x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30, 2012 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-1024020 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer | ý | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
(Do not check if a smaller reporting company) |
INDEX | ||
Page No. | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 6. | ||
• | potential effects of a challenging economy, for example, on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition; |
• | our ability to attract new clients and retain existing clients; |
• | our ability to retain and attract key employees; |
• | risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy; |
• | potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments; |
• | risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and |
• | developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world. |
Item 1. | Financial Statements (Unaudited) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
REVENUE | $ | 1,715.7 | $ | 1,740.7 | $ | 3,222.5 | $ | 3,215.5 | |||||||
OPERATING EXPENSES: | |||||||||||||||
Salaries and related expenses | 1,088.9 | 1,095.7 | 2,193.8 | 2,175.8 | |||||||||||
Office and general expenses | 450.4 | 471.0 | 891.7 | 911.0 | |||||||||||
Total operating expenses | 1,539.3 | 1,566.7 | 3,085.5 | 3,086.8 | |||||||||||
OPERATING INCOME | 176.4 | 174.0 | 137.0 | 128.7 | |||||||||||
EXPENSES AND OTHER INCOME: | |||||||||||||||
Interest expense | (32.7 | ) | (33.1 | ) | (65.3 | ) | (65.0 | ) | |||||||
Interest income | 6.7 | 9.7 | 14.7 | 18.0 | |||||||||||
Other income (expense), net | 4.7 | 5.3 | 3.4 | (0.8 | ) | ||||||||||
Total (expenses) and other income | (21.3 | ) | (18.1 | ) | (47.2 | ) | (47.8 | ) | |||||||
Income before income taxes | 155.1 | 155.9 | 89.8 | 80.9 | |||||||||||
Provision for income taxes | 50.1 | 47.6 | 30.9 | 26.1 | |||||||||||
Income of consolidated companies | 105.0 | 108.3 | 58.9 | 54.8 | |||||||||||
Equity in net income of unconsolidated affiliates | 0.5 | 0.6 | 0.9 | 0.9 | |||||||||||
NET INCOME | 105.5 | 108.9 | 59.8 | 55.7 | |||||||||||
Net (income) loss attributable to noncontrolling interests | (3.6 | ) | (4.3 | ) | (0.9 | ) | 3.7 | ||||||||
NET INCOME ATTRIBUTABLE TO IPG | 101.9 | 104.6 | 58.9 | 59.4 | |||||||||||
Dividends on preferred stock | (2.9 | ) | (2.9 | ) | (5.8 | ) | (5.8 | ) | |||||||
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS | $ | 99.0 | $ | 101.7 | $ | 53.1 | $ | 53.6 | |||||||
Earnings per share available to IPG common stockholders: | |||||||||||||||
Basic | $ | 0.23 | $ | 0.21 | $ | 0.12 | $ | 0.11 | |||||||
Diluted | $ | 0.22 | $ | 0.19 | $ | 0.12 | $ | 0.11 | |||||||
Weighted-average number of common shares outstanding: | |||||||||||||||
Basic | 437.4 | 473.1 | 437.5 | 474.6 | |||||||||||
Diluted | 477.7 | 546.9 | 459.7 | 515.6 | |||||||||||
Dividends declared per common share | $ | 0.06 | $ | 0.06 | $ | 0.12 | $ | 0.12 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
NET INCOME | $ | 105.5 | $ | 108.9 | $ | 59.8 | $ | 55.7 | |||||||
OTHER COMPREHENSIVE INCOME | |||||||||||||||
Foreign currency translation adjustments | (66.3 | ) | 22.3 | (21.2 | ) | 66.0 | |||||||||
Available-for-sale securities: | |||||||||||||||
Changes in market value of available-for-sale securities | 135.0 | 0.1 | 135.5 | 0.7 | |||||||||||
Less: recognition of previously unrealized losses included in net income | 0.0 | 0.2 | 0.6 | 0.2 | |||||||||||
Income tax effect | (50.6 | ) | 0.0 | (50.6 | ) | (0.1 | ) | ||||||||
84.4 | 0.3 | 85.5 | 0.8 | ||||||||||||
Derivative instruments: | |||||||||||||||
Changes in fair value of derivative instruments | (15.8 | ) | 0.0 | (18.6 | ) | 0.0 | |||||||||
Income tax effect | 7.7 | 0.0 | 7.7 | 0.0 | |||||||||||
(8.1 | ) | 0.0 | (10.9 | ) | 0.0 | ||||||||||
Defined benefit pension and other postretirement plans: | |||||||||||||||
Net actuarial gains for the period | 1.3 | 3.7 | 1.0 | 3.7 | |||||||||||
Less: amortization of unrecognized losses, transition obligation and prior service cost included in net income | 1.8 | 1.9 | 3.7 | 3.8 | |||||||||||
Other | 0.0 | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Income tax effect | (1.2 | ) | (0.7 | ) | (1.7 | ) | (1.4 | ) | |||||||
1.9 | 4.8 | 2.9 | 6.0 | ||||||||||||
Other comprehensive income, net of tax | 11.9 | 27.4 | 56.3 | 72.8 | |||||||||||
TOTAL COMPREHENSIVE INCOME | 117.4 | 136.3 | 116.1 | 128.5 | |||||||||||
Less: comprehensive income (loss) attributable to noncontrolling interest | 2.0 | 4.5 | (0.2 | ) | (3.3 | ) | |||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO IPG | $ | 115.4 | $ | 131.8 | $ | 116.3 | $ | 131.8 |
June 30, 2012 | December 31, 2011 | ||||||
ASSETS: | |||||||
Cash and cash equivalents | $ | 1,502.0 | $ | 2,302.7 | |||
Marketable securities | 12.7 | 12.9 | |||||
Restricted marketable securities (see Note 6) | 136.0 | 0.0 | |||||
Accounts receivable, net of allowance of $57.2 and $55.4 | 3,741.3 | 4,425.4 | |||||
Expenditures billable to clients | 1,504.1 | 1,247.2 | |||||
Other current assets | 341.2 | 298.6 | |||||
Total current assets | 7,237.3 | 8,286.8 | |||||
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $1,128.2 and $1,126.3 | 447.0 | 459.8 | |||||
Deferred income taxes | 203.2 | 214.5 | |||||
Goodwill | 3,461.7 | 3,444.3 | |||||
Other non-current assets | 502.4 | 471.2 | |||||
TOTAL ASSETS | $ | 11,851.6 | $ | 12,876.6 | |||
LIABILITIES: | |||||||
Accounts payable | $ | 6,026.6 | $ | 6,647.2 | |||
Accrued liabilities | 593.9 | 827.1 | |||||
Short-term borrowings | 177.0 | 153.5 | |||||
Current portion of long-term debt | 217.7 | 404.8 | |||||
Total current liabilities | 7,015.2 | 8,032.6 | |||||
Long-term debt | 1,238.7 | 1,210.9 | |||||
Deferred compensation | 420.8 | 440.3 | |||||
Other non-current liabilities | 502.2 | 452.1 | |||||
TOTAL LIABILITIES | 9,176.9 | 10,135.9 | |||||
Redeemable noncontrolling interests (see Note 5) | 222.3 | 243.4 | |||||
STOCKHOLDERS’ EQUITY: | |||||||
Preferred stock | 221.5 | 221.5 | |||||
Common stock | 48.7 | 48.2 | |||||
Additional paid-in capital | 2,446.9 | 2,427.5 | |||||
Retained earnings | 408.2 | 405.1 | |||||
Accumulated other comprehensive loss, net of tax | (168.3 | ) | (225.7 | ) | |||
2,957.0 | 2,876.6 | ||||||
Less: Treasury stock | (533.0 | ) | (414.9 | ) | |||
Total IPG stockholders’ equity | 2,424.0 | 2,461.7 | |||||
Noncontrolling interests | 28.4 | 35.6 | |||||
TOTAL STOCKHOLDERS’ EQUITY | 2,452.4 | 2,497.3 | |||||
TOTAL LIABILITIES AND EQUITY | $ | 11,851.6 | $ | 12,876.6 |
Six months ended June 30, | |||||||
2012 | 2011 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 59.8 | $ | 55.7 | |||
Adjustments to reconcile net income to net cash used in operating activities: | |||||||
Depreciation and amortization of fixed assets and intangible assets | 71.4 | 73.3 | |||||
Provision for uncollectible receivables | 9.1 | 5.7 | |||||
Amortization of restricted stock and other non-cash compensation | 29.4 | 29.5 | |||||
Net amortization of bond premiums and deferred financing costs | (0.7 | ) | (4.0 | ) | |||
Deferred income tax benefit | (43.4 | ) | (36.1 | ) | |||
Other | 8.8 | 13.7 | |||||
Changes in assets and liabilities, net of acquisitions and dispositions, providing (using) cash: | |||||||
Accounts receivable | 675.1 | 251.0 | |||||
Expenditures billable to clients | (278.2 | ) | (107.7 | ) | |||
Other current assets | (46.0 | ) | (30.7 | ) | |||
Accounts payable | (622.2 | ) | (585.5 | ) | |||
Accrued liabilities | (189.9 | ) | (195.8 | ) | |||
Other non-current assets and liabilities | (13.8 | ) | (70.8 | ) | |||
Net cash used in operating activities | (340.6 | ) | (601.7 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (58.2 | ) | (53.1 | ) | |||
Acquisitions, including deferred payments, net of cash acquired | (51.6 | ) | (38.6 | ) | |||
Proceeds from sales of businesses and investments, net of cash sold | 12.6 | 7.0 | |||||
Other investing activities | (0.4 | ) | 0.2 | ||||
Net cash used in investing activities | (97.6 | ) | (84.5 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Purchase of long-term debt | (400.5 | ) | (1.5 | ) | |||
Proceeds from issuance of 4.00% Senior Notes due 2022 | 246.8 | 0.0 | |||||
Repurchase of common stock | (118.1 | ) | (139.0 | ) | |||
Common stock dividends | (52.3 | ) | (56.8 | ) | |||
Acquisition related payments | (34.5 | ) | (47.6 | ) | |||
Net increase in short-term bank borrowings | 28.5 | 24.7 | |||||
Distributions to noncontrolling interests | (9.0 | ) | (10.7 | ) | |||
Exercise of stock options | 7.7 | 11.7 | |||||
Preferred stock dividends | (5.8 | ) | (5.8 | ) | |||
Other financing activities | (3.9 | ) | 4.3 | ||||
Net cash used in financing activities | (341.1 | ) | (220.7 | ) | |||
Effect of foreign exchange rate changes on cash and cash equivalents | (21.4 | ) | 41.0 | ||||
Net decrease in cash and cash equivalents | (800.7 | ) | (865.9 | ) | |||
Cash and cash equivalents at beginning of period | 2,302.7 | 2,675.7 | |||||
Cash and cash equivalents at end of period | $ | 1,502.0 | $ | 1,809.8 |
Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss, Net of Tax | Treasury Stock | Total IPG Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2011 | $ | 221.5 | 491.4 | $ | 48.2 | $ | 2,427.5 | $ | 405.1 | $ | (225.7 | ) | $ | (414.9 | ) | $ | 2,461.7 | $ | 35.6 | $ | 2,497.3 | |||||||||||||||||
Net income | 58.9 | 58.9 | 0.9 | 59.8 | ||||||||||||||||||||||||||||||||||
Other comprehensive income | 57.4 | 57.4 | (1.1 | ) | 56.3 | |||||||||||||||||||||||||||||||||
Reclassifications related to redeemable noncontrolling interests | 12.0 | 12.0 | 3.7 | 15.7 | ||||||||||||||||||||||||||||||||||
Noncontrolling interest transactions | (0.8 | ) | (0.8 | ) | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | (9.0 | ) | (9.0 | ) | ||||||||||||||||||||||||||||||||||
Change in redemption value of redeemable noncontrolling interests | 3.1 | 3.1 | 3.1 | |||||||||||||||||||||||||||||||||||
Repurchase of common stock | (118.1 | ) | (118.1 | ) | (118.1 | ) | ||||||||||||||||||||||||||||||||
Common stock dividends | (52.3 | ) | (52.3 | ) | (52.3 | ) | ||||||||||||||||||||||||||||||||
Preferred stock dividends | (5.8 | ) | (5.8 | ) | (5.8 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation | 1.7 | 0.6 | 20.8 | 21.4 | 21.4 | |||||||||||||||||||||||||||||||||
Exercise of stock options | 0.8 | 0.1 | 7.7 | 7.8 | 7.8 | |||||||||||||||||||||||||||||||||
Shares withheld for taxes | (2.0 | ) | (0.2 | ) | (22.9 | ) | (23.1 | ) | (23.1 | ) | ||||||||||||||||||||||||||||
Other | 1.8 | (0.8 | ) | 1.0 | (0.9 | ) | 0.1 | |||||||||||||||||||||||||||||||
Balance at June 30, 2012 | $ | 221.5 | 491.9 | $ | 48.7 | $ | 2,446.9 | $ | 408.2 | $ | (168.3 | ) | $ | (533.0 | ) | $ | 2,424.0 | $ | 28.4 | $ | 2,452.4 |
Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss, Net of Tax | Treasury Stock | Total IPG Stockholders’ Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2010 | $ | 221.5 | 489.5 | $ | 47.5 | $ | 2,456.8 | $ | (63.7 | ) | $ | (119.0 | ) | $ | (14.1 | ) | $ | 2,529.0 | $ | 37.9 | $ | 2,566.9 | ||||||||||||||||
Net income (loss) | 59.4 | 59.4 | (3.7 | ) | 55.7 | |||||||||||||||||||||||||||||||||
Other comprehensive income | 72.4 | 72.4 | 0.4 | 72.8 | ||||||||||||||||||||||||||||||||||
Reclassifications related to redeemable noncontrolling interests | 10.2 | 10.2 | ||||||||||||||||||||||||||||||||||||
Noncontrolling interest transactions | (3.1 | ) | (3.1 | ) | ||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | (10.7 | ) | (10.7 | ) | ||||||||||||||||||||||||||||||||||
Change in redemption value of redeemable noncontrolling interests | (10.3 | ) | (10.3 | ) | (10.3 | ) | ||||||||||||||||||||||||||||||||
Repurchase of common stock | (139.0 | ) | (139.0 | ) | (139.0 | ) | ||||||||||||||||||||||||||||||||
Common stock dividends | (56.8 | ) | (56.8 | ) | (56.8 | ) | ||||||||||||||||||||||||||||||||
Preferred stock dividends | (5.8 | ) | (5.8 | ) | (5.8 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation | 3.0 | 0.7 | 28.0 | 28.7 | 28.7 | |||||||||||||||||||||||||||||||||
Exercise of stock options | 1.2 | 0.1 | 11.7 | 11.8 | 11.8 | |||||||||||||||||||||||||||||||||
Shares withheld for taxes | (2.3 | ) | (0.2 | ) | (25.1 | ) | (25.3 | ) | (25.3 | ) | ||||||||||||||||||||||||||||
Other | (0.5 | ) | (0.5 | ) | 0.9 | 0.4 | ||||||||||||||||||||||||||||||||
Balance at June 30, 2011 | $ | 221.5 | 491.4 | $ | 48.1 | $ | 2,398.0 | $ | (4.3 | ) | $ | (46.6 | ) | $ | (153.1 | ) | $ | 2,463.6 | $ | 31.9 | $ | 2,495.5 |
Effective Interest Rate | June 30, 2012 | December 31, 2011 | |||||||||||||||
Book Value | Fair Value 1 | Book Value | Fair Value 1 | ||||||||||||||
6.25% Senior Unsecured Notes due 2014 (less unamortized discount of $0.2) | 6.29% | $ | 353.5 | $ | 378.0 | $ | 354.3 | $ | 374.5 | ||||||||
10.00% Senior Unsecured Notes due 2017 (less unamortized discount of $8.8) | 10.38% | 591.2 | 679.5 | 590.6 | 690.0 | ||||||||||||
4.00% Senior Notes due 2022 (less unamortized discount of $3.1) | 4.13% | 246.9 | 254.4 | 0.0 | 0.0 | ||||||||||||
4.75% Convertible Senior Notes due 2023 (plus unamortized premium of $1.6) | 3.50% | 201.6 | 215.0 | 202.7 | 220.5 | ||||||||||||
4.25% Convertible Senior Notes due 2023 | 0.0 | 0.0 | 403.0 | 405.5 | |||||||||||||
Other notes payable and capitalized leases | 63.2 | 59.9 | 65.1 | ||||||||||||||
Total long-term debt | 1,456.4 | 1,615.7 | |||||||||||||||
Less: current portion 2 | 217.7 | 404.8 | |||||||||||||||
Long-term debt, excluding current portion | $ | 1,238.7 | $ | 1,210.9 |
1 | See Note 11 for information on the fair value measurement of our long-term debt. |
2 | On March 15, 2013, holders of our 4.75% Convertible Senior Notes due 2023 (the “4.75% Notes”) may require us to repurchase their notes for cash at par, and accordingly, we included these notes in the current portion of long-term debt on our June 30, 2012 unaudited Consolidated Balance Sheet. The 4.75% Notes are redeemable in whole or in part at our option beginning March 15, 2013. Any 4.75% Notes not repurchased on March 15, 2013 or called for redemption by us will be reclassified to long-term debt. We included our 4.25% Convertible Senior Notes due 2023 (the “4.25% Notes”) in the current portion of long-term debt on our December 31, 2011 Consolidated Balance Sheet because holders of the 4.25% Notes had a repurchase option on March 15, 2012 for cash at par. |
Derivative liabilities | Classification | June 30, 2012 | December 31, 2011 | |||||||||
Interest rate swap agreements | Non-current liabilities | $ | 18.6 | $ | 0.0 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
Classification | 2012 | 2011 | 2012 | 2011 | ||||||||||||||
Loss recognized in other comprehensive income (effective portion) | Other comprehensive income | $ | (15.8 | ) | $ | 0.0 | $ | (18.6 | ) | $ | 0.0 | |||||||
Loss recognized in earnings (ineffective portion) | Other income (expense), net | (0.1 | ) | 0.0 | (0.1 | ) | 0.0 | |||||||||||
Amount reclassified from other comprehensive income into earnings 1 | 0.0 | 0.0 | 0.0 | 0.0 |
1 | As of June 30, 2012, there are no deferred net losses on our interest rate swap agreements accumulated in other comprehensive income which are expected to be reclassified into earnings during the next twelve months. This expectation is based on the anticipated timing of the hedged transactions. |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income available to IPG common stockholders - basic | $ | 99.0 | $ | 101.7 | $ | 53.1 | $ | 53.6 | |||||||
Adjustments: Effect of dilutive securities | |||||||||||||||
Interest on 4.25% Notes 1 | 0.0 | 0.4 | 0.3 | 0.7 | |||||||||||
Interest on 4.75% Notes | 1.0 | 1.0 | 0.0 | 0.0 | |||||||||||
Preferred stock dividends | 2.9 | 2.9 | 0.0 | 0.0 | |||||||||||
Net income available to IPG common stockholders - diluted | $ | 102.9 | $ | 106.0 | $ | 53.4 | $ | 54.3 | |||||||
Weighted-average number of common shares outstanding - basic | 437.4 | 473.1 | 437.5 | 474.6 | |||||||||||
Add: Effect of dilutive securities | |||||||||||||||
Restricted stock, stock options and other equity awards | 6.9 | 8.8 | 6.6 | 8.5 | |||||||||||
4.25% Notes 1 | 0.0 | 32.5 | 15.6 | 32.5 | |||||||||||
4.75% Notes | 16.7 | 16.3 | 0.0 | 0.0 | |||||||||||
Preferred stock outstanding | 16.7 | 16.2 | 0.0 | 0.0 | |||||||||||
Weighted-average number of common shares outstanding - diluted | 477.7 | 546.9 | 459.7 | 515.6 | |||||||||||
Earnings per share available to IPG common stockholders - basic | $ | 0.23 | $ | 0.21 | $ | 0.12 | $ | 0.11 | |||||||
Earnings per share available to IPG common stockholders - diluted | $ | 0.22 | $ | 0.19 | $ | 0.12 | $ | 0.11 |
1 | We retired all of our outstanding 4.25% Notes in March 2012. For purposes of calculating diluted earnings per share for the first half of 2012, the potentially dilutive shares are pro-rated based on the period they were outstanding. |
Three months ended June 30, | Six months ended June 30, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
4.75% Notes | 0.0 | 0.0 | 16.7 | 16.3 | |||||||
Preferred stock outstanding | 0.0 | 0.0 | 16.7 | 16.2 | |||||||
Total | 0.0 | 0.0 | 33.4 | 32.5 | |||||||
Securities excluded from the diluted earnings per share calculation because the exercise price was greater than the average market price: | |||||||||||
Stock options 1 | 7.1 | 7.7 | 7.1 | 7.7 |
1 | These options are outstanding at the end of the respective periods. In any period in which the exercise price is less than the average market price, these options have the potential to be dilutive, and application of the treasury stock method would reduce this amount. |
Six months ended June 30, | |||||||
2012 | 2011 | ||||||
Cost of investment: current-year acquisitions | $ | 59.3 | $ | 8.1 | |||
Cost of investment: prior-year acquisitions | 35.4 | 80.5 | |||||
Less: net cash acquired | (8.6 | ) | (2.4 | ) | |||
Total cost of investment 1 | 86.1 | 86.2 | |||||
Operating expense 2 | 3.2 | 0.2 | |||||
Total cash paid for acquisitions | $ | 89.3 | $ | 86.4 |
1 | Of the total cash paid, $34.5 and $47.6 for the six months ended June 30, 2012 and 2011, respectively, are classified under the financing section of the unaudited Consolidated Statements of Cash Flows within acquisition-related payments. These amounts relate to increases in our ownership interests in our consolidated subsidiaries, as well as deferred payments for acquisitions that closed on or after January 1, 2009. Of the total cash paid, $51.6 and $38.6 for the six months ended June 30, 2012 and 2011, respectively, are classified under the investing section of the unaudited Consolidated Statements of Cash Flows within acquisitions, including deferred payments, net of cash acquired. These amounts relate to initial payments for new transactions and deferred payments for acquisitions that closed prior to January 1, 2009. |
2 | Represents cash payments made that were either in excess of the contractual value or contingent upon the future employment of the former owners of acquired companies. |
Six months ended June 30, | |||||||
2012 | 2011 | ||||||
Balance at beginning of period | $ | 243.4 | $ | 291.2 | |||
Change in related noncontrolling interest balance | (3.7 | ) | (10.2 | ) | |||
Changes in redemption value of redeemable noncontrolling interests: | |||||||
Additions | 1.0 | 5.5 | |||||
Redemptions and other | (14.2 | ) | (25.4 | ) | |||
Redemption value adjustments 1 | (4.2 | ) | 11.0 | ||||
Balance at end of period | $ | 222.3 | $ | 272.1 |
1 | Redeemable noncontrolling interests are reported at their estimated redemption value in each reporting period, but not less than their initial fair value. Any adjustment to the redemption value impacts retained earnings or additional paid-in capital, except adjustments as a result of currency translation. |
June 30, 2012 | December 31, 2011 | ||||||
Salaries, benefits and related expenses | $ | 349.8 | $ | 520.6 | |||
Office and related expenses | 46.6 | 57.9 | |||||
Acquisition obligations | 15.1 | 43.7 | |||||
Interest | 39.0 | 40.3 | |||||
Professional fees | 21.8 | 25.3 | |||||
Other | 121.6 | 139.3 | |||||
Total accrued liabilities | $ | 593.9 | $ | 827.1 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Gains (losses) on sales of businesses and investments | $ | 1.6 | $ | 0.3 | $ | (1.8 | ) | $ | (6.2 | ) | |||||
Vendor discounts and credit adjustments | 2.5 | 2.8 | 4.9 | 2.9 | |||||||||||
Other income, net | 0.6 | 2.2 | 0.3 | 2.5 | |||||||||||
Total other income (expense), net | $ | 4.7 | $ | 5.3 | $ | 3.4 | $ | (0.8 | ) |
Six months ended June 30, | |||||||
2012 | 2011 | ||||||
Number of shares repurchased | 11.0 | 12.0 | |||||
Aggregate cost, including fees | $ | 118.1 | $ | 139.0 | |||
Average price per share, including fees | $ | 10.78 | $ | 11.61 |
Awards | Weighted-average grant-date fair value (per award) | |||||
Stock options | 0.6 | $ | 4.24 | |||
Stock-settled awards | 0.8 | $ | 11.48 | |||
Performance-based awards | 1.8 | $ | 10.62 | |||
Total stock-based compensation awards | 3.2 |
Domestic Pension Plan | Foreign Pension Plans | Domestic Postretirement Benefit Plan | |||||||||||||||||||||
Three months ended June 30, | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
Service cost | $ | 0.0 | $ | 0.0 | $ | 2.6 | $ | 2.9 | $ | 0.1 | $ | 0.0 | |||||||||||
Interest cost | 1.5 | 1.7 | 5.6 | 5.9 | 0.6 | 0.6 | |||||||||||||||||
Expected return on plan assets | (1.9 | ) | (1.9 | ) | (4.6 | ) | (4.8 | ) | 0.0 | 0.0 | |||||||||||||
Amortization of: | |||||||||||||||||||||||
Transition obligation | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | |||||||||||||||||
Prior service cost (credit) | 0.0 | 0.0 | 0.0 | 0.1 | (0.1 | ) | 0.0 | ||||||||||||||||
Unrecognized actuarial losses | 1.7 | 1.6 | 0.2 | 0.1 | (0.1 | ) | 0.0 | ||||||||||||||||
Net periodic cost | $ | 1.3 | $ | 1.4 | $ | 3.8 | $ | 4.2 | $ | 0.6 | $ | 0.7 |
Domestic Pension Plan | Foreign Pension Plans | Domestic Postretirement Benefit Plan | |||||||||||||||||||||
Six months ended June 30, | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||
Service cost | $ | 0.0 | $ | 0.0 | $ | 5.3 | $ | 5.1 | $ | 0.1 | $ | 0.1 | |||||||||||
Interest cost | 3.1 | 3.4 | 11.0 | 11.7 | 1.2 | 1.3 | |||||||||||||||||
Expected return on plan assets | (3.8 | ) | (3.7 | ) | (9.1 | ) | (9.5 | ) | 0.0 | 0.0 | |||||||||||||
Amortization of: | |||||||||||||||||||||||
Transition obligation | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.1 | |||||||||||||||||
Prior service cost (credit) | 0.0 | 0.0 | 0.0 | 0.1 | (0.1 | ) | 0.0 | ||||||||||||||||
Unrecognized actuarial losses | 3.2 | 3.3 | 0.5 | 0.3 | 0.0 | 0.0 | |||||||||||||||||
Net periodic cost | $ | 2.5 | $ | 3.0 | $ | 7.7 | $ | 7.7 | $ | 1.3 | $ | 1.5 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenue: | |||||||||||||||
IAN | $ | 1,423.3 | $ | 1,471.7 | $ | 2,667.2 | $ | 2,707.6 | |||||||
CMG | 292.4 | 269.0 | 555.3 | 507.9 | |||||||||||
Total | $ | 1,715.7 | $ | 1,740.7 | $ | 3,222.5 | $ | 3,215.5 | |||||||
Segment operating income: | |||||||||||||||
IAN | $ | 177.3 | $ | 184.7 | $ | 162.0 | $ | 162.5 | |||||||
CMG | 31.2 | 27.8 | 38.7 | 38.5 | |||||||||||
Corporate and other | (32.1 | ) | (38.5 | ) | (63.7 | ) | (72.3 | ) | |||||||
Total | 176.4 | 174.0 | 137.0 | 128.7 | |||||||||||
Interest expense | (32.7 | ) | (33.1 | ) | (65.3 | ) | (65.0 | ) | |||||||
Interest income | 6.7 | 9.7 | 14.7 | 18.0 | |||||||||||
Other income (expense), net | 4.7 | 5.3 | 3.4 | (0.8 | ) | ||||||||||
Income before income taxes | $ | 155.1 | $ | 155.9 | $ | 89.8 | $ | 80.9 | |||||||
Depreciation and amortization of fixed assets and intangible assets: | |||||||||||||||
IAN | $ | 29.9 | $ | 31.4 | $ | 58.3 | $ | 60.7 | |||||||
CMG | 3.3 | 3.3 | 6.7 | 6.4 | |||||||||||
Corporate and other | 3.6 | 3.0 | 6.4 | 6.2 | |||||||||||
Total | $ | 36.8 | $ | 37.7 | $ | 71.4 | $ | 73.3 | |||||||
Capital expenditures: | |||||||||||||||
IAN | $ | 19.9 | $ | 22.8 | $ | 32.7 | $ | 36.8 | |||||||
CMG | 3.6 | 2.9 | 5.6 | 4.2 | |||||||||||
Corporate and other | 12.3 | 10.5 | 19.9 | 12.1 | |||||||||||
Total | $ | 35.8 | $ | 36.2 | $ | 58.2 | $ | 53.1 | |||||||
June 30, 2012 | December 31, 2011 | ||||||||||||||
Total assets: | |||||||||||||||
IAN | $ | 9,953.9 | $ | 10,589.2 | |||||||||||
CMG | 1,061.4 | 1,019.9 | |||||||||||||
Corporate and other | 836.3 | 1,267.5 | |||||||||||||
Total | $ | 11,851.6 | $ | 12,876.6 |
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
June 30, 2012 | Balance Sheet Classification | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Assets | |||||||||||||||||
Cash equivalents | $ | 962.2 | $ | 0.0 | $ | 0.0 | $ | 962.2 | Cash and cash equivalents | ||||||||
Short-term marketable securities | 12.7 | 0.0 | 0.0 | 12.7 | Marketable securities | ||||||||||||
Restricted marketable securities 1 | 0.0 | 136.0 | 0.0 | 136.0 | Restricted marketable securities | ||||||||||||
Long-term investments | 1.3 | 0.0 | 0.0 | 1.3 | Other assets | ||||||||||||
Total | $ | 976.2 | $ | 136.0 | $ | 0.0 | $ | 1,112.2 | |||||||||
As a percentage of total assets | 8.2 | % | 1.1 | % | 0.0 | % | 9.4 | % | |||||||||
Liabilities | |||||||||||||||||
Interest rate swap agreements 2 | $ | 0.0 | $ | 18.6 | $ | 0.0 | $ | 18.6 | Other non-current liabilities | ||||||||
Mandatorily redeemable noncontrolling interests 3 | 0.0 | 0.0 | 25.7 | 25.7 | |||||||||||||
June 30, 2011 | Balance Sheet Classification | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||
Assets | |||||||||||||||||
Cash equivalents | $ | 1,183.0 | $ | 0.0 | $ | 0.0 | $ | 1,183.0 | Cash and cash equivalents | ||||||||
Short-term marketable securities | 14.2 | 0.0 | 0.0 | 14.2 | Marketable securities | ||||||||||||
Long-term investments | 1.4 | 10.4 | 0.0 | 11.8 | Other assets | ||||||||||||
Total | $ | 1,198.6 | $ | 10.4 | $ | 0.0 | $ | 1,209.0 | |||||||||
As a percentage of total assets | 9.7 | % | 0.1 | % | 0.0 | % | 9.8 | % | |||||||||
Liabilities | |||||||||||||||||
Mandatorily redeemable noncontrolling interests 3 | $ | 0.0 | $ | 0.0 | $ | 27.0 | $ | 27.0 |
1 | The fair value of our restricted marketable securities is based on observable market prices, however, since we are restricted from selling these securities, they are classified as Level 2 within the fair value hierarchy. See Note 6 for further information on our restricted marketable securities. |
2 | Our interest rate swap agreements are cash flow hedges whose fair value was derived from the present value of future cash flows using valuation models that were based on readily observable market data such as interest rates and yield curves. |
3 | Relates to unconditional obligations to purchase additional noncontrolling equity shares of consolidated subsidiaries. Fair value measurement of the obligation |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
Liabilities | 2012 | 2011 | 2012 | 2011 | |||||||||||
Mandatorily redeemable noncontrolling interests - Balance at beginning of period | $ | 25.8 | $ | 57.9 | $ | 58.9 | $ | 52.0 | |||||||
Level 3 additions | 0.0 | 2.5 | 0.0 | 2.5 | |||||||||||
Level 3 reductions | (0.8 | ) | (33.9 | ) | (33.9 | ) | (28.0 | ) | |||||||
Realized losses included in net income | (0.7 | ) | (0.5 | ) | (0.8 | ) | (0.4 | ) | |||||||
Foreign currency translation | 0.0 | 0.0 | (0.1 | ) | 0.1 | ||||||||||
Mandatorily redeemable noncontrolling interests - Balance at end of period | $ | 25.7 | $ | 27.0 | $ | 25.7 | $ | 27.0 |
June 30, 2012 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Total long-term debt | $ | 0.0 | $ | 1,526.9 | $ | 59.9 | $ | 1,586.8 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three months ended June 30, 2012 | Six months ended June 30, 2012 | ||||||||||||||
% Increase/(Decrease) | Total | Organic | Total | Organic | |||||||||||
Revenue | (1.4 | )% | 0.8 | % | 0.2 | % | 1.7 | % | |||||||
Salaries and related expenses | (0.6 | )% | 1.6 | % | 0.8 | % | 2.1 | % | |||||||
Office and general expenses | (4.4 | )% | (2.3 | )% | (2.1 | )% | (0.9 | )% | |||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Operating margin | 10.3 | % | 10.0 | % | 4.3 | % | 4.0 | % | |||||||
Expenses as % of revenue: | |||||||||||||||
Salaries and related expenses | 63.5 | % | 62.9 | % | 68.1 | % | 67.7 | % | |||||||
Office and general expenses | 26.3 | % | 27.1 | % | 27.7 | % | 28.3 | % | |||||||
Net income available to IPG common stockholders | $ | 99.0 | $ | 101.7 | $ | 53.1 | $ | 53.6 | |||||||
Earnings per share available to IPG common stockholders: | |||||||||||||||
Basic | $ | 0.23 | $ | 0.21 | $ | 0.12 | $ | 0.11 | |||||||
Diluted | $ | 0.22 | $ | 0.19 | $ | 0.12 | $ | 0.11 |
Three months ended June 30, 2011 | Components of Change | Three months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 1,740.7 | $ | (49.7 | ) | $ | 11.2 | $ | 13.5 | $ | 1,715.7 | 0.8 | % | (1.4 | )% | ||||||||||
Domestic | 987.8 | 0.0 | (5.3 | ) | (31.6 | ) | 950.9 | (3.2 | )% | (3.7 | )% | ||||||||||||||
International | 752.9 | (49.7 | ) | 16.5 | 45.1 | 764.8 | 6.0 | % | 1.6 | % | |||||||||||||||
United Kingdom | 120.3 | (3.4 | ) | 4.7 | 5.1 | 126.7 | 4.2 | % | 5.3 | % | |||||||||||||||
Continental Europe | 238.0 | (22.8 | ) | 1.4 | (5.9 | ) | 210.7 | (2.5 | )% | (11.5 | )% | ||||||||||||||
Asia Pacific | 184.0 | (5.6 | ) | 6.3 | 26.3 | 211.0 | 14.3 | % | 14.7 | % | |||||||||||||||
Latin America | 90.5 | (10.0 | ) | 2.4 | 24.6 | 107.5 | 27.2 | % | 18.8 | % | |||||||||||||||
Other | 120.1 | (7.9 | ) | 1.7 | (5.0 | ) | 108.9 | (4.2 | )% | (9.3 | )% |
Six months ended June 30, 2011 | Components of Change | Six months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 3,215.5 | $ | (65.8 | ) | $ | 18.1 | $ | 54.7 | $ | 3,222.5 | 1.7 | % | 0.2 | % | ||||||||||
Domestic | 1,853.1 | 0.0 | (14.6 | ) | (7.9 | ) | 1,830.6 | (0.4 | )% | (1.2 | )% | ||||||||||||||
International | 1,362.4 | (65.8 | ) | 32.7 | 62.6 | 1,391.9 | 4.6 | % | 2.2 | % | |||||||||||||||
United Kingdom | 239.1 | (5.5 | ) | 10.2 | 8.1 | 251.9 | 3.4 | % | 5.4 | % | |||||||||||||||
Continental Europe | 422.0 | (30.3 | ) | 2.3 | (16.0 | ) | 378.0 | (3.8 | )% | (10.4 | )% | ||||||||||||||
Asia Pacific | 324.4 | (5.1 | ) | 12.6 | 50.0 | 381.9 | 15.4 | % | 17.7 | % | |||||||||||||||
Latin America | 167.6 | (13.4 | ) | 4.6 | 28.0 | 186.8 | 16.7 | % | 11.5 | % | |||||||||||||||
Other | 209.3 | (11.5 | ) | 3.0 | (7.5 | ) | 193.3 | (3.6 | )% | (7.6 | )% |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Salaries and related expenses | $ | 1,088.9 | $ | 1,095.7 | $ | 2,193.8 | $ | 2,175.8 | |||||||
Office and general expenses | 450.4 | 471.0 | 891.7 | 911.0 | |||||||||||
Total operating expenses | $ | 1,539.3 | $ | 1,566.7 | $ | 3,085.5 | $ | 3,086.8 | |||||||
Operating income | $ | 176.4 | $ | 174.0 | $ | 137.0 | $ | 128.7 |
2011 | Components of Change | 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Three months ended June 30, | $ | 1,095.7 | $ | (32.5 | ) | $ | 8.7 | $ | 17.0 | $ | 1,088.9 | 1.6 | % | (0.6 | )% | ||||||||||
Six months ended June 30, | 2,175.8 | (43.5 | ) | 14.8 | 46.7 | 2,193.8 | 2.1 | % | 0.8 | % |
Three months ended June 30, | Six months ended June 30, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
Salaries and related expenses | 63.5 | % | 62.9 | % | 68.1 | % | 67.7 | % | |||
Base salaries, benefits and tax | 52.6 | % | 52.0 | % | 56.4 | % | 55.9 | % | |||
Incentive expense | 3.3 | % | 3.5 | % | 3.8 | % | 3.9 | % | |||
Severance expense | 1.2 | % | 1.3 | % | 1.3 | % | 1.4 | % | |||
Temporary help | 3.7 | % | 3.8 | % | 3.8 | % | 3.9 | % | |||
All other salaries and related expenses | 2.7 | % | 2.3 | % | 2.8 | % | 2.6 | % |
2011 | Components of Change | 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Three months ended June 30, | $ | 471.0 | $ | (14.9 | ) | $ | 5.2 | $ | (10.9 | ) | $ | 450.4 | (2.3 | )% | (4.4 | )% | |||||||||
Six months ended June 30, | 911.0 | (19.7 | ) | 8.8 | (8.4 | ) | 891.7 | (0.9 | )% | (2.1 | )% |
Three months ended June 30, | Six months ended June 30, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
Office and general expenses | 26.3 | % | 27.1 | % | 27.7 | % | 28.3 | % | |||
Professional fees | 1.7 | % | 1.7 | % | 1.8 | % | 1.9 | % | |||
Occupancy expense (excluding depreciation and amortization) | 7.0 | % | 7.4 | % | 7.5 | % | 7.9 | % | |||
Travel & entertainment, office supplies and telecommunications | 3.9 | % | 3.8 | % | 4.0 | % | 3.9 | % | |||
All other office and general expenses | 13.7 | % | 14.2 | % | 14.4 | % | 14.6 | % |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Cash interest on debt obligations | $ | (31.1 | ) | $ | (34.7 | ) | $ | (65.3 | ) | $ | (68.6 | ) | |||
Non-cash interest | (1.6 | ) | 1.6 | 0.0 | 3.6 | ||||||||||
Interest expense | (32.7 | ) | (33.1 | ) | (65.3 | ) | (65.0 | ) | |||||||
Interest income | 6.7 | 9.7 | 14.7 | 18.0 | |||||||||||
Net interest expense | (26.0 | ) | (23.4 | ) | (50.6 | ) | (47.0 | ) | |||||||
Other income (expense), net | 4.7 | 5.3 | 3.4 | (0.8 | ) | ||||||||||
Total (expenses) and other income | $ | (21.3 | ) | $ | (18.1 | ) | $ | (47.2 | ) | $ | (47.8 | ) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Gains (losses) on sales of businesses and investments | $ | 1.6 | $ | 0.3 | $ | (1.8 | ) | $ | (6.2 | ) | |||||
Vendor discounts and credit adjustments | 2.5 | 2.8 | 4.9 | 2.9 | |||||||||||
Other income, net | 0.6 | 2.2 | 0.3 | 2.5 | |||||||||||
Total other income (expense), net | $ | 4.7 | $ | 5.3 | $ | 3.4 | $ | (0.8 | ) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Income before income taxes | $ | 155.1 | $ | 155.9 | $ | 89.8 | $ | 80.9 | |||||||
Provision for income taxes | $ | 50.1 | $ | 47.6 | $ | 30.9 | $ | 26.1 | |||||||
Effective income tax rate | 32.3 | % | 30.5 | % | 34.4 | % | 32.3 | % |
Three months ended June 30, 2011 | Components of Change | Three months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 1,471.7 | $ | (46.2 | ) | $ | 5.8 | $ | (8.0 | ) | $ | 1,423.3 | (0.5 | )% | (3.3 | )% | |||||||||
Domestic | 803.9 | 0.0 | (5.3 | ) | (41.5 | ) | 757.1 | (5.2 | )% | (5.8 | )% | ||||||||||||||
International | 667.8 | (46.2 | ) | 11.1 | 33.5 | 666.2 | 5.0 | % | (0.2 | )% |
Six months ended June 30, 2011 | Components of Change | Six months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 2,707.6 | $ | (61.7 | ) | $ | 8.7 | $ | 12.6 | $ | 2,667.2 | 0.5 | % | (1.5 | )% | ||||||||||
Domestic | 1,505.1 | 0.0 | (14.6 | ) | (22.9 | ) | 1,467.6 | (1.5 | )% | (2.5 | )% | ||||||||||||||
International | 1,202.5 | (61.7 | ) | 23.3 | 35.5 | 1,199.6 | 3.0 | % | (0.2 | )% |
Three months ended June 30, | Change | Six months ended June 30, | Change | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
Segment operating income | $ | 177.3 | $ | 184.7 | (4.0 | )% | $ | 162.0 | $ | 162.5 | (0.3 | )% | |||||||||
Operating margin | 12.5 | % | 12.6 | % | 6.1 | % | 6.0 | % |
Three months ended June 30, 2011 | Components of Change | Three months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 269.0 | $ | (3.5 | ) | $ | 5.4 | $ | 21.5 | $ | 292.4 | 8.0 | % | 8.7 | % | ||||||||||
Domestic | 183.9 | 0.0 | 0.0 | 9.9 | 193.8 | 5.4 | % | 5.4 | % | ||||||||||||||||
International | 85.1 | (3.5 | ) | 5.4 | 11.6 | 98.6 | 13.6 | % | 15.9 | % |
Six months ended June 30, 2011 | Components of Change | Six months ended June 30, 2012 | Change | ||||||||||||||||||||||
Foreign Currency | Net Acquisitions/ (Divestitures) | Organic | Organic | Total | |||||||||||||||||||||
Consolidated | $ | 507.9 | $ | (4.1 | ) | $ | 9.4 | $ | 42.1 | $ | 555.3 | 8.3 | % | 9.3 | % | ||||||||||
Domestic | 348.0 | 0.0 | 0.0 | 15.0 | 363.0 | 4.3 | % | 4.3 | % | ||||||||||||||||
International | 159.9 | (4.1 | ) | 9.4 | 27.1 | 192.3 | 16.9 | % | 20.3 | % |
Three months ended June 30, | Change | Six months ended June 30, | Change | ||||||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
Segment operating income | $ | 31.2 | $ | 27.8 | 12.2 | % | $ | 38.7 | $ | 38.5 | 0.5 | % | |||||||||
Operating margin | 10.7 | % | 10.3 | % | 7.0 | % | 7.6 | % |
Six months ended June 30, | |||||||
Cash Flow Data | 2012 | 2011 | |||||
Net income, adjusted to reconcile net income to net cash used in operating activities 1 | $ | 134.4 | $ | 137.8 | |||
Net cash used in working capital 2 | (461.2 | ) | (668.7 | ) | |||
Changes in other non-current assets and liabilities using cash | (13.8 | ) | (70.8 | ) | |||
Net cash used in operating activities | $ | (340.6 | ) | $ | (601.7 | ) | |
Net cash used in investing activities | (97.6 | ) | (84.5 | ) | |||
Net cash used in financing activities | (341.1 | ) | (220.7 | ) |
1 | Reflects net income adjusted primarily for depreciation and amortization of fixed assets and intangible assets, amortization of restricted stock and other non-cash compensation and deferred income taxes. |
2 | Reflects changes in accounts receivable, expenditures billable to clients, other current assets, accounts payable and accrued liabilities. |
Balance Sheet Data | June 30, 2012 | December 31, 2011 | June 30, 2011 | ||||||||
Cash, cash equivalents and marketable securities 1 | $ | 1,514.7 | $ | 2,315.6 | $ | 1,824.0 | |||||
Short-term borrowings | $ | 177.0 | $ | 153.5 | $ | 150.0 | |||||
Current portion of long-term debt | 217.7 | 404.8 | 448.6 | ||||||||
Long-term debt | 1,238.7 | 1,210.9 | 1,167.8 | ||||||||
Total debt | $ | 1,633.4 | $ | 1,769.2 | $ | 1,766.4 |
1 | Does not include restricted marketable securities. See Note 6 to the unaudited Consolidated Financial Statements for further information. |
• | Debt service – In March 2012, we retired $400.0 in aggregate principal amount of our 4.25% Notes. On March 15, 2013, holders of our $200.0 4.75% Convertible Senior Notes due 2023 may require us to repurchase their notes for cash at par, and on or after that date we have the right to redeem all or part of these notes at our option. The remainder of our debt is primarily long-term, with maturities scheduled through 2031. |
• | Acquisitions – We paid cash of $53.9, which was net of cash acquired of $8.6, for acquisitions completed in the first half of 2012. In addition to potential cash expenditures for new acquisitions, we expect to pay approximately $3.0 for the remainder of 2012 related to prior-year acquisitions. We will continue to evaluate strategic opportunities to grow and to increase our ownership interests in current investments, particularly in our digital and marketing services offerings, and to expand our presence in high-growth and key strategic world markets. See Note 5 to the unaudited Consolidated Financial Statements for further information. |
• | Dividends – In the first half of 2012, we paid two quarterly cash dividends of $0.06 per share on our common stock, which corresponded to an aggregate dividend payment of $52.3. Assuming we continue to pay a quarterly dividend of $0.06 per share and there is no significant change in the number of outstanding shares, we would pay approximately $52.0 for the remainder of 2012. We also pay regular quarterly dividends of $2.9, or $11.6 annually, on our Series B Preferred Stock. |
• | Contributions to pension plans – Our funding policy regarding our pension plans is to make contributions necessary to satisfy minimum pension funding requirements, plus such additional contributions as we consider appropriate to improve the plans’ funded status. During the six months ended June 30, 2012, we contributed $3.4 and $8.6 of cash to our domestic and foreign pension plans, respectively. For the remainder of 2012, we expect to contribute approximately $2.0 and $8.0 of cash to our domestic and foreign pension plans, respectively. |
June 30, 2012 | |||||||||||||||
Total Facility | Amount Outstanding | Letters of Credit 1 | Total Available | ||||||||||||
Cash, cash equivalents and marketable securities | $ | 1,514.7 | |||||||||||||
Committed credit agreement | $ | 1,000.0 | $ | 0.0 | $ | 16.9 | $ | 983.1 | |||||||
Uncommitted credit arrangements | $ | 499.6 | $ | 177.0 | $ | 3.0 | $ | 319.6 |
1 | We are required from time to time to post letters of credit, primarily to support obligations of our subsidiaries. These letters of credit have historically not been drawn upon. |
Four Quarters Ended | Four Quarters Ended | |||||||
Financial Covenants | June 30, 2012 | EBITDA Reconciliation | June 30, 2012 | |||||
Interest coverage ratio (not less than) | 5.00x | Operating income | $ | 695.4 | ||||
Actual interest coverage ratio | 8.28x | Add: | ||||||
Depreciation and amortization | 200.8 | |||||||
Leverage ratio (not greater than) | 2.75x | Other non-cash amounts | 0.2 | |||||
Actual leverage ratio | 1.82x | EBITDA 1 | $ | 896.4 |
1 | EBITDA is calculated as defined in the Credit Agreement. |
Moody’s Investor Service | Standard and Poor’s | Fitch Ratings | |||
Rating | Baa3 | BB+ | BBB | ||
Outlook | Stable | Positive | Stable |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) | The following table provides information regarding our purchases of our equity securities during the period from April 1, 2012 to June 30, 2012. |
Total Number of Shares (or Units) Purchased 1 | Average Price Paid per Share (or Unit) 2 | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs 3 | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 3 | ||||||||||
April 1 - 30 | 2,301,755 | $ | 10.88 | 2,297,746 | $ | 272,519,240 | |||||||
May 1 - 31 | 2,058,511 | $ | 11.29 | 2,035,000 | $ | 249,526,207 | |||||||
June 1 - 30 | 1,680,638 | $ | 10.47 | 1,674,900 | $ | 231,992,842 | |||||||
Total | 6,040,904 | $ | 10.91 | 6,007,646 |
1 | Includes shares of our common stock, par value $0.10 per share, withheld under the terms of grants under employee stock-based compensation plans to offset tax withholding obligations that arose upon vesting and release of restricted shares (the “Withheld Shares”). We repurchased 4,009 Withheld Shares in April 2012, 23,511 Withheld Shares in May 2012 and 5,738 Withheld Shares in June 2012, for a total of 33,258 Withheld Shares during the three-month period. |
2 | The average price per share for each of the months in the fiscal quarter and for the three-month period was calculated by dividing the sum for the applicable period of the aggregate value of the tax withholding obligations and the aggregate amount we paid for shares acquired under our common stock repurchase program, described in Note 6 to the unaudited Consolidated Financial Statements, by the sum of the number of Withheld Shares and the number of shares acquired in our stock repurchase program. |
3 | On February 24, 2012, we announced that our Board of Directors had approved a new share repurchase program to repurchase from time to time up to $300.0 million of our common stock. There is no expiration date associated with the share repurchase program. |
Item 6. | Exhibits |
THE INTERPUBLIC GROUP OF COMPANIES, INC. | ||
By | /s/ Michael I. Roth | |
Michael I. Roth Chairman and Chief Executive Officer |
By | /s/ Christopher F. Carroll | |
Christopher F. Carroll Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) |
EXHIBIT NO. | DESCRIPTION | |
12.1 | Computation of Ratios of Earnings to Fixed Charges. | |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | |
32 | Certification of the Chief Executive Officer and the Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended. | |
101 | Interactive Data File, for the period ended June 30, 2012. |
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES | |||||||||||||||||||||||||
(Amounts in Millions, Except Ratios) | |||||||||||||||||||||||||
Six months ended June 30, | Years ended December 31, | ||||||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||||
Earnings 1 | |||||||||||||||||||||||||
Income from continuing operations before income taxes | $ | 89.8 | $ | 738.4 | $ | 450.6 | $ | 232.4 | $ | 471.5 | $ | 235.7 | |||||||||||||
Fixed charges 1 | |||||||||||||||||||||||||
Interest expense | 65.3 | 136.8 | 139.7 | 155.6 | 211.9 | 236.7 | |||||||||||||||||||
Interest factor of net operating rents 2 | 83.8 | 175.6 | 172.8 | 181.4 | 183.9 | 185.6 | |||||||||||||||||||
Total fixed charges | 149.1 | 312.4 | 312.5 | 337.0 | 395.8 | 422.3 | |||||||||||||||||||
Earnings, as adjusted | $ | 238.9 | $ | 1,050.8 | $ | 763.1 | $ | 569.4 | $ | 867.3 | $ | 658.0 | |||||||||||||
Ratio of earnings to fixed charges | 1.6 | 3.4 | 2.4 | 1.7 | 2.2 | 1.6 |
1 | Earnings consist of income from continuing operations before income taxes, equity in net income of unconsolidated affiliates and adjustments for net income (loss) attributable to noncontrolling interests. Fixed charges consist of interest on indebtedness, amortization of debt discount, waiver and other amendment fees, debt issuance costs (all of which are included in interest expense) and the portion of net rental expense deemed representative of the interest component (one-third). |
2 | We have calculated the interest factor of net operating rent as one third of our operating rent, as this represents a reasonable approximation of the interest factor. |
1. | I have reviewed this quarterly report on Form 10-Q of The Interpublic Group of Companies, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Michael I. Roth | |
Michael I. Roth | |
Chairman and Chief Executive Officer |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Frank Mergenthaler | |
Frank Mergenthaler | |
Executive Vice President and Chief Financial Officer |
/s/ Michael I. Roth | |
Michael I. Roth | |
Chairman and Chief Executive Officer |
/s/ Frank Mergenthaler | |
Frank Mergenthaler | |
Executive Vice President and Chief Financial Officer |
MVS<@G8F,)$44RE#41
M'0,J^RY#RC56>UU+UC9+RZ=LJ,U[24))/PN),XCJ]:B9TIKW>*1B_O)8:J7$
MI$D;$A:@!\'@!*/'_2GY`?*=/?\`+C/\/S)^SS)O^0L]]?E1CO:5GGUC>[R/
M)B1/%7??=R];V5JN6R\R\U".F-B6
GPO.9VRKIZ9YM/(;B0#4=4K1M.=6[L7:7:(JDA6;=O<6I$P#V8N(Q$H>
M4!$O;E49=UKT\S$AL)O::.J(VMU,FB/VR2T>XX>U$M9BT6U!R\XX5V5572#^
MDIOXH/[``='=;'8G$'9ZEW&K.SL+/4[-7'Z8Z*,IZ"E(=V0>SL,VD&K= DP2_!@K+-2L P&W
M9@CW!@QV@,X43SI2>[-23G< C#<$ZKB\
MJ"AN4WO+,P3M1KF4<)'"8.!(9E1HV#+B*%K5C.T9[C4T[0]!]S4 HOI#78M2LEDK'T+',4T]J4*
M0N:'=6@@H+!A&?(5@?NUC=F_U1LJ@4H@$0[]D/L\UHXXXVSN',D5GB1?42JC
MFU;7?*HDK])3XY$>U]'H]_3.7"ZS[ELZU.]+KOOI[,^;SLH@HKN-%(8RE@'@
M)F_1/#D&;2X\'V>\T,X]E_U^I=2W[+?NA?941$1\/=Y4#S@,ZH2;Q.?-'59-
M#Z:;;B]JH$YZSHBD2ONQ"!!(*)%1,%O+$)0#WM"\[%@#OGW/3=7I)M,WEYM6
ME/!8JR0J`),R0)#QNNN0-K-SL68`^+6[OK>@*TSU)!O[W/>5E#&*ZWI*@BH8
M-I;W]:Q\/,7<+>.U.0LPB97`D8@`4U@&]29!04!CT80U=S;8TO.=ASUF(&8J
M\H%@"L8QH#"H'6O$V8I=R\?B?-<]YUJ1$P%#%@=:UD.@'3Y41X=QN"*DT(PI
MO&K/]]5R@61!!"B(&&2(1=K.EK4)1OB*O7?'$O3U+0:2FK8&6CF34+?9QW5L
M3"*_H9?QBI6YUY;0?4>+,\U1'T@AN**ZQT")FJ8!7#$G'
In Millions, unless otherwise specified
2004 Restatement Liabilities [Abstract]
Vendor discounts and credit liabilities
$ 42.0
$ 55.5
In Millions, unless otherwise specified
Segments:
Assets
$ 11,851.6
$ 12,876.6
Segments:
Assets
9,953.9
10,589.2
Segments:
Assets
1,061.4
1,019.9
Segments:
Assets
$ 836.3
$ 1,267.5
In Millions, except Per Share data, unless otherwise specified3 Months Ended
6 Months Ended
Net income available to IPG common stockholders - basic
$ 99.0
$ 101.7
$ 53.1
$ 53.6
Preferred stock dividends
2.9
2.9
0
0
Net income available to IPG common stockholders - diluted
102.9
106.0
53.4
54.3
Weighted-average number of common shares outstanding - basic
437.4
473.1
437.5
474.6
Restricted stock, stock options and other equity awards
6.9
8.8
6.6
8.5
Preferred stock outstanding
16.7
16.2
0
0
Weighted-average number of common shares outstanding - diluted
477.7
546.9
459.7
515.6
Earnings per share available to IPG common stockholders - basic
$ 0.23
$ 0.21
$ 0.12
$ 0.11
Earnings per share available to IPG common stockholders - diluted
$ 0.22
$ 0.19
$ 0.12
$ 0.11
Interest on convertible debt
0
0.4
0.3
0.7
Convertible debt securities
0
[1]
32.5
15.6
[1]
32.5
Interest on convertible debt
$ 1.0
$ 1.0
$ 0
$ 0
Convertible debt securities
16.7
16.3
0
0
[1]
We retired all of our outstanding 4.25% Notes in March 2012. For purposes of calculating diluted earnings per share for the first half of 2012, the potentially dilutive shares are pro-rated based on the period they were outstanding.
6 Months Ended
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Stock-based Compensation Awards
In Millions, unless otherwise specified3 Months Ended
6 Months Ended
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation
Balance at beginning of period
$ 25.8
$ 57.9
$ 58.9
$ 52.0
Level 3 additions
0
2.5
0
2.5
Level 3 reductions
(0.8)
(33.9)
(33.9)
(28.0)
Realized losses included in net income
(0.7)
(0.5)
(0.8)
(0.4)
Foreign currency translation
0
0
(0.1)
0.1
Balance at end of period
$ 25.7
$ 27.0
$ 25.7
$ 27.0
In Millions, unless otherwise specified3 Months Ended
6 Months Ended
Income Tax Disclosure [Abstract]
Effective income tax rate
32.30%
34.40%
One hundred percent valuation allowance
100.00%
Reversal of valuation allowance
$ 26.2
$ 26.2
Tax contingency reserve
$ 19.5
$ 19.5
In Millions, unless otherwise specified
Accrued Liabilities [Abstract]
Salaries, benefits and related expenses
$ 349.8
$ 520.6
Office and related expenses
46.6
57.9
Acquisition obligations
15.1
43.7
Interest
39.0
40.3
Professional fees
21.8
25.3
Other
121.6
139.3
Total accrued liabilities
$ 593.9
$ 827.1
In Millions, unless otherwise specified
Commitments and Contingencies Disclosure [Abstract]
Lease guarantees
$ 431.8
$ 385.1
Credit facility guarantees
$ 379.1
$ 327.5
In Millions, unless otherwise specified3 Months Ended
6 Months Ended
Segments:
Revenue
$ 1,715.7
$ 1,740.7
$ 3,222.5
$ 3,215.5
Segment operating income
176.4
174.0
137.0
128.7
Interest expense
(32.7)
(33.1)
(65.3)
(65.0)
Interest income
6.7
9.7
14.7
18.0
Other income (expense), net
4.7
5.3
3.4
(0.8)
Income before income taxes
155.1
155.9
89.8
80.9
Depreciation and amortization of fixed assets and intangible assets
36.8
37.7
71.4
73.3
Capital expenditures
35.8
36.2
58.2
53.1
Segments:
Segment revenue
1,423.3
1,471.7
2,667.2
2,707.6
Segment operating income
177.3
184.7
162.0
162.5
Depreciation and amortization of fixed assets and intangible assets
29.9
31.4
58.3
60.7
Capital expenditures
19.9
22.8
32.7
36.8
Segments:
Segment revenue
292.4
269.0
555.3
507.9
Segment operating income
31.2
27.8
38.7
38.5
Depreciation and amortization of fixed assets and intangible assets
3.3
3.3
6.7
6.4
Capital expenditures
3.6
2.9
5.6
4.2
Segments:
Segment operating income
(32.1)
(38.5)
(63.7)
(72.3)
Depreciation and amortization of fixed assets and intangible assets
3.6
3.0
6.4
6.2
Capital expenditures
$ 12.3
$ 10.5
$ 19.9
$ 12.1
6 Months Ended
Debt and Credit Arrangements [Abstract]
Debt and Credit Arrangements
2012
2011
discount of $0.2)
discount of $8.8)
discount of $3.1)
premium of $1.6)
2012
2011
June 30,
June 30,
(effective portion)
into earnings 118QQ
M&/FRKU2L__J#166]&4?L\'D,5UMWZM4_XA>QQ4?\D9
#:LW$8`PZDUO70CF0Z0V3*(3
M'TP#1H&*#$ S/S8MP+9C*J`5VTT(PFC61+F$D[F`MZOY\KDT)CXDJY_NWZ%M