Defined Benefit Pension Plans
Through March 31, 1998 the Company and certain of its domestic subsidiaries had
a defined benefit plan ("Domestic IPG Plan") which covered substantially all
regular domestic employees. Effective April 1, 1998 this Plan was curtailed, and
participants with five or less years of service became fully vested in the
Domestic Plan. Participants with five or more years of service as of March 31,
1998 retain their vested balances and participate in a new compensation plan.
<PAGE>
Under the new plan, each participant's account is credited with an annual
allocation, equal to the projected discounted pension benefit accrual plus
interest, while they continue to work for the Company. Participants in active
service are eligible to receive up to ten years of allocations coinciding with
the number of years of service with the Company after March 31, 1998. As a
result of the change in the Domestic Plan, the Company recorded charges of
approximately $16.7 million in the fourth quarter of 1997.
Net periodic pension costs for the Domestic IPG Plan for 1999, 1998 and 1997
were $1.3 million, $.9 million and $15.0 million, respectively. The 1997 net
periodic pension cost included a $10 million curtailment charge and $4 million
of service costs.
Additionally, NFO maintains a defined benefit plan ("NFO Plan") covering
approximately one half of NFO's U.S. employees. The periodic pension costs for
this plan for 1999, 1998, and 1997 were $.8 million, $.6 million and $.6
million, respectively.
The Company's stockholders' equity balance includes a minimum pension liability
of $18.6 million, $37.2 million and $13.2 million at December 31, 1999, 1998 and
1997, respectively.
The Company also 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 periodic pension costs for foreign pension plans for 1999, 1998 and 1997
included the following components:
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Service cost $ 9,619 $ 6,847 $ 5,460
Interest cost 11,759 10,908 10,633
Expected return on plan assets (9,380) (9,437) (10,537)
Amortization of unrecognized
transition obligation 390 373 324
Amortization of
prior service cost 833 482 552
Recognized actuarial loss / (gain) 508 (70) (1,440)
Other (9) -- --
--------------------------------
Net periodic pension cost $ 13,720 $ 9,103 $ 4,992
================================
<PAGE>
The following table sets forth the change in the benefit obligation, the change
in plan assets, the funded status and amounts recognized for the pension plans
in the Company's consolidated balance sheet at December 31, 1999, and 1998:
(Dollars in thousands)
Domestic Foreign
Pension Plans Pension Plans
------------------------------------------------
1999 1998 1999 1998
------------------------------------------------
Change in benefit obligation
Beginning obligation $ 166,538 $ 141,376 $ 220,964 $ 179,016
Service cost 768 627 9,619 6,847
Interest cost 9,869 10,367 11,759 10,908
Benefits paid (12,671) (12,899) (12,777) (9,447)
Participant contributions - - 2,410 1,606
Actuarial (gains) / losses (12,626) 27,067 (7,264) 29,882
Currency effect -- -- 1,440 5,245
Other -- -- 352 (3,093)
------------------------------------------------
Ending obligation 151,878 166,538 226,503 220,964
------------------------------------------------
Change in plan assets
Beginning fair value 129,755 122,157 161,975 145,942
Actual return on plan assets 15,354 12,292 30,651 17,363
Employer contributions 3,072 8,205 7,887 2,473
Participant contributions -- -- 2,410 1,606
Benefits paid (12,671) (12,899) (12,777) (9,447)
Currency effect -- -- 156 1,300
Other -- -- 2,437 2,738
------------------------------------------------
Ending fair value 135,510 129,755 192,739 161,975
------------------------------------------------
Funded status of the plans (16,368) (36,783) (33,764) (58,989)
Unrecognized net actuarial
loss/(gain) 18,927 38,439 (18,163) 11,536
Unrecognized prior service cost (13) (20) 3,704 2,921
Unrecognized transition cost -- -- 1,838 3,796
------------------------------------------------
Net asset/(liability)
recognized $ 2,546 $ 1,636 $ (46,385) $ (40,736)
================================================
At December 31, 1999 and 1998, the assets of the Domestic Plan and the foreign
pension plans were primarily invested in fixed income and equity securities.
For the Domestic Plans, discount rates of 7.75% in 1999, 6.75% to 7% in 1998 and
7.25% to 7.5% in 1997 and salary increase assumptions of 4.5% in 1999 (the NFO
Plan) 4.5% to 6% in 1998 and 4.75% to 6% in 1997 were used in determining the
actuarial present value of the projected benefit obligation. The expected return
of Domestic Plan assets was 9% to 9.5% in 1999 and 9% to 10% in each of 1998 and
1997. For the foreign pension plans, discount rates ranging from 3.75% to 14% in
1999, 4% to 14% in 1998, and 3.5% to 14% in 1997 and salary increase assumptions
ranging from 3% to 10% in 1999 and 2% to 10% in both 1998 and 1997 were used in
determining the actuarial present value of the projected benefit obligation. The
expected rates of return on the assets of the foreign pension plans ranged from
2% to 14% in 1999, 2% to 14% in 1998 and 3.5% to 14% in 1997.
<PAGE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the Domestic Plan were $152 million, $152 million and $136
million, respectively, as of December 31, 1999, and $167 million, $167 million,
and $130 million, respectively, as of December 31, 1998. The projected benefit
obligation, accumulated benefit obligation, and fair value of plan assets for
the foreign pension plans with accumulated benefit obligations in excess of plan
assets were $90 million, $72 million and $9 million respectively, as of December
31, 1999, and $81 million, $74 million and $3 million respectively, as of
December 31, 1998.
Other Benefit Arrangements
The Company also has special unqualified 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.
In addition to the defined benefit plans described above, the Company also
sponsors other defined contribution plans ("Savings Plan") that covers
substantially all domestic employees of the Company and participating
subsidiaries. The Savings Plan permits participants to make contributions on a
pre-tax and/or after-tax basis. The Savings Plan allows participants to choose
among several investment alternatives. The Company matches a portion of
participants' contributions based upon the number of years of service. The
Company contributed $12 million, $9.3 million and $7.2 million to the Savings
Plan in 1999, 1998 and 1997, respectively.
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 certain domestic employees 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.
The 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.
The net periodic expense for these postretirement benefits for 1999, 1998 and
1997 was $2.2 million, $3 million and $2.8 million, respectively.
<PAGE>
The following table sets forth the change in benefit obligation, change in plan
assets, funded status and amounts recognized for the Company's postretirement
benefit plans in the consolidated balance sheet at December 31, 1999 and 1998:
(Dollars in thousands)
1999 1998
---------------------
Change in benefit obligation
Beginning obligation $ 41,793 $ 42,863
Service cost 477 785
Interest cost 2,795 3,154
Participant contributions 90 77
Benefits paid (2,020) (1,722)
Plan amendments -- (68)
Actuarial gain (4,300) (3,296)
--------------------
Ending obligation 38,835 41,793
--------------------
Change in plan assets
Beginning fair value -- --
Actual return on plan assets -- --
Employer contributions 1,930 1,645
Participant contributions 90 77
Benefits paid (2,020) (1,722)
--------------------
Ending fair value -- --
--------------------
Funded status of the plans (38,835) (41,793)
Unrecognized net actuarial gain (9,440) (5,234)
Unrecognized prior service cost (1,951) (2,892)
--------------------
Net amount recognized $(50,226) $(49,919)
====================
Discount rates of 7.5% to 7.75% in 1999, 6.75% in 1998 and 7.25% in 1997 and
salary increase assumption of 4% to 6% in 1999 and 1998, and 4.75% to 6% in 1997
were used in determining the accumulated postretirement benefit obligation. A 7%
to 7.4% and an 8% increase in the cost of covered health care benefits were
assumed for 1999 and 1998, respectively. This rate is assumed to decrease
incrementally to approximately 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.
Postemployment Benefits
In accordance with SFAS 112 "Employers' Accounting for Postemployment Benefits",
the Company accrues costs relating to 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 approximately $64
million and $50 million at December 31, 1999 and 1998, respectively, and is
included in deferred compensation and reserve for termination allowances. The
net periodic expense recognized in 1999, 1998 and 1997 was approximately $34
million, $32 million and $31 million, respectively.
<PAGE>
NOTE 9: SHORT-TERM BORROWINGS
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 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 these
borrowings. Unused lines of credit by the Company and its subsidiaries at
December 31, 1999 and 1998 aggregated $430 million and $458 million,
respectively. The weighted-average interest rate on outstanding balances at
December 31, 1999 was approximately 5.8%. Current maturities of long-term debt
are included in the payable to banks balance.
NOTE 10: LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
(Dollars in thousands)
1999 1998
---------------------
Convertible Subordinated Notes - 1.87% $ 304,076 $ --
Convertible Subordinated Notes - 1.80% 214,414 207,927
Term loans - 4.20% to 7.91% (6.45% to 7.91% in 1998) 289,621 280,320
Senior Notes Payable to Banks under a Revolving Credit
Agreement Due March 2003 - 4.3% to 6.9% 35,603 53,045
Senior Notes Payable - 6.83% to 7.52% 102,000 95,000
Subordinated Notes - 9.84% 25,000 17,000
Germany mortgage note payable - 7.64% 26,779 31,680
Other mortgage notes payable and
long-term loans - 2.80% to 9.84% 75,026 44,370
---------------------
1,072,519 729,342
Less: current portion 23,912 22,898
---------------------
Long-term debt $1,048,607 $706,444
=====================
On June 1, 1999, the Company issued $361 million face amount of Convertible
Subordinated Notes due 2006. The 2006 notes were issued at an original price of
83% of the face amount, generating proceeds of approximately $300 million. The
notes are convertible into 6.4 million shares of the Company's common stock at a
conversion rate of 17.616 shares per $1,000 face amount. The fair value of the
2006 notes as of December 31, 1999, was approximately $416 million and was
determined by obtaining quotes from brokers.
On September 16, 1997, the Company issued $250 million face amount of
Convertible Subordinated Notes due 2004 ("2004 Notes") with a coupon rate of
1.80%. The 2004 Notes were issued at an original price of 80% of the face
amount, generating proceeds of approximately $200 million. The notes are
convertible into 6.7 million shares of the Company's common stock at a
conversion rate of 26.772 shares per $1,000 face amount. The fair value of the
2004 Notes as of December 31, 1999 was approximately $392 million and was
determined by obtaining quotes from brokers.
On March 9, 1998, the Company entered into a $75 million revolving credit
agreement. The $75 million revolving credit facility has an ultimate maturity
date of March 2003 and enables the Company to borrow in multiple currencies at
interest rates tied to LIBOR or the prime rate, at its option.
<PAGE>
In conjunction with the Infratest Burke acquisition and the financing thereof,
the Company amended its $75 million revolving credit facility and its $40
million Senior Notes, each originally dated March 9, 1998. The amendments
provide, among other things, that the Company obligations will be guaranteed by
certain subsidiaries of the Company. In addition, the amendments increased the
rates at which interest annually accrues under the obligations from 6.43% to
6.83%.
The Senior Notes Payable consist of four private placements of $40 million
Senior Notes both dated March 9, 1998 due March 1, 2008, $17 million Series A
Senior Notes and $38 million Series B Senior Notes dated November 20, 1998 due
November 15, 2005 and November 15, 2008, respectively, and $7 million Series B
Senior Notes dated March 26 due November 15, 2008.
The Subordinated Notes consist of the private placement of $8 million on March
26, 1999, and $17 million on November 20, 1998. The Subordinated Notes bear
interest at the fixed annual rate of 9.84%, mature November 15, 2008, and are
repayable in equal annual installments of $8.3 million beginning in 2006.
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 and thereafter is as follows:
2000-$24 million; 2001-$44.8 million; 2002-$113.8 million; 2003-$83.4 million;
2004-$277.9 million, and $528.6 million thereafter.
See Note 13 for discussion of fair market value of the Company's long-term debt.
NOTE 11: RESTRUCTURING AND OTHER MERGER RELATED COSTS
In October 1999, the Company announced the merger of two of its advertising
networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris
Lintas were combined to form a new agency network called Lowe Lintas & Partners
Worldwide. The merger involves the consolidation of operations in Lowe Lintas
agencies in approximately 24 cities in 22 countries around the world. Once
complete, the newly merged agency network will have offices in over 80 countries
around the world.
During the fourth quarter of 1999, the Company began execution of a
comprehensive restructuring plan in connection with the merger. The plan
includes headcount reductions, consolidation of real estate and the sale or
disposition of certain investments, and is expected to be completed by June 30,
2000. The Company is pleased with the progress of the merger to date and expects
the total costs to be in line with its original estimate.
The total pre-tax cost of the restructuring plan is expected to be between $170
and $190 million, ($100 to $115 million, net of tax). In the fourth quarter of
1999, the Company recognized pre-tax costs of $84.2 million ($51.4 million, net
of tax or $.17 per diluted share), with the remainder expected to be recognized
in the first two quarters of 2000.
<PAGE>
A summary of the components of the total restructuring and other merger related
costs, together with an analysis of the cash and non-cash elements, is as
follows:
(Dollars in millions)
1999 Cash Non-Cash
----------------------------------
TOTAL BY TYPE
-------------
Severance and termination costs $44.9 $27.0 $17.9
Fixed asset write-offs 11.1 -- 11.1
Lease termination costs 3.8 3.8 --
Investment write-offs and other 24.4 1.1 23.3
----------------------------------
Total $84.2 $31.9 $52.3
==================================
The severance and termination costs recorded in 1999 relate to approximately 230
employees who have been terminated or notified that they will be terminated. The
employee groups affected include executive and regional management,
administrative, account management, creative and media production personnel,
principally in the U.S. and U.K. The charge related to these individuals
includes the cost of voluntary programs in certain locations and includes
substantially all senior executives that will be terminated. As of December 31,
1999, the amount accrued related to severance and termination was approximately
$42.6 million. During the fourth quarter of 1999, cash payments of $2.3 million
were made.
The fixed assets write-off relates largely to the abandonment of leasehold
improvements as part of the merger. The amount recognized in 1999 relates to
fixed asset write-offs in 6 offices principally in the United States.
Lease termination costs relate to the offices vacated as part of the merger. The
lease terminations are expected to be completed by mid-to-late 2000, with the
cash portion to be paid out over a period of up to five years. As of December
31, 1999, the amount accrued related to these termination costs was $3.8
million.
The investment write-offs relate to the loss on sale or closing of certain
business units. In 1999, $23 million has been recorded as a result of the
decision to sell or abandon 4 European businesses. In the aggregate, the
businesses being sold or abandoned represent an immaterial portion of the
revenue and operations of Lowe Lintas & Partners. The write-off amount was
computed based upon the difference between the estimated sales proceeds (if any)
and the carrying value of the related assets. These sales or closures are
expected to be completed by mid 2000.
<PAGE>
NOTE 12: GEOGRAPHIC AREAS
Long-lived assets and revenue are presented below by major geographic area:
(Dollars in thousands)
1999 1998 1997
-----------------------------------
Long-Lived Assets:
United States $1,784,072 $1,198,067 $ 918,674
-----------------------------------
International
United Kingdom 477,774 393,348 215,963
All other Europe 685,521 641,895 505,797
Asia Pacific 151,083 141,113 94,432
Latin America 79,401 58,134 51,790
Other 76,269 50,853 42,041
-----------------------------------
Total International 1,470,048 1,285,343 910,023
-----------------------------------
Total Consolidated $3,254,120 $2,483,410 $1,828,697
===================================
Revenue:
United States $2,560,161 $2,158,777 $1,852,959
-----------------------------------
International
United Kingdom 527,250 450,103 353,086
All other Europe 1,140,532 902,602 748,720
Asia Pacific 346,205 325,758 348,707
Latin America 213,260 232,940 204,894
Other 190,415 148,477 102,340
-----------------------------------
Total International 2,417,662 2,059,880 1,757,747
-----------------------------------
Total Consolidated $4,977,823 $4,218,657 $3,610,706
===================================
Revenue is attributed to geographic areas based on where the services are
performed. Property and equipment is allocated based upon physical location.
Intangible assets, other assets, and investments are allocated based on the
location of the related operation.
The largest client of the Company contributed approximately 7% in 1999, 7% in
1998 and 9% in 1997 to revenue. The Company's second largest client contributed
approximately 4% in 1999, 4% in 1998 and 4% in 1997 to revenue.
Dividends received from foreign subsidiaries were approximately $47 million in
1999, $51 million in 1998 and $41 million in 1997.
Consolidated net income includes losses from exchange and translation of foreign
currencies of $5.6 million, $3.2 million and $5.6 million in 1999, 1998 and
1997, respectively.
<PAGE>
NOTE 13: FINANCIAL INSTRUMENTS
Financial assets, which include cash and cash equivalents, marketable securities
and receivables, have carrying values which approximate fair value. Long-term
equity securities, included in other investments and miscellaneous assets in the
Consolidated Balance Sheet, are deemed to be available-for-sale as defined by
SFAS 115 and accordingly are reported at fair value, with net unrealized gains
and losses reported within stockholders' equity.
The following table summarizes net unrealized gains and losses before taxes at
December 31:
(Dollars in millions)
1999 1998 1997
---------------------------
Cost $172.3 $121.3 $61.1
Unrealized gains / (losses)
- gains 302.3 20.2 22.0
- losses (12.2) (1.5) --
---------------------------
Net unrealized gains 290.1 18.7 22.0
---------------------------
Fair market value $462.4 $140.0 $83.1
===========================
Net of tax, net unrealized holding gains were $168 million, $10 million and $12
million at December 31, 1999, 1998 and 1997, respectively.
The above pre-tax gain amounts are net of reclassifications of $13.1 million and
$6.5 million in 1999 and 1998, which represent amounts previously recorded in
other comprehensive income.
During 1999, the Company expanded its investment in internet-service and related
companies. In April 1999, the Company invested $20 million for a minority
interest in Icon, a Swedish based internet consultancy. Subsequently, the
Company increased its investment through the contribution of other investments
and through additional cash purchases. At December 31, 1999, the fair market
value of the Company's investment in Icon was $322 million.
Financial liabilities with carrying values approximating fair value include
accounts payable and accrued expenses, as well as payable to banks and long-term
debt. As of December 31, 1999, the 1.87% Convertible Subordinated Notes due 2006
had a cost basis of $304 million with a market value of $416 million. As of
December 31, 1999, the 1.80% Convertible Subordinated Notes due 2004 had a cost
basis of $214 million with a market value of $392 million. As of December 31,
1998, the cost basis of the 1.80% Convertible Subordinated Notes were $208
million with a market value of $283 million. The fair values were determined by
obtaining quotes from brokers (refer to Note 10 for additional information on
long-term debt). As of December 31, 1999, the 6.83% to 7.52% Notes Payable had a
total cost basis of $102 million with a market value of $88 million. As of
December 31, 1998, the 4.3% to 7.52% Notes Payable had a total cost basis
approximately the same as the market value. The fair value was determined by
using the expected future cash flows discounted at market interest rates as
adjusted for conversion privileges.
<PAGE>
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 the impact of changes in foreign exchange rates on working
capital. The notional value and fair value of all outstanding forwards and
options contracts at the end of the year as well as the net cost of all settled
contracts during the year were not significant.
The Company's management continuously evaluates and attempts to mitigate its
exposure to foreign exchange, economic and political risks. The economic
developments in Brazil did not have a significant negative impact on the
Company, and were partially offset by a favorable impact due to the economic
recovery in Japan.
NOTE 14: COMMITMENTS AND CONTINGENCIES
At December 31, 1999 the Company's subsidiaries operating primarily outside the
United States were contingently liable for discounted notes receivable of $7.4
million.
The Company and its subsidiaries lease certain facilities and equipment. Gross
rental expense amounted to approximately $293 million for 1999, $257 million for
1998 and $225 million for 1997, which was reduced by sublease income of $17.2
million in 1999, $16.4 million in 1998 and $30.7 million in 1997.
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 2000 and thereafter, are as
follows:
(Dollars in thousands)
Gross Rental Sublease
Commitment Income
---------- ------
Period
2000 $198,255 $17,745
2001 174,910 15,180
2002 146,225 10,224
2003 116,207 6,335
2004 98,444 1,390
2005 and thereafter 391,697 2,014
Certain of the Company's acquisition agreements provide for deferred payments by
the Company, contingent upon future revenues or profits of the companies
acquired. Such contingent amounts would not be material taking into account the
future revenues or profits of the companies acquired.
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 or open
examinations would not have a material adverse effect on the consolidated
financial statements.
The Company is involved in legal and administrative proceedings of various
types. While any litigation contains an element of uncertainty, the Company
believes that the outcome of such proceedings or claims will not have a material
adverse effect on the Company.
<PAGE>
NOTE 15: NFO ACQUISITION
In April 2000, the Company acquired NFO in a transaction accounted for as a
pooling of interests. The results of NFO and several other recent acquisitions
have been included in previously restated financial statements.
NOTE 16: RECENT EVENTS
In November 2000, the Company acquired Deutsch in a transaction accounted for as
a pooling of interests. Approximately 6 million shares were issued to acquire
Deutsch. The Company's consolidated financial statements have been restated as
of the earliest period presented to include the results of operations, financial
position and cash flows of Deutsch.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA FOR FIVE YEARS
(Amounts in Thousands Except Per Share Data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue $ 4,977,823 $ 4,218,657 $ 3,610,706 $ 3,053,926 $ 2,650,192
Operating expenses 4,315,144 3,646,061 3,195,564 2,695,038 2,353,970
Restructuring and other merger
related costs 84,183 -- -- -- --
Write-down of goodwill and other
related assets -- -- -- -- 38,687
Special compensation charge -- -- 32,229 -- --
Interest expense 81,341 64,296 59,820 53,321 49,105
Provision for income taxes 243,971 245,636 197,665 166,244 133,941
Net Income $ 331,287 $ 339,907 $ 224,184 $ 228,914 $ 145,975
PER SHARE DATA
Basic
Net Income $ 1.11 $ 1.15 $ .79 $ .81 $ .52
Weighted-average shares 297,992 294,756 283,796 284,219 278,303
Diluted
Net Income $ 1.07 $ 1.12 $ .76 $ .78 $ .51
Weighted-average shares 308,840 305,134 301,602 300,802 286,307
FINANCIAL POSITION
Working capital $ 170,976 $ 96,881 $ 244,361 $ 149,919 $ 118,147
Total assets $ 9,247,044 $ 7,526,563 $ 6,254,577 $ 5,253,456 $ 4,721,440
Total long-term debt $ 1,048,607 $ 706,444 $ 554,550 $ 423,459 $ 363,966
Book value per share $ 5.75 $ 4.71 $ 3.79 $ 3.34 $ 2.79
OTHER DATA
Cash dividends - Interpublic $ 90,424 $ 76,894 $ 61,242 $ 51,786 $ 46,124
Cash dividends
per share - Interpublic $ .33 $ .29 $ .25 $ .22 $ .20
Number of employees 42,400 38,100 33,000 27,000 25,200
----------------------------------------------------------------
All data has been restated to reflect the aggregate effect of the acquisitions accounted for as poolings
of interests. (See Notes 15 and 16).
All share data for prior periods have been adjusted to reflect the two-for-one stock split effective
July 15, 1999.
</TABLE>
<PAGE>
<TABLE>
RESULTS BY QUARTER (UNAUDITED)
(Amounts in Thousands Except Per Share Data)
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 1998 1999 1998 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,037,860 $ 883,615 $1,249,641 $1,094,214 $1,172,875 $ 983,263 $1,517,447 $1,257,565
Operating expenses 944,013 810,382 995,159 876,417 1,038,041 878,462 1,337,931 1,080,800
Restructuring and other
merger related charges -- -- -- -- -- -- 84,183 --
Income from operations 93,847 73,233 254,482 217,797 134,834 104,801 95,333 176,765
Interest expense (17,475) (13,524) (20,591) (15,809) (21,714) (17,175) (21,561) (17,788)
Other income, net 12,884 11,048 29,213 24,391 15,151 15,173 46,314 47,943
Income before provision
for income taxes 89,256 70,757 263,104 226,379 128,271 102,799 120,086 206,920
Provision for
income taxes 35,765 26,663 104,208 91,345 52,295 42,407 51,703 85,221
Net equity interests (2,386) (2,405) (6,203) (5,231) (4,364) (4,072) (12,506) (9,604)
-------------------------------------------------------------------------------------------------------------
Net income $ 51,105 $ 41,689 $ 152,693 $ 129,803 $ 71,612 $ 56,320 $ 55,877 $ 112,095
============================================================================================================
Per share data:
Basic EPS $ .17 $ .14 $ .51 $ .44 $ .24 $ .19 $ .19 $ .38
Diluted EPS $ .17 $ .14 $ .49 $ .42 $ .23 $ .19 $ .18 $ .37
Cash dividends per
share - Interpublic $ .075 $ .065 $ .085 $ .075 $ .085 $ .075 $ .085 $ .075
Weighted-Average Shares:
Basic 296,457 293,959 298,126 295,248 298,688 294,766 298,698 295,051
Diluted 307,701 304,461 317,381 313,057 309,298 304,497 309,790 311,926
Stock price:
High $40 $31 5/16 $43 5/16 $32 1/4 $44 1/16 $32 7/16 $58 1/16 $39 7/8
Low $34 7/8 $23 27/32 $34 19/32 $ 27 21/32 $36 1/2 $26 3/32 $35 3/4 $23 1/2
------------------------------------------------------------------------------------------------------------
All data has been restated to reflect the aggregate effect of the acquisitions accounted for as poolings of interests.
(See Notes 15 and 16).
All share data for 1998 has been adjusted to reflect the two-for-one stock split effective July 15, 1999.
</TABLE>
<PAGE>
SCHEDULE VIII
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
================================================================================
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
--------------------------------------------------------------------------------
Additions/(Deductions)
----------------------
Charged
Balance at Charged to to Other Balance
Beginning Costs & Accounts- Deductions- at End
Description of Period Expenses Describe Describe of Period
--------------------------------------------------------------------------------
Allowance for Doubtful Accounts - deducted from Receivables in the Consolidated
Balance Sheet:
1999 $54,060 $24,013 $5,148(1) $(23,765)(3) $60,565
2,934(5) (1,215)(2)
(610)(4)
1998 $44,581 $20,421 $6,699(1) $(17,038)(3) $54,060
2,111(5) (3,310)(4)
596(2)
1997 $37,496 $16,904 $2,256(1) $ (2,680)(2) $44,581
848(5) (7,869)(3)
(2,374)(4)
-------------------
[FN]
(1) Allowance for doubtful accounts of acquired and newly consolidated
companies.
(2) Foreign currency translation adjustment.
(3) Principally amounts written off.
(4) Reversal of previously recorded allowances on accounts receivable.
(5) Miscellaneous.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
September 30, December 31,
2000 1999
(unaudited)
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents (includes
certificates of deposit: 2000-$72,593;
1999-$150,343) $ 587,916 $1,029,076
Marketable securities 42,893 36,765
Receivables (net of allowance for doubtful
accounts: 2000-$68,536; 1999-$60,565) 4,443,452 4,442,229
Expenditures billable to clients 457,838 337,769
Prepaid expenses and other current assets 195,738 147,085
--------------------------
Total current assets 5,727,837 5,992,924
--------------------------
OTHER ASSETS:
Investment in unconsolidated affiliates 87,101 62,225
Deferred taxes on income 76,185 --
Other investments and miscellaneous assets 607,739 719,024
--------------------------
Total other assets 771,025 781,249
--------------------------
FIXED ASSETS, at cost:
Land and buildings 151,787 164,678
Furniture and equipment 855,691 783,698
--------------------------
1,007,478 948,376
Less: accumulated depreciation (556,058) (506,975)
--------------------------
451,420 441,401
Unamortized leasehold improvements 172,907 151,870
--------------------------
Total fixed assets 624,327 593,271
--------------------------
INTANGIBLE ASSETS (net of accumulated
amortization: 2000-$684,892; 1999-$607,417) 2,536,326 1,879,600
--------------------------
TOTAL ASSETS $9,659,515 $9,247,044
==========================
<PAGE>
<TABLE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
2000 1999
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Payable to banks $ 445,800 $ 262,483
Accounts payable 4,212,458 4,629,415
Accrued expenses 727,990 769,566
Accrued income taxes 156,457 160,484
--------------------------
Total current liabilities 5,542,705 5,821,948
--------------------------
NONCURRENT LIABILITIES:
Long-term debt 1,128,326 530,117
Convertible subordinated debentures
and notes 529,375 518,490
Deferred compensation and reserve
for termination allowances 373,109 348,172
Deferred taxes on income -- 45,888
Accrued postretirement benefits 50,701 50,226
Other noncurrent liabilities 80,066 86,127
Minority interests in consolidated
subsidiaries 77,397 81,612
--------------------------
Total noncurrent liabilities 2,238,974 1,660,632
--------------------------
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:
2000 - 318,990,931;
1999 - 315,921,839 31,899 31,592
Additional paid-in capital 907,547 783,897
Retained earnings 1,555,818 1,392,224
Accumulated other comprehensive
loss, net of tax (331,853) (76,695)
--------------------------
2,163,411 2,131,018
Less:
Treasury stock, at cost:
2000 - 5,593,450 shares;
1999 - 8,909,904 shares 177,670 289,519
Unamortized expense of restricted
stock grants 107,905 77,035
--------------------------
Total stockholders' equity 1,877,836 1,764,464
--------------------------
Commitments and contingencies
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,659,515 $9,247,044
===========================
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30
(Amounts in Thousands Except Per Share Data)
(unaudited)
2000 1999
---- ----
Revenue $ 1,353,081 $ 1,172,875
----------- -----------
Salaries and related expenses 767,575 670,517
Office and general expenses 380,905 346,240
Amortization of intangible assets 30,101 21,284
Restructuring and other
merger related costs 27,305 -
----------- -----------
Total operating expenses 1,205,886 1,038,041
----------- -----------
Income from operations 147,195 134,834
Interest expense (32,339) (21,714)
Other income, net 16,676 15,151
----------- -----------
Income before provision for income taxes 131,532 128,271
Provision for income taxes 53,298 52,295
----------- -----------
Income of consolidated companies 78,234 75,976
Income applicable to minority interests (10,012) (6,288)
Equity in net income of unconsolidated
affiliates 1,856 1,924
----------- -----------
Net income $ 70,078 $ 71,612
=========== ===========
Weighted average shares:
Basic 305,929 298,688
Diluted 314,958 309,298
Earnings Per Share:
Basic $ .23 $ .24
Diluted $ .22 $ .23
Dividends per share $ .095 $ .085
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands Except Per Share Data)
(unaudited)
2000 1999
---- ----
Revenue $ 4,024,984 $ 3,460,376
----------- -----------
Salaries and related expenses 2,207,549 1,898,437
Office and general expenses 1,148,757 1,021,174
Amortization of intangible assets 77,475 57,602
Restructuring and other
merger related costs 116,131 -
----------- -----------
Total operating expenses 3,549,912 2,977,213
----------- -----------
Income from operations 475,072 483,163
Interest expense (74,835) (59,780)
Other income, net 62,961 57,248
----------- -----------
Income before provision for income taxes 463,198 480,631
Provision for income taxes 190,245 192,268
----------- -----------
Income of consolidated companies 272,953 288,363
Income applicable to minority interests (25,721) (19,044)
Equity in net income of unconsolidated
affiliates 8,242 6,091
----------- -----------
Net income $ 255,474 $ 275,410
=========== ===========
Weighted average shares:
Basic 302,038 297,757
Diluted 311,863 315,215
Earnings Per Share:
Basic $ .85 $ .92
Diluted $ .82 $ .89
Dividends per share $ .275 $ .245
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
2000 1999
---- ----
Net Income $ 70,078 $ 71,612
-------- --------
Other Comprehensive Income (Loss), net of tax:
Foreign Currency Translation Adjustments (36,296) 15,908
Net Unrealized Gain on Securities 2,305 25,293
-------- --------
Other Comprehensive Income (Loss) (33,991) 41,201
-------- --------
Comprehensive Income $ 36,087 $112,813
======== ========
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
2000 1999
---- ----
Net Income $255,474 $275,410
-------- --------
Other Comprehensive Income (Loss), net of tax:
Foreign Currency Translation Adjustments (112,039) (70,154)
Net Unrealized Gain (Loss) on Securities (143,119) 24,614
-------- --------
Other Comprehensive Loss (255,158) (45,540)
-------- --------
Comprehensive Income (Loss) $ 316 $ 229,870
========= ========
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
(Dollars in Thousands)
(unaudited)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 255,474 $ 275,410
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization of fixed assets 111,733 88,092
Amortization of intangible assets 77,475 57,601
Amortization of restricted stock awards 27,197 19,067
Equity in net income of unconsolidated
affiliates (8,241) (6,091)
Income applicable to minority interests 25,721 19,044
Translation losses 1,326 1,183
Net gain from sale of investments (12,275) (21,734)
Restructuring charges, non cash 32,100 --
Miscellaneous other (grouped into "Accounts
Payable and Other Liabilities") (19,812) (17,384)
Changes in assets and liabilities, net of acquisitions:
Receivables (84,688) (393,235)
Expenditures billable to clients (111,236) (94,711)
Prepaid expenses and other assets (50,854) (21,300)
Accounts payable and other liabilities (419,751) 165,310
Accrued income taxes 3,856 7,570
Deferred income taxes (20,813) (7,881)
Deferred compensation and reserve for
termination allowances 34,391 11,202
---------- ---------
Net cash (used in) provided by operating activities (158,397) 82,143
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (439,229) (182,206)
Proceeds from sale of investments/assets 14,142 39,738
Capital expenditures (153,906) (110,068)
Net purchases of marketable securities (10,630) (17,174)
Dividends received from investments 44 --
Other investments and miscellaneous assets (163,141) 10,358
Investments in unconsolidated affiliates (29,444) (8,251)
---------- ---------
Net cash used in investing activities (782,164) (267,603)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 159,570 41,488
Proceeds from long-term debt 859,850 405,412
Payments of long-term debt (228,301) (56,873)
Treasury stock acquired (182,040) (209,024)
Issuance of common stock 36,192 54,295
Cash dividends - pooled (11,424) (7,550)
Cash dividends - Interpublic (80,436) (67,534)
---------- ---------
Net cash provided by financing activities 553,411 160,214
---------- ---------
Effect of exchange rates on cash and cash
equivalents (54,010) (31,183)
---------- ---------
Decrease in cash and cash equivalents (441,160) (56,429)
Cash and cash equivalents at
beginning of year 1,029,076 801,207
---------- ---------
Cash and cash equivalents at end of period $ 587,916 $ 744,778
========== =========
All prior periods have been restated to reflect the aggregate effect of
acquisitions accounted for as poolings of interests. (See Note (a))
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<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, 2000, the consolidated income statements for the three
months and nine months ended September 30, 2000 and 1999, the
consolidated statement of comprehensive income for the three months
and nine months ended September 30, 2000 and 1999, and the
consolidated statement of cash flows for the nine months ended
September 30, 2000 and 1999, 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, 2000 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, 1999 annual report to
stockholders and the consolidated financial statements and notes
thereto included in the Company's Current Report on Form 8-K dated
September 15, 2000.
The Company's consolidated financial statements, including the related
notes, have been restated for the prior periods presented to include
the results of operations, financial position and cash flows of
Deutsch, Inc. and affiliate companies ("Deutsch"). (See Note (b)).
Additionally, the results of several other recent acquisitions,
including NFO Worldwide, Inc. ("NFO"), all of which have been
accounted for as poolings of interests, have been included in
previously restated financial statements. Other than Deutsch and NFO,
none of the acquisitions was individually, or in aggregate, material.
The accompanying income statements have been prepared in a format
different than that used in the originally filed Form 10-Q for the
quarterly period ended September 30, 1999. The accompanying financial
statements include the line - "Income from operations". Amounts
previously included in "Other income, net" as part of "Gross Income"
are now included elsewhere in the Consolidated Statement of Income.
(b) In November 2000, the Company issued approximately 6 million shares of
its common stock in connection with the acquisition of Deutsch. In
April 2000, the Company issued approximately 12.6 million shares of
its common stock in connection with the acquisition of NFO. Both of
these acquisitions have been accounted for as poolings of interests.
(c) During the third quarter, the Company recorded pre-tax restructuring
and other merger related costs of $27.3 million ($17.2 million net of
tax). For the nine months ended September 30, 2000, the Company
recorded pre-tax restructuring and other merger related costs of
$116.1 million ($72.9 million net of tax). Of the total pre-tax
restructuring and other merger related costs, cash charges represented
$14.8 million and $84 million for the three months and nine months
ended September 30, 2000, respectively. The key components of the
charge were the costs associated with the restructuring of Lowe Lintas
& Partners Worldwide. The remaining costs relate principally to
transaction and other merger related costs arising from the previously
announced merger with NFO.
<PAGE>
Lowe Lintas & Partners
-----------------------
In October 1999, the Company announced the merger of two of its
advertising networks. The networks affected, Lowe & Partners Worldwide
and Ammirati Puris Lintas, were combined to form a new agency network
called Lowe Lintas & Partners Worldwide. The merger involved the
consolidation of operations in Lowe Lintas agencies in approximately
24 cities in 22 countries around the world. The newly merged agency
network has offices in over 80 countries around the world. As of
September 30, 2000, all restructuring activities have been completed.
A summary of the components of the reserve for restructuring and other
merger related costs for Lowe Lintas is as follows:
<TABLE>
(Dollars in millions)
<CAPTION>
Year to Date September 30, 2000
---------------------------------
Balance Expense Cash Asset Balance
at 12/31/99 recognized Paid Write-offs at 9/30/00
----------- ------------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
TOTAL BY TYPE
Severance and
termination costs $43.6 $32.0 $24.6 -- $51.0
Fixed asset write-offs 11.1 14.2 -- 25.3 --
Lease termination costs 3.8 21.1 7.6 -- 17.3
Investment write-offs
and other 23.4 20.5 6.4 37.5 --
----------------------------------------------------------
Total $81.9 $87.8 $38.6 $62.8 $68.3
==========================================================
</TABLE>
The severance and termination costs recorded in 2000 relate to
approximately 360 employees who have been terminated or notified that
they will be terminated. The employee groups affected include
management, administrative, account management, creative and media
production personnel, principally in the U.S. and several European
countries.
The fixed asset write-offs relate largely to the abandonment of
leasehold improvements as part of the merger. The amount recognized in
2000 relates to fixed asset write-offs in 4 offices, the largest of
which is in the U.K.
Lease termination costs relate to the offices vacated as part of the
merger. The lease terminations are substantially complete, with the
cash portion to be paid out over a period of up to five years.
The investment write-offs relate to the loss on sale or closing of
certain business units. In 2000, $12.7 million of investment
write-offs has been recorded, the majority of which results from the
decision to sell or abandon 3 businesses located in Asia and Europe.
In the aggregate, the businesses being sold or abandoned represent an
immaterial portion of the revenue and operations of Lowe Lintas &
Partners. The write-off amount was computed based upon the difference
between the estimated sales proceeds (if any) and the carrying value
of the related assets.
<PAGE>
NFO and Other Merger Related Costs
----------------------------------
In addition to the restructuring and other merger related costs noted
above, additional charges, substantially all of which were cash costs,
were recorded through September 30, 2000. These costs relate
principally to the non-recurring transaction and other merger related
costs arising from the recently completed acquisition of NFO. (See
Note (b)).
(d) In addition to the acquisition mentioned in (b), the Company has made
several other acquisitions in 2000, including Nationwide Advertising
Services, Waylon Promotions, Inc. and substantial assets of the
Communications Division of Caribiner International, Inc. The
acquisitions have been accounted for as purchases.
(e) On June 27, 2000, the Company entered into a syndicated multi-currency
credit agreement under which a total of $750 million may be borrowed;
$375 million may be borrowed under a 364-day facility and $375 million
under a five-year facility. The facilities bear interest at variable
rates based on either LIBOR or a bank's base rates, at the Company's
option. As of September 30, 2000, approximately $534 million had been
borrowed under the facilities. The weighted-average interest rate on
the borrowings at September 30, 2000 was 6.4%. The proceeds from the
syndicated credit agreement were used to refinance borrowings and for
general corporate purposes including acquisitions and other inv-
estments. Some of the pre-existing borrowing facilities were
subsequently terminated.
On August 25, 2000, the Company entered into a revolving credit
facility under which up to $250 million may be borrowed. The facility
expires on November 30, 2000, and bears interest at variable rates
based on either LIBOR, a bank's base rates or money market rates, at
the Company's option. The Company used the proceeds to refinance
borrowings and for general corporate purposes, including acquisitions
and other investments.
On October 20, 2000, the Company completed the issuance and sale of
$500 million principal amount of senior unsecured notes due 2005. The
notes bear an interest rate of 7.875% per annum. The Company used the
net proceeds of approximately $496 million from the sale of the notes
to repay outstanding indebtedness under its credit facilities.
Accordingly, certain short-term borrowings have been reclassified as
long-term.
(f) In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which sets out the required accounting
treatment for derivatives and hedging activities. In June 1999, the
Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", which
delays implementation of SFAS No. 133 until fiscal years beginning
after June 15, 2000. In June 2000, the Financial Accounting Standards
Board issued Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which provides additional
guidance related to accounting for derivative instruments and hedging
activities as addressed by SFAS No. 133. The Company does not believe
that the effect of adopting SFAS No. 133 and SFAS No. 138 will be
material to its financial condition or results of operations.
<PAGE>
Item 2
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND ITS SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As discussed in Note (b), the Company acquired Deutsch in a transaction
accounted for as a pooling of interests. Deutsch is a full service advertising
agency servicing a broad range of clients. The Company's consolidated financial
statements and other financial information for prior periods have been restated
to reflect the effect of the Deutsch pooling.
In April 2000, the Company acquired NFO Worldwide, Inc. ("NFO") in a transaction
accounted for as a pooling of interest. Results of NFO and several other recent
acquisitions, all of which have been accounted for as poolings of interests have
been included in previously restated financial statements. The following
discussion relates to the combined results of the Company after giving effect to
all of the pooled companies.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
------------------------------------------------------------------------------
30, 1999
--------
The Company reported net income of $70.1 million or $.22 diluted earnings per
share for the three months ended September 30, 2000. Excluding the impact of
restructuring and other merger related costs, which are discussed below, net
income was $87.2 million or $.28 diluted earnings per share, compared to $71.6
million or $.23 diluted earnings per share for the three months ended September
30, 1999.
The following table sets forth net income and earnings per share before and
after restructuring and other merger related costs:
(Dollars in thousands, except
per share data)
2000 1999
---- ----
Net income as reported $ 70,078 $ 71,612
Earnings per share:
Basic .23 .24
Diluted .22 .23
Net income before restructuring
and other merger related costs $ 87,243 $ 71,612
Earnings per share:
Basic .29 .24
Diluted .28 .23
Worldwide revenue for the three months ended September 30, 2000 increased $180
million, or 15%, to $1.4 billion compared to the same period in 1999. Domestic
revenue increased $153 million or 25% from 1999 levels. International revenue
increased $27 million or 5% during the third quarter of 2000 compared to 1999.
International revenue would have increased 18%, excluding the effect of the
strengthening of the U.S. dollar. The increase in worldwide revenue is a result
of both new business growth and growth from acquisitions. Organic revenue
growth, exclusive of acquisitions and currency effects, was 15% for the third
quarter of 2000 compared to the prior year quarter.
<PAGE>
Revenue from specialized marketing communications services, which include media
buying, market research, sales promotion, direct marketing, public relations,
sports and event marketing, healthcare marketing and e-business consulting and
communications, comprised approximately 48% of the total worldwide revenue for
the three months ended September 30, 2000, compared to 45% for the prior year
quarter.
Income from operations was $147 million for the third quarter of 2000. Excluding
restructuring and other merger related costs, income from operations was $175
million for the third quarter of 2000, compared to $135 million for the third
quarter of 1999, an increase of 30%. Exclusive of acquisitions, currency
effects, and amortization of intangible assets, income from operations increased
24% for the third quarter of 2000 compared to the third quarter of 1999.
Worldwide operating expenses for the third quarter 2000, excluding restructuring
and other merger related costs were $1.2 billion, an increase of 14% over the
prior year quarter. Salaries and related expenses were $768 million or 57% of
revenue for the third quarter of 2000 as compared to $671 million or 57% of
revenue for the third quarter of 1999. Office and general expenses were $381
million for the third quarter of 2000 compared to $346 million for the third
quarter of 1999.
Interest expense was $32 million for the three months ended September 30, 2000,
compared to $22 million for the prior year quarter. The increase is primarily a
result of higher debt levels and higher interest rates in 2000.
Other income, net, which consists of interest income, investment income and net
gains from equity investments, increased slightly to $17 million for the third
quarter of 2000 as compared to $15 million for the third quarter of 1999.
The effective tax rate for the three months ended September 30, 2000 was 40.5%,
compared to 40.8% in 1999. The difference between the effective and statutory
rates is primarily due to state and local taxes, foreign withholding taxes on
dividends and nondeductible goodwill expense.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
-------------------------------------------------------------------------------
1999
----
Net income was $255 million or $.82 diluted earnings per share for the nine
months ended September 30, 2000. Excluding the impact of restructuring and other
merger related costs, which are discussed below, net income was $328.4 million
or $1.05 diluted earnings per share, compared to $275.4 million or $.89 diluted
earnings per share for the nine months ended September 30, 1999.
The following table sets forth net income and earnings per share before and
after restructuring and other merger related costs:
(Dollars in thousands, except
per share data)
2000 1999
----- ----
Net income as reported $255,474 $275,410
Earnings per share:
Basic .85 .92
Diluted .82 .89
Net income before restructuring
and other merger related costs $328,409 $275,410
Earnings per share:
Basic 1.09 .92
Diluted 1.05 .89
<PAGE>
Worldwide revenue for the nine months ended September 30, 2000, increased $565
million, or 16%, to $4.0 billion compared to the same period in 1999. Domestic
revenue increased $438 million or 24% during the first nine months of 2000
compared to 1999. International revenue increased $126 million or 8% during the
first nine months of 2000 compared to 1999. International revenue would have
increased 16%, excluding the effect of the strengthening of the U.S. dollar. The
increase in worldwide revenue is a result of both new business growth and growth
from acquisitions. Organic revenue growth, exclusive of acquisitions and
currency effects, was 14% for the first nine months of 2000 compared to the
prior year period.
Revenue from specialized marketing communications services, which include media
buying, market research, promotion sales, direct marketing, public relations,
sports and event marketing, healthcare marketing and e-business consulting and
communications, comprised approximately 46% of the total worldwide revenue for
the nine months ended September 30, 2000, compared to 44% for the first nine
months of 1999.
Income from operations was $475 million for the nine months ended September 30,
2000. Excluding restructuring and other merger related costs, income from
operations was $591 million for the first nine months of 2000, compared to $483
million for the first nine months of 1999, an increase of 22%. Exclusive of
acquisitions, currency effects and amortization of intangible assets, income
from operations increased 19% for the first nine months of 2000 compared to the
first nine months of 1999.
Worldwide operating expenses for the nine months ended September 30, 2000,
excluding restructuring and other merger related costs were $3.4 billion, an
increase of 15% over the prior year period. Salaries and related expenses were
$2.2 billion or 55% of revenue for the first nine months of 2000 as compared to
$1.9 billion or 55% of revenue for the first nine months of 1999. Office and
general expenses were $1.1 billion for the first nine months of 2000 compared to
$1.0 billion for the first nine months of 1999.
Interest expense was $74.8 million for the nine months ended September 30, 2000,
compared to $59.8 million for the prior year. The increase is primarily a result
of higher debt levels and higher interest rates in 2000.
Other income, net, which consists of interest income, investment income and net
gains from equity investments, was $63.0 million for the nine months ended
September 30, 2000, as compared to $57.2 million for the nine months ended
September 30, 1999, an increase of 10%.
The effective tax rate for the nine months ended September 30, 2000 was 41.1%,
compared to 40.0% in 1999. The difference between the effective and statutory
rates is primarily due to state and local taxes, foreign withholding taxes on
dividends and nondeductible goodwill expense.
Restructuring and Other Merger Related Costs
--------------------------------------------
During the third quarter, the Company recorded pre-tax restructuring and other
merger related costs of $27.3 million ($17.2 million net of tax). For the nine
months ended September 30, 2000, the Company recorded pre-tax restructuring and
other merger related costs of $116.1 million ($72.9 million net of tax). Of the
total pre-tax restructuring and other merger related costs, cash charges
represented $14.8 million and $84 million for the three months and nine months
ended September 30, 2000, respectively. The key components of the charge were
the costs associated with the restructuring of Lowe Lintas & Partners Worldwide.
The remaining costs relate principally to transaction and merger related costs
arising from the previously announced merger with NFO.
<PAGE>
Lowe Lintas & Partners
----------------------
In October 1999, the Company announced the merger of two of its advertising
networks. The networks affected, Lowe & Partners Worldwide and Ammirati Puris
Lintas, were combined to form a new agency network called Lowe Lintas & Partners
Worldwide. The merger involved the consolidation of operations in Lowe Lintas
agencies in approximately 24 cities in 22 countries around the world. The newly
merged agency network has offices in over 80 countries around the world. As of
September 30,2000, all restructuring activities have been completed.
The restructuring and other merger related costs for Lowe Lintas included $31
million in severance and termination costs, $14.2 million in fixed asset
write-offs, $21.1 million in lease termination costs and $21.5 million in
investment write-offs and other costs.
The severance and termination costs recorded 2000 relate to approximately 360
employees who have been terminated or notified that they will be terminated. The
employee groups affected include management, administrative, account management,
creative and media production personnel, principally in the U.S. and several
European countries.
The fixed asset write-offs relate largely to the abandonment of leasehold
improvements as part of the merger. The amount recognized in 2000 relates to
fixed asset write-offs in 4 offices, the largest of which is in the U.K. Lease
termination costs relate to the offices vacated as part of the merger.
The investment write-offs relate to the loss on sale or closing of certain
business units. In 2000, $12.7 million of investment write-offs has been
recorded, the majority of which results from the decision to sell or abandon 3
businesses located in Asia and Europe.
NFO and Other Merger Related Costs
In addition to the restructuring and other merger related costs noted above,
additional charges, substantially all of which were cash costs, were recorded
through September 30, 2000. These costs relate principally to the non-recurring
transaction and other merger related costs arising from the recently completed
acquisition of NFO. (See Note (b)).
LIQUIDITY AND CAPITAL RESOURCES
The ratio of current assets to current liabilities was approximately 1 to 1 at
September 30, 2000. Working capital increased by $14 million from December 31,
1999 to September 30, 2000. Total debt at September 30, 2000 was $2.1 billion,
an increase of $792 million from December 31, 1999. The increase in debt is
primarily attributable to the net effect of payments made for acquisitions and
other investments. Cash flow from operations and availability under existing
credit facilities will be the Company's primary source of working capital.
On June 27, 2000, the Company entered into a syndicated multi-currency credit
agreement under which a total of $750 million may be borrowed; $375 million may
be borrowed under a 364-day facility and $375 million under a five-year
facility. The facilities bear interest at variable rates based on either LIBOR
or a bank's base rates, at the Company's option. As of September 30, 2000,
approximately $534 million had been borrowed under the facilities. The
weighted-average interest rate on the borrowings at September 30, 2000 was 6.4%.
The proceeds from the syndicated credit agreement were used to refinance
borrowings and for general corporate purposes including acquisitions and other
investments. Some of the pre-existing borrowing facilities were subsequently
terminated.
<PAGE>
On August 25, 2000, the Company entered into a revolving credit facility under
which up to $250 million may be borrowed. The facility expires on November 30,
2000, and bears interest at variable rates based on either LIBOR, a bank's base
rates or money market rates, at the Company's option. The Company used the
proceeds to refinance borrowings and for general corporate purposes, including
acquisitions and other investments.
On October 20, 2000, the Company completed the issuance and sale of $500 million
principal amount of senior unsecured notes due 2005. The notes bear an interest
rate of 7.875% per annum. The Company used the net proceeds of approximately
$496 million from the sale of the notes to repay outstanding indebtedness under
its credit facilities. Accordingly, certain short-term borrowings have been
reclassified as long-term.
Net cash used in operating activities was $158 million for the nine months ended
September 30, 2000. Net cash provided by operations was $82 million for the nine
months ended September 30, 1999. 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 and capital expenditures. In
addition, during the first nine months of 2000, the Company acquired 3.5 million
shares of its own stock for the purpose of fulfilling the Company's obligations
under its various compensation plans.
OTHER MATTERS
Acquisitions
------------
In connection with the NFO acquisition completed on April 20, 2000, the Company
assumed approximately $180 million in debt. Additionally, the Company has made
several other acquisitions, including Nationwide Advertising Services, Waylon
Promotions, Inc. and substantial assets of the Communications Division of
Caribiner International, Inc. The acquisitions have been accounted for as
purchases.
Cautionary Statement
--------------------
This Report on Form 8-K (the "Report"), including Management's Discussion and
Analysis of Financial Condition and Results of Operations contains
forward-looking statements. Statements that are not historical facts, including
statements about Interpublic's beliefs and expectations, are forward-looking
statements. These statements are based on current plans, expectations, estimates
and projections, and therefore you should not place undue reliance on them.
Forward-looking statements speak only as of the date they are made, and
Interpublic undertakes no obligation to update publicly any of them in light of
new information, future events or otherwise.
Forward-looking statements involve inherent risks and uncertainties. Interpublic
cautions you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such
factors include, but are not limited to, those associated with the effect of
national and regional economic conditions, the ability of Interpublic to attract
new clients and retain existing clients, the financial success and other
developments of the clients of Interpublic, developments from changes in the
regulatory and legal environment for advertising companies around the world,
Interpublic's ability to effectively integrate recent acquisitions and
Interpublic's ability to attract and retain key management personnel.
<PAGE>
New Accounting Guidance
-----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), which had an initial adoption date of
January 1, 2000. In June 1999, the FASB postponed the adoption date of SFAS No.
133 until January 1, 2001. In June 2000, the FASB issued SFAS No. 138 which
provides additional guidance on SFAS No. 133. The Company does not believe the
effect of adopting SFAS No. 133 and SFAS No. 138 will be material to its
financial condition or results of operations.
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 is 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 has not, and is not expected to have a material effect on
the Company's financial condition or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's financial market risk arises from fluctuations in interest rates
and foreign currencies. Most of the Company's debt obligations are at fixed
interest rates. A 10% change in market interest rates would not have a material
effect on the Company's pre-tax earnings, cash flows or fair value. At September
30, 2000, the Company had an insignificant amount of foreign currency derivative
financial instruments in place. The Company does not hold any financial
instrument for trading purposes.
