IPG 09.30.12 10Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended September 30, 2012 |
or
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-6686
THE INTERPUBLIC GROUP OF COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 13-1024020 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
1114 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 704-1200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ | | Smaller reporting company | | ¨ |
(Do not check if a smaller reporting company) | | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No ý
The number of shares of the registrant’s common stock outstanding as of October 15, 2012 was 431,388,142.
INDEX |
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
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INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE
This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or comparable terminology are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update publicly any of them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. 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, the following:
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• | 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; |
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• | our ability to attract new clients and retain existing clients; |
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• | our ability to retain and attract key employees; |
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• | 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; |
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• | potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments; |
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• | 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 |
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• | developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world. |
Investors should carefully consider these factors and the additional risk factors outlined in more detail under Item 1A, Risk Factors, in our most recent annual report on Form 10-K.
Part I – FINANCIAL INFORMATION
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Item 1. | Financial Statements (Unaudited) |
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
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| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
REVENUE | $ | 1,670.4 |
| | $ | 1,726.5 |
| | $ | 4,892.9 |
| | $ | 4,942.0 |
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| | | | | | | |
OPERATING EXPENSES: | | | | | | | |
Salaries and related expenses | 1,064.3 |
| | 1,088.0 |
| | 3,258.1 |
| | 3,263.8 |
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Office and general expenses | 474.7 |
| | 465.3 |
| | 1,366.4 |
| | 1,376.3 |
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Total operating expenses | 1,539.0 |
| | 1,553.3 |
| | 4,624.5 |
| | 4,640.1 |
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OPERATING INCOME | 131.4 |
| | 173.2 |
| | 268.4 |
| | 301.9 |
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EXPENSES AND OTHER INCOME: | | | | | | | |
Interest expense | (31.6 | ) | | (32.9 | ) | | (96.9 | ) | | (97.9 | ) |
Interest income | 6.7 |
| | 9.7 |
| | 21.4 |
| | 27.7 |
|
Other income, net | 1.7 |
| | 137.1 |
| | 5.1 |
| | 136.3 |
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Total (expenses) and other income | (23.2 | ) | | 113.9 |
| | (70.4 | ) | | 66.1 |
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Income before income taxes | 108.2 |
| | 287.1 |
| | 198.0 |
| | 368.0 |
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Provision for income taxes | 41.9 |
| | 70.4 |
| | 72.8 |
| | 96.5 |
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Income of consolidated companies | 66.3 |
| | 216.7 |
| | 125.2 |
| | 271.5 |
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Equity in net income of unconsolidated affiliates | 1.4 |
| | 0.8 |
| | 2.3 |
| | 1.7 |
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NET INCOME | 67.7 |
| | 217.5 |
| | 127.5 |
| | 273.2 |
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Net loss (income) attributable to noncontrolling interests | 3.9 |
| | (6.5 | ) | | 3.0 |
| | (2.8 | ) |
NET INCOME ATTRIBUTABLE TO IPG | 71.6 |
| | 211.0 |
| | 130.5 |
| | 270.4 |
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Dividends on preferred stock | (2.9 | ) | | (2.9 | ) | | (8.7 | ) | | (8.7 | ) |
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS | $ | 68.7 |
| | $ | 208.1 |
| | $ | 121.8 |
| | $ | 261.7 |
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Earnings per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.16 |
| | $ | 0.45 |
| | $ | 0.28 |
| | $ | 0.56 |
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Diluted | $ | 0.15 |
| | $ | 0.40 |
| | $ | 0.27 |
| | $ | 0.50 |
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Weighted-average number of common shares outstanding: | | | | | | | |
Basic | 431.3 | | 464.7 | | 435.5 | | 471.3 |
Diluted | 456.1 | | 537.6 | | 469.7 | | 527.8 |
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Dividends declared per common share | $ | 0.06 |
| | $ | 0.06 |
| | $ | 0.18 |
| | $ | 0.18 |
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The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Millions)
(Unaudited)
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| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
NET INCOME | $ | 67.7 |
| | $ | 217.5 |
| | $ | 127.5 |
| | $ | 273.2 |
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OTHER COMPREHENSIVE INCOME | | | | | | | |
Foreign currency translation adjustments | 37.3 |
| | (137.8 | ) | | 16.1 |
| | (71.8 | ) |
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Available-for-sale securities: | | | | | | | |
Changes in market value of available-for-sale securities | (40.8 | ) | | (0.6 | ) | | 94.7 |
| | 0.1 |
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Less: recognition of previously unrealized losses included in net income | 0.0 |
| | 0.1 |
| | 0.6 |
| | 0.3 |
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Income tax effect | 15.8 |
| | 0.0 |
| | (34.8 | ) | | (0.1 | ) |
| (25.0 | ) | | (0.5 | ) | | 60.5 |
| | 0.3 |
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Derivative instruments: | | | | | | | |
Changes in fair value of derivative instruments | (3.6 | ) | | 0.0 |
| | (22.2 | ) | | 0.0 |
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Income tax effect | 1.5 |
| | 0.0 |
| | 9.2 |
| | 0.0 |
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| (2.1 | ) | | 0.0 |
| | (13.0 | ) | | 0.0 |
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Defined benefit pension and other postretirement plans: | | | | | | | |
Net actuarial gains for the period | 0.0 |
| | 0.0 |
| | 1.0 |
| | 3.7 |
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Less: amortization of unrecognized losses, transition obligation and prior service cost included in net income | 2.0 |
| | 1.9 |
| | 5.7 |
| | 5.7 |
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Other | (0.3 | ) | | (0.1 | ) | | (0.4 | ) | | (0.2 | ) |
Income tax effect | (0.6 | ) | | (0.6 | ) | | (2.3 | ) | | (2.0 | ) |
| 1.1 |
| | 1.2 |
| | 4.0 |
| | 7.2 |
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| | | | | | | |
Other comprehensive income (loss), net of tax | 11.3 |
| | (137.1 | ) | | 67.6 |
| | (64.3 | ) |
TOTAL COMPREHENSIVE INCOME | 79.0 |
| | 80.4 |
| | 195.1 |
| | 208.9 |
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Less: comprehensive (loss) income attributable to noncontrolling interest | (3.3 | ) | | 4.4 |
| | (3.5 | ) | | 1.1 |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO IPG | $ | 82.3 |
| | $ | 76.0 |
| | $ | 198.6 |
| | $ | 207.8 |
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The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
(Unaudited)
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| September 30, 2012 | | December 31, 2011 |
ASSETS: | | | |
Cash and cash equivalents | $ | 1,187.3 |
| | $ | 2,302.7 |
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Marketable securities | 14.3 |
| | 12.9 |
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Restricted marketable securities (see Note 6) | 94.7 |
| | 0.0 |
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Accounts receivable, net of allowance of $59.4 and $55.4 | 3,839.9 |
| | 4,425.4 |
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Expenditures billable to clients | 1,513.6 |
| | 1,247.2 |
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Other current assets | 324.7 |
| | 298.6 |
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Total current assets | 6,974.5 |
| | 8,286.8 |
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Furniture, equipment and leasehold improvements, net of accumulated depreciation of $1,139.4 and $1,126.3 | 466.7 |
| | 459.8 |
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Deferred income taxes | 182.7 |
| | 214.5 |
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Goodwill | 3,574.3 |
| | 3,444.3 |
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Other non-current assets | 530.5 |
| | 471.2 |
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TOTAL ASSETS | $ | 11,728.7 |
| | $ | 12,876.6 |
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LIABILITIES: | | | |
Accounts payable | $ | 5,846.8 |
| | $ | 6,647.2 |
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Accrued liabilities | 650.0 |
| | 827.1 |
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Short-term borrowings | 200.5 |
| | 153.5 |
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Current portion of long-term debt | 217.1 |
| | 404.8 |
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Total current liabilities | 6,914.4 |
| | 8,032.6 |
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Long-term debt | 1,263.1 |
| | 1,210.9 |
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Deferred compensation | 430.5 |
| | 440.3 |
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Other non-current liabilities | 473.9 |
| | 452.1 |
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TOTAL LIABILITIES | 9,081.9 |
| | 10,135.9 |
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| | | |
Redeemable noncontrolling interests (see Note 5) | 220.3 |
| | 243.4 |
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STOCKHOLDERS’ EQUITY: | | | |
Preferred stock | 221.5 |
| | 221.5 |
|
Common stock | 48.8 |
| | 48.2 |
|
Additional paid-in capital | 2,448.5 |
| | 2,427.5 |
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Retained earnings | 450.9 |
| | 405.1 |
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Accumulated other comprehensive loss, net of tax | (157.6 | ) | | (225.7 | ) |
| 3,012.1 |
| | 2,876.6 |
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Less: Treasury stock | (616.3 | ) | | (414.9 | ) |
Total IPG stockholders’ equity | 2,395.8 |
| | 2,461.7 |
|
Noncontrolling interests | 30.7 |
| | 35.6 |
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TOTAL STOCKHOLDERS’ EQUITY | 2,426.5 |
| | 2,497.3 |
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TOTAL LIABILITIES AND EQUITY | $ | 11,728.7 |
| | $ | 12,876.6 |
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The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
(Unaudited)
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| | | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 127.5 |
| | $ | 273.2 |
|
Adjustments to reconcile net income to net cash used in operating activities: | | | |
Depreciation and amortization of fixed assets and intangible assets | 108.8 |
| | 109.5 |
|
Provision for uncollectible receivables | 11.8 |
| | 7.7 |
|
Amortization of restricted stock and other non-cash compensation | 37.7 |
| | 42.1 |
|
Net amortization of bond discounts (premiums) and deferred financing costs | 0.3 |
| | (6.3 | ) |
Deferred income tax (benefit) provision | (31.5 | ) | | 24.7 |
|
Gain on sale of an investment | 0.0 |
| | (132.2 | ) |
Other | 10.0 |
| | 15.9 |
|
Changes in assets and liabilities, net of acquisitions and dispositions, providing (using) cash: | | | |
Accounts receivable | 610.2 |
| | 565.8 |
|
Expenditures billable to clients | (268.4 | ) | | (315.2 | ) |
Other current assets | (17.8 | ) | | (36.9 | ) |
Accounts payable | (852.7 | ) | | (817.4 | ) |
Accrued liabilities | (172.0 | ) | | (99.2 | ) |
Other non-current assets and liabilities | (9.2 | ) | | (75.6 | ) |
Net cash used in operating activities | (445.3 | ) | | (443.9 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Acquisitions, including deferred payments, net of cash acquired | (140.6 | ) | | (50.3 | ) |
Capital expenditures | (99.3 | ) | | (83.3 | ) |
Proceeds from the sale of an investment | 0.0 |
| | 133.5 |
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Other investing activities | 10.6 |
| | 9.2 |
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Net cash (used in) provided by investing activities | (229.3 | ) | | 9.1 |
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CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Purchase of long-term debt | (401.0 | ) | | (38.3 | ) |
Proceeds from issuance of 4.00% Senior Notes due 2022 | 246.8 |
| | 0.0 |
|
Repurchase of common stock | (201.4 | ) | | (269.0 | ) |
Common stock dividends | (78.1 | ) | | (84.4 | ) |
Net increase in short-term bank borrowings | 45.5 |
| | 48.0 |
|
Acquisition related payments | (36.1 | ) | | (70.4 | ) |
Distributions to noncontrolling interests | (12.2 | ) | | (17.4 | ) |
Preferred stock dividends | (8.7 | ) | | (8.7 | ) |
Exercise of stock options | 8.5 |
| | 11.9 |
|
Other financing activities | (3.0 | ) | | 5.6 |
|
Net cash used in financing activities | (439.7 | ) | | (422.7 | ) |
Effect of foreign exchange rate changes on cash and cash equivalents | (1.1 | ) | | (33.2 | ) |
Net decrease in cash and cash equivalents | (1,115.4 | ) | | (890.7 | ) |
Cash and cash equivalents at beginning of period | 2,302.7 |
| | 2,675.7 |
|
Cash and cash equivalents at end of period | $ | 1,187.3 |
| | $ | 1,785.0 |
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The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in Millions)
(Unaudited)
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| 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 |
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Net income | | | | | | | | | 130.5 |
| | | | | | 130.5 |
| | (3.0 | ) | | 127.5 |
|
Other comprehensive income | | | | | | | | | | | 68.1 |
| | | | 68.1 |
| | (0.5 | ) | | 67.6 |
|
Reclassifications related to redeemable noncontrolling interests | | | | | | | 12.0 |
| | | | | | | | 12.0 |
| | 8.3 |
| | 20.3 |
|
Noncontrolling interest transactions | | | | | | | | | | | | | | | | | (1.3 | ) | | (1.3 | ) |
Distributions to noncontrolling interests | | | | | | | | | | | | | | | | | (12.2 | ) | | (12.2 | ) |
Change in redemption value of redeemable noncontrolling interests | | | | | | | | | 3.1 |
| | | | | | 3.1 |
| | | | 3.1 |
|
Repurchase of common stock | | | | | | | | | | | | | (201.4 | ) | | (201.4 | ) | | | | (201.4 | ) |
Common stock dividends | | | | | | | | | (78.1 | ) | | | | | | (78.1 | ) | | | | (78.1 | ) |
Preferred stock dividends | | | | | | | | | (8.7 | ) | | | | | | (8.7 | ) | | | | (8.7 | ) |
Stock-based compensation | | | 1.8 |
| | 0.7 |
| | 25.8 |
| | | | | | | | 26.5 |
| | | | 26.5 |
|
Exercise of stock options | | | 0.9 |
| | 0.1 |
| | 8.5 |
| | | | | | | | 8.6 |
| | | | 8.6 |
|
Shares withheld for taxes | | | (2.1 | ) | | (0.2 | ) | | (23.3 | ) | | | | | | | | (23.5 | ) | | | | (23.5 | ) |
Other | | | | | | | (2.0 | ) | | (1.0 | ) | | | | | | (3.0 | ) | | 3.8 |
| | 0.8 |
|
Balance at September 30, 2012 | $ | 221.5 |
| | 492.0 |
| | $ | 48.8 |
| | $ | 2,448.5 |
| | $ | 450.9 |
| | $ | (157.6 | ) | | $ | (616.3 | ) | | $ | 2,395.8 |
| | $ | 30.7 |
| | $ | 2,426.5 |
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The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY – (CONTINUED)
(Amounts in Millions)
(Unaudited)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Retained Earnings (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 | | | | | | | | | 270.4 |
| | | | | | 270.4 |
| | 2.8 |
| | 273.2 |
|
Other comprehensive loss | | | | | | | | | | | (62.6 | ) | | | | (62.6 | ) | | (1.7 | ) | | (64.3 | ) |
Reclassifications related to redeemable noncontrolling interests | | | | | | | | | | | | | | | | | 15.8 |
| | 15.8 |
|
Noncontrolling interest transactions | | | | | | | 0.2 |
| | | | | | | | 0.2 |
| | (2.9 | ) | | (2.7 | ) |
Distributions to noncontrolling interests | | | | | | | | | | | | | | | | | (17.4 | ) | | (17.4 | ) |
Change in redemption value of redeemable noncontrolling interests | | | | | | | (20.7 | ) | | | | | | | | (20.7 | ) | | | | (20.7 | ) |
Repurchase of common stock | | | | | | | | | | | | | (269.0 | ) | | (269.0 | ) | | | | (269.0 | ) |
Common stock dividends | | | | | | | (56.8 | ) | | (27.6 | ) | | | | | | (84.4 | ) | | | | (84.4 | ) |
Preferred stock dividends | | | | | | | (5.8 | ) | | (2.9 | ) | | | | | | (8.7 | ) | | | | (8.7 | ) |
Stock-based compensation | | | 2.9 |
| | 0.8 |
| | 37.9 |
| | | | | | | | 38.7 |
| | | | 38.7 |
|
Exercise of stock options | | | 1.3 |
| | 0.1 |
| | 11.9 |
| | | | | | | | 12.0 |
| | | | 12.0 |
|
Shares withheld for taxes | | | (2.3 | ) | | (0.2 | ) | | (26.2 | ) | | | | | | | | (26.4 | ) | | | | (26.4 | ) |
Other | | |
|
| |
|
| | 0.1 |
| | | | | | | | 0.1 |
| | 0.4 |
| | 0.5 |
|
Balance at September 30, 2011 | $ | 221.5 |
| | 491.4 |
| | $ | 48.2 |
| | $ | 2,397.4 |
| | $ | 176.2 |
| | $ | (181.6 | ) | | $ | (283.1 | ) | | $ | 2,378.6 |
| | $ | 34.9 |
| | $ | 2,413.5 |
|
The accompanying notes are an integral part of these unaudited financial statements.
Notes to Consolidated Financial Statements
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 1: Basis of Presentation
The unaudited Consolidated Financial Statements have been prepared by The Interpublic Group of Companies, Inc. and its subsidiaries (the “Company,” “IPG,” “we,” “us” or “our”) in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, they do not include certain information and disclosures required for complete financial statements. The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with our 2011 Annual Report on Form 10-K.
In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments of a normal and recurring nature necessary for a fair statement of the information for each period contained therein. Certain reclassifications have been made to prior-period financial statements to conform to the current-period presentation.
Note 2: Debt and Credit Arrangements
Long-Term Debt
A summary of the carrying amounts and fair values of our long-term debt is listed below.
|
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | September 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% | | $ | 353.1 |
| | $ | 379.8 |
| | $ | 354.3 |
| | $ | 374.5 |
|
10.00% Senior Unsecured Notes due 2017 (less unamortized discount of $8.4) | 10.38% | | 591.6 |
| | 672.0 |
| | 590.6 |
| | 690.0 |
|
4.00% Senior Notes due 2022 (less unamortized discount of $3.0) | 4.13% | | 247.0 |
| | 261.0 |
| | 0.0 |
| | 0.0 |
|
4.75% Convertible Senior Notes due 2023 (plus unamortized premium of $1.0) | 3.50% | | 201.0 |
| | 220.7 |
| | 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 | | | 87.5 |
| | 84.0 |
| | 65.1 |
| | |
Total long-term debt | | | 1,480.2 |
| | | | 1,615.7 |
| | |
Less: current portion 2 | | | 217.1 |
| | | | 404.8 |
| | |
Long-term debt, excluding current portion | | | $ | 1,263.1 |
| | | | $ | 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 September 30, 2012 unaudited Consolidated Balance Sheet. The 4.75% Notes are also redeemable in whole or in part at our option beginning March 15, 2013. Any 4.75% Notes neither repurchased on March 15, 2013 nor 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. The 4.25% Notes were retired in the first quarter of 2012. |
Debt Transactions
4.00% Senior Notes due 2022
In March 2012, we issued $250.0 in aggregate principal amount of 4.00% Senior Notes due 2022 (the "4.00% Notes") at a discount to par. As a result, the 4.00% Notes were reflected on our unaudited Consolidated Balance Sheet at a fair value of $246.8 at issuance. The discount of $3.2 is amortized through the maturity date of March 15, 2022. Interest is payable semi-annually in arrears on March 15th and September 15th of each year, commencing on September 15, 2012. Capitalized direct fees, including commissions and offering expenses, of $2.5 related to the issuance of the 4.00% Notes are amortized in interest expense through the maturity date. Consistent with our other debt securities, the 4.00% Notes include covenants that, among other things, limit our liens and the liens of certain of our consolidated subsidiaries, but do not require us to maintain any financial ratios or specified levels of net worth or liquidity. We applied the proceeds towards the repurchase and redemption of our 4.25% Notes as described below.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
At any time, at our option, we may redeem all or some of the 4.00% Notes at the greater of the principal amount and a "make-whole" amount, plus, in either case, accrued and unpaid interest to the date of redemption. If we experience a change of control event, we must offer to repurchase the 4.00% Notes in cash at a price equal to not less than 101% of the aggregate principal amount of the 4.00% Notes, plus accrued and unpaid interest to the date of repurchase.
4.25% Convertible Senior Notes due 2023
In March 2012, we retired $400.0 in aggregate principal amount of our 4.25% Notes through redemption, repurchases and conversions into Interpublic common stock. Of the amount retired, $399.6 in aggregate principal amount was redeemed or repurchased for cash at par plus accrued interest of $0.5. The remaining $0.4 in aggregate principal amount of our 4.25% Notes was converted, at the election of the 4.25% Note holders, into Interpublic common stock at a conversion rate of 82.4612 shares (actual number) per $1,000 (actual number) principal amount of the 4.25% Notes, or approximately 30,000 shares (actual number). The retirement of our 4.25% Notes eliminates approximately 33.0 shares of common stock from our eligible diluted share count annually.
Convertible Senior Notes
The conversion rate of our 4.75% Notes is subject to adjustment in specified circumstances, including any payment of cash dividends on our common stock. During the second quarter of 2012, the conversion rate for our 4.75% Notes was adjusted from 82.4612 (actual number) to 83.3669 (actual number) as a result of the cumulative effect of the cash dividends declared and paid on our common stock during the first half of 2012, resulting in a corresponding adjustment of the conversion price from $12.13 to $12.00. There was no adjustment required to the conversion rate in the third quarter of 2012.
Capped Call
In November 2010, we purchased capped call options to hedge the risk of price appreciation on the shares of our common stock into which our 4.75% Notes are convertible. During the second quarter of 2012, the strike price and cap price related to the capped call options were adjusted due to the payment of cash dividends on our common stock. There was no adjustment required to the strike price and cap price in the third quarter of 2012. As of September 30, 2012, the options give us the right to purchase up to 16.7 shares of our common stock at a strike price of $12.00 per share (previously $12.13), except that the economic benefit to us of exercising the options will not exceed the difference between the strike price and the adjusted cap price of $17.64 per share (previously $17.83).
Interest Rate Swaps
We enter into interest rate swaps to manage our exposure to changes in interest rates. During the first nine months of 2012, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $300.0 to effectively lock in the benchmark rate for a forecasted issuance of debt to occur prior to December 31, 2013. These swaps qualify for hedge accounting as cash flow hedges, and, as such, the effective portion of gains or losses on the swaps are recorded in other comprehensive income and recognized in earnings over the life of the related debt issuance or when the hedged transaction is determined to be ineffective.
The following table presents the fair value of our interest rate swap agreements on our unaudited Consolidated Balance Sheets.
|
| | | | | | | | | | | | |
Derivative liabilities | | Classification | | September 30, 2012 | | December 31, 2011 |
Interest rate swap agreements | | Accrued liabilities | | $ | 22.3 |
| | $ | 0.0 |
|
The following table presents the effect of our interest rate swap agreements on our unaudited Consolidated Statements of Comprehensive Income and our unaudited Consolidated Statements of Operations.
|
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended September 30, | | Nine months ended September 30, |
| | Classification | | 2012 | | 2011 | | 2012 | | 2011 |
Loss recognized in other comprehensive income (effective portion) | | Other comprehensive income | | $ | (3.6 | ) | | $ | 0.0 |
| | $ | (22.2 | ) | | $ | 0.0 |
|
Loss recognized in earnings (ineffective portion) | | Other income, net | | 0.0 |
| | 0.0 |
| | (0.1 | ) | | 0.0 |
|
Amount reclassified from accumulated other comprehensive loss into earnings 1 | | | | 0.0 |
| | 0.0 |
| | 0.0 |
| | 0.0 |
|
| |
1 | As of September 30, 2012, the estimated amount of deferred net losses that is reported in accumulated other comprehensive loss that is expected to be reclassified into earnings within the next twelve months is $0.7. This expectation is based on the anticipated timing of the hedged transactions. |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Credit Facilities
We maintain a committed corporate credit facility to increase our financial flexibility (the "Credit Agreement"). The Credit Agreement is a revolving facility expiring in May 2016, under which amounts borrowed by us or any of our subsidiaries designated under the Credit Agreement may be repaid and reborrowed, subject to an aggregate lending limit of $1,000.0 or the equivalent in other currencies. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit on letters of credit of $200.0 or the equivalent in other currencies. Our obligations under the Credit Agreement are unsecured.
We were in compliance with all of our covenants in the Credit Agreement as of September 30, 2012.
Note 3: Convertible Preferred Stock
The conversion rate of our 5 1/4% Series B Cumulative Convertible Perpetual Preferred Stock (the "Series B Preferred Stock")is subject to adjustment upon the occurrence of certain events, including the payment of cash dividends on our common stock. During the third quarter of 2012, the conversion rate per share for our Series B Preferred Stock was adjusted from 75.3568 to 76.2197 as a result of the cumulative effect of the cash dividends declared and paid on our common stock during the second and third quarters of 2012, resulting in a corresponding adjustment of the conversion price from $13.27 to $13.12.
Note 4: Earnings Per Share
The following sets forth basic and diluted earnings per common share available to IPG common stockholders.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Net income available to IPG common stockholders - basic | $ | 68.7 |
| | $ | 208.1 |
| | $ | 121.8 |
| | $ | 261.7 |
|
Adjustments: Effect of dilutive securities | | | | | | | |
Interest on 4.25% Notes 1 | 0.0 |
| | 0.4 |
| | 0.3 |
| | 1.0 |
|
Interest on 4.75% Notes | 1.0 |
| | 1.0 |
| | 3.1 |
| | 3.1 |
|
Preferred stock dividends | 0.0 |
| | 2.9 |
| | 0.0 |
| | 0.0 |
|
Net income available to IPG common stockholders - diluted | $ | 69.7 |
| | $ | 212.4 |
| | $ | 125.2 |
| | $ | 265.8 |
|
| | | | | | | |
| | | | | | | |
Weighted-average number of common shares outstanding - basic | 431.3 |
| | 464.7 |
| | 435.5 |
| | 471.3 |
|
Add: Effect of dilutive securities | | | | | | | |
Restricted stock, stock options and other equity awards | 8.1 |
| | 7.6 |
| | 7.1 |
| | 7.7 |
|
4.25% Notes 1 | 0.0 |
| | 32.5 |
| | 10.4 |
| | 32.5 |
|
4.75% Notes | 16.7 |
| | 16.3 |
| | 16.7 |
| | 16.3 |
|
Preferred stock outstanding | 0.0 |
| | 16.5 |
| | 0.0 |
| | 0.0 |
|
| | | | | | | |
Weighted-average number of common shares outstanding - diluted | 456.1 |
| | 537.6 |
| | 469.7 |
| | 527.8 |
|
| | | | | | | |
| | | | | | | |
Earnings per share available to IPG common stockholders - basic | $ | 0.16 |
| | $ | 0.45 |
| | $ | 0.28 |
| | $ | 0.56 |
|
Earnings per share available to IPG common stockholders - diluted | $ | 0.15 |
| | $ | 0.40 |
| | $ | 0.27 |
| | $ | 0.50 |
|
| |
1 | We retired all of our outstanding 4.25% Notes in March 2012. For purposes of calculating diluted earnings per share for the first nine months of 2012, the potentially dilutive shares are pro-rated based on the period they were outstanding. |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
The following table presents the potential shares excluded from the diluted earnings per share calculation because the effect of including these potential shares would be antidilutive.
|
| | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Preferred stock outstanding | 16.9 |
| | 0.0 |
| | 16.9 |
| | 16.5 |
|
| | | | | | | |
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 |
| | 12.6 |
| | 7.1 |
| | 9.1 |
|
| |
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. |
Note 5: Acquisitions
We 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 markets. Our acquisitions typically provide for an initial payment at the time of closing and additional contingent purchase price payments based on the future performance of the acquired entity. Due to the characteristics of advertising, specialized marketing and communication services companies, our acquisitions typically do not have significant amounts of tangible assets, as the principal asset we typically acquire is talent. As a result, a substantial portion of the purchase price of these acquisitions is allocated to identifiable intangible assets, primarily customer lists and trade names, and goodwill. Intangible assets, which have definitive lives, are subject to amortization on a straight-line basis with estimated useful lives generally between 7 and 15 years.
During the first nine months of 2012, we completed eleven acquisitions, including a healthcare market research and consulting agency and a search marketing agency in the United Kingdom, and, in the United States, a digital healthcare-marketing specialist and a designer of in-store shopping experiences. Of our eleven acquisitions, seven were included in the Integrated Agency Networks (“IAN”) operating segment and four were included in the Constituency Management Group (“CMG”) operating segment. During the first nine months of 2012, we recorded approximately $205.0 of goodwill and intangible assets related to these acquisitions.
During the first nine months of 2011, we completed fifteen acquisitions, which included a public relations company in Brazil, digital marketing agencies in Australia and the United Kingdom, and a social media agency in the United States. Of our fifteen acquisitions, thirteen were included in the IAN operating segment and two were included in the CMG operating segment. During the first nine months of 2011, we recorded approximately $75.0 of goodwill and intangible assets related to these acquisitions.
All acquired agencies have been integrated into one of our global networks or existing agencies. The results of operations of our acquired companies were included in our consolidated results from the closing date of each acquisition. Details of cash paid for current and prior years' acquisitions are listed below.
|
| | | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
Cost of investment: current-year acquisitions | $ | 154.3 |
| | $ | 23.0 |
|
Cost of investment: prior-year acquisitions | 37.0 |
| | 103.6 |
|
Less: net cash acquired | (14.6 | ) | | (5.9 | ) |
Total cost of investment 1 | 176.7 |
| | 120.7 |
|
| | | |
Operating expense 2 | 3.2 |
| | 0.2 |
|
| | | |
Total cash paid for acquisitions | $ | 179.9 |
| | $ | 120.9 |
|
| |
1 | Of the total cash paid, $36.1 and $70.4 for the nine months ended September 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, $140.6 and $50.3 for the nine months ended September 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. |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Many of our acquisitions also include provisions under which the noncontrolling equity owners may require us to purchase additional interests in a subsidiary at their discretion. The following table presents changes in our redeemable noncontrolling interests.
|
| | | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
Balance at beginning of period | $ | 243.4 |
| | $ | 291.2 |
|
Change in related noncontrolling interest balance | (8.3 | ) | | (15.8 | ) |
Changes in redemption value of redeemable noncontrolling interests: | | | |
Additions | 3.0 |
| | 5.8 |
|
Redemptions and other | (14.2 | ) | | (43.5 | ) |
Redemption value adjustments 1 | (3.6 | ) | | 20.0 |
|
Balance at end of period | $ | 220.3 |
| | $ | 257.7 |
|
| |
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. |
Note 6: Supplementary Data
Accrued Liabilities
The following table presents the components of accrued liabilities.
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 |
Salaries, benefits and related expenses | $ | 397.4 |
| | $ | 520.6 |
|
Office and related expenses | 46.7 |
| | 57.9 |
|
Acquisition obligations | 19.4 |
| | 43.7 |
|
Interest | 24.3 |
| | 40.3 |
|
Professional fees | 20.6 |
| | 25.3 |
|
Other | 141.6 |
| | 139.3 |
|
Total accrued liabilities | $ | 650.0 |
| | $ | 827.1 |
|
Restricted Marketable Securities
In the second quarter of 2012, Facebook completed an initial public offering. Prior to the public offering, our investment in Facebook was recorded on our Consolidated Balance Sheet at cost of $1.2. As a result of the public offering, our investment in Facebook was transferred from non-current assets to restricted marketable securities, designated as available-for-sale securities, and carried at fair value. Unrealized gains and losses from available-for-sale securities are reported as a component of accumulated other comprehensive loss, net of tax, in stockholders' equity. While the Facebook investment is classified as marketable, available-for-sale securities, we are restricted from selling these shares until the fourth quarter of 2012.
As of September 30, 2012, we owned 4.4 shares of Facebook and the fair value of this investment was $94.7. For the three and nine months ended September 30, 2012, we recorded an unrealized loss of $41.3 and an unrealized gain of $93.5, respectively, in other comprehensive income.
2004 Restatement Liabilities
As part of the restatement we presented in our 2004 Annual Report on Form 10-K (the “2004 Restatement”), we recognized liabilities related to vendor discounts and credits where we had a contractual or legal obligation to rebate such amounts to our clients or vendors. Reductions to these liabilities are achieved through settlements with clients and vendors, but also may occur if the applicable statute of limitations in a jurisdiction has lapsed. As of September 30, 2012 and December 31, 2011, we had vendor discounts and credit liabilities of $33.1 and $55.5, respectively, related to the 2004 Restatement.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Other Income, net
Results of operations for the three and nine months ended September 30, 2012 and 2011 include certain items that are not directly associated with our revenue-producing operations.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
(Losses) gains on sales of businesses and investments | $ | (3.4 | ) | | $ | 132.0 |
| | $ | (5.2 | ) | | $ | 125.8 |
|
Vendor discounts and credit adjustments | 5.0 |
| | 4.8 |
| | 9.9 |
| | 7.7 |
|
Other income, net | 0.1 |
| | 0.3 |
| | 0.4 |
| | 2.8 |
|
Total other income, net | $ | 1.7 |
| | $ | 137.1 |
| | $ | 5.1 |
| | $ | 136.3 |
|
Sales of Businesses and Investments – During the third quarter of 2012, we recognized losses relating to the sale of a business in an international market within our IAN segment during the quarter, as well as an adjustment relating to a reserve for a change in estimate in connection with a business disposed of in a prior year. Additionally, during the first nine months of 2012, we recognized a loss relating to the sale of a business in the domestic market within our IAN segment, which was partially offset by a gain recognized relating to the sale of a business in an international market within our CMG segment. During the third quarter of 2011, we received net proceeds of $133.5 from the sale of approximately half of our holdings in Facebook and recorded a pre-tax gain of $132.2. Additionally, during the first nine months of 2011, we recognized a loss relating to the sale of a business in the domestic market within our IAN segment.
Vendor Discounts and Credit Adjustments – We continue to settle our liabilities related to vendor discounts and credits established as part of the 2004 Restatement. These adjustments reflect the reversal of certain of these liabilities as a result of settlements with clients or vendors or where the statute of limitations has lapsed.
Share Repurchase Program
In February 2012, our Board of Directors (the “Board”) authorized a new share repurchase program to repurchase from time to time up to $300.0, excluding fees, of our common stock (the "2012 share repurchase program"). In 2011, the Board authorized a share repurchase program to repurchase from time to time up to $450.0, excluding fees, of our common stock (the "2011 share repurchase program"). We may effect such repurchases through open market purchases, trading plans established in accordance with SEC rules, derivative transactions or other means.
The following table presents our share repurchase activity under our share repurchase programs.
|
| | | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
Number of shares repurchased | 18.6 |
| | 27.0 |
|
Aggregate cost, including fees | $ | 201.4 |
| | $ | 269.0 |
|
Average price per share, including fees | $ | 10.85 |
| | $ | 9.97 |
|
As of September 30, 2012, $148.9 remains available for repurchase under the 2012 share repurchase program. The 2012 share repurchase program has no expiration date. We completed the 2011 share repurchase program in the first quarter of 2012.
Note 7: Income Taxes
For the three months ended September 30, 2012, our effective income tax rate of 38.7% was negatively impacted by losses in certain foreign locations for which we receive no tax benefit due to 100% valuation allowances. Additionally, our effective income tax rate was positively impacted by a provision true-up relating to the filing of our 2011 U.S. federal income tax return, including an adjustment for an unrecorded tax deduction.
In addition to the factors noted above, for the nine months ended September 30, 2012, our effective income tax rate of 36.8% was positively impacted by the reversal of a $26.2 valuation allowance associated with the Asia Pacific region, and by a benefit derived from the deduction of foreign tax credits that were previously fully valued. Additionally, our effective income tax rate was negatively impacted by an adjustment of $19.5 associated with the establishment of a previously unrecorded reserve for a tax contingency for the years 2007 through 2010.
We have various tax years under examination by tax authorities in various countries, and in various states, such as New York, in which we have significant business operations. It is not yet known whether these examinations will, in the aggregate, result in
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
our paying additional taxes. We believe our tax reserves are adequate in relation to the potential for additional assessments in each of the jurisdictions in which we are subject to taxation. We regularly assess the likelihood of additional tax assessments in those jurisdictions and, if necessary, adjust our reserves as additional information or events require.
With respect to all tax years open to examination by U.S. federal, various state and local, and non-U.S. tax authorities, we currently anticipate that total unrecognized tax benefits will decrease by an amount between $5.0 and $15.0 in the next twelve months, a portion of which will affect our effective income tax rate, primarily as a result of the settlement of tax examinations and the lapsing of statutes of limitations. This net decrease is related to various items of income and expense, primarily transfer pricing adjustments.
We are effectively settled with respect to U.S. income tax audits for years prior to 2009. With limited exceptions, we are no longer subject to state and local income tax audits for years prior to 1999, or non-U.S. income tax audits for years prior to 2005.
Note 8: Incentive Compensation Plans
We issue stock-based compensation and cash awards to our employees under a plan established by the Compensation and Leadership Talent Committee of the Board of Directors (the “Compensation Committee”) and approved by our shareholders.
We issued the following stock-based awards under the 2009 Performance Incentive Plan (the “2009 PIP”) during the nine months ended September 30, 2012.
|
| | | | | | |
| Awards | | Weighted-average grant-date fair value (per award) |
Stock options | 0.6 |
| | $ | 4.24 |
|
Stock-settled awards | 0.9 |
| | $ | 11.43 |
|
Performance-based awards | 1.8 |
| | $ | 10.61 |
|
Total stock-based compensation awards | 3.3 |
| | |
During the nine months ended September 30, 2012, the Compensation Committee granted performance cash awards under the 2009 PIP with a total target value of $71.0. Of this amount, awards with a total target value of $33.6 will be settled in shares upon vesting. The number of shares to be settled on the vesting date will be calculated as the cash value adjusted for performance divided by our stock price on the vesting date. Additionally, during the nine months ended September 30, 2012, the Compensation Committee granted cash awards under the Interpublic Restricted Cash Plan with a total target value of $2.6. Cash awards are amortized over the vesting period, typically three years.
Note 9: Employee Benefits
We have a defined benefit pension plan (the “Domestic Pension Plan”) that covers certain U.S. employees. We also have numerous funded and unfunded plans outside the U.S. The Interpublic Pension Plan in the U.K. is a defined benefit plan and is our most material foreign pension plan in terms of the benefit obligation and plan assets. Some of our domestic and foreign subsidiaries provide postretirement health benefits and life insurance to eligible employees and, in certain cases, their dependents. The domestic postretirement benefit plan is our most material postretirement benefit plan in terms of the benefit obligation. Certain immaterial foreign pension and postretirement benefit plans have been excluded from the table below.
The components of net periodic cost for the Domestic Pension Plan, the significant foreign pension plans and the domestic postretirement benefit plan are listed below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Pension Plan | | Foreign Pension Plans | | Domestic Postretirement Benefit Plan |
Three months ended September 30, | 2012 | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
Service cost | $ | 0.0 |
| | $ | 0.0 |
| | $ | 3.0 |
| | $ | 2.8 |
| | $ | 0.1 |
| | $ | 0.1 |
|
Interest cost | 1.6 |
| | 1.7 |
| | 5.3 |
| | 5.9 |
| | 0.5 |
| | 0.7 |
|
Expected return on plan assets | (2.0 | ) | | (1.9 | ) | | (4.5 | ) | | (4.8 | ) | | 0.0 |
| | 0.0 |
|
Settlement and curtailment losses | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.0 |
| | 0.0 |
| | 0.0 |
|
Amortization of: | | | | | | | | | | | |
Transition obligation | 0.0 |
| | 0.0 |
| | 0.0 |
| | 0.0 |
| | 0.0 |
| | 0.0 |
|
Prior service cost (credit) | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.0 |
| | 0.0 |
| | (0.1 | ) |
Unrecognized actuarial losses | 1.6 |
| | 1.7 |
| | 0.3 |
| | 0.3 |
| | 0.0 |
| | 0.0 |
|
Net periodic cost | $ | 1.2 |
| | $ | 1.5 |
| | $ | 4.3 |
| | $ | 4.2 |
| | $ | 0.6 |
| | $ | 0.7 |
|
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Pension Plan | | Foreign Pension Plans | | Domestic Postretirement Benefit Plan |
Nine months ended September 30, | 2012 | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
Service cost | $ | 0.0 |
| | $ | 0.0 |
| | $ | 8.3 |
| | $ | 7.9 |
| | $ | 0.2 |
| | $ | 0.2 |
|
Interest cost | 4.7 |
| | 5.1 |
| | 16.3 |
| | 17.6 |
| | 1.7 |
| | 2.0 |
|
Expected return on plan assets | (5.8 | ) | | (5.6 | ) | | (13.6 | ) | | (14.3 | ) | | 0.0 |
| | 0.0 |
|
Settlement and curtailment losses | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.0 |
| | 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 |
| | 0.1 |
| | 0.1 |
| | (0.1 | ) | | (0.1 | ) |
Unrecognized actuarial losses | 4.8 |
| | 5.0 |
| | 0.8 |
| | 0.6 |
| | 0.0 |
| | 0.0 |
|
Net periodic cost | $ | 3.7 |
| | $ | 4.5 |
| | $ | 12.0 |
| | $ | 11.9 |
| | $ | 1.9 |
| | $ | 2.2 |
|
During the nine months ended September 30, 2012, we contributed $4.5 and $13.5 of cash to our domestic and foreign pension plans, respectively. In the fourth quarter of 2012, we expect to contribute approximately $1.0 and $3.0 of cash to our domestic and foreign pension plans, respectively.
Note 10: Segment Information
We have two reportable segments, IAN and CMG. IAN is comprised of McCann Worldgroup, Draftfcb, Lowe & Partners, Mediabrands and our domestic integrated agencies. CMG is comprised of a number of our specialist marketing services offerings. We also report results for the “Corporate and other” group. The profitability measure employed by our chief operating decision maker for allocating resources to operating divisions and assessing operating division performance is operating income, excluding the impact of restructuring and other reorganization-related reversals (charges), net and long-lived asset impairment and other charges, if applicable. Other than certain reclassifications, the segment information is presented consistently with the basis described in our 2011 Annual Report on Form 10-K.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Summarized financial information concerning our reportable segments is shown in the following table.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
Revenue: | | | | | | | |
IAN | $ | 1,332.5 |
| | $ | 1,432.7 |
| | $ | 3,999.7 |
| | $ | 4,140.3 |
|
CMG | 337.9 |
| | 293.8 |
| | 893.2 |
| | 801.7 |
|
Total | $ | 1,670.4 |
| | $ | 1,726.5 |
| | $ | 4,892.9 |
| | $ | 4,942.0 |
|
| | | | | | | |
Segment operating income: | | | | | | | |
IAN | $ | 116.6 |
| | $ | 180.8 |
| | $ | 278.6 |
| | $ | 343.3 |
|
CMG | 34.4 |
| | 27.9 |
| | 73.1 |
| | 66.4 |
|
Corporate and other | (19.6 | ) | | (35.5 | ) | | (83.3 | ) | | (107.8 | ) |
Total | 131.4 |
| | 173.2 |
| | 268.4 |
| | 301.9 |
|
| | | | | | | |
Interest expense | (31.6 | ) | | (32.9 | ) | | (96.9 | ) | | (97.9 | ) |
Interest income | 6.7 |
| | 9.7 |
| | 21.4 |
| | 27.7 |
|
Other income, net | 1.7 |
| | 137.1 |
| | 5.1 |
| | 136.3 |
|
Income before income taxes | $ | 108.2 |
| | $ | 287.1 |
| | $ | 198.0 |
| | $ | 368.0 |
|
| | | | | | | |
Depreciation and amortization of fixed assets and intangible assets: | | | | | | | |
IAN | $ | 30.1 |
| | $ | 29.9 |
| | $ | 88.4 |
| | $ | 90.6 |
|
CMG | 3.9 |
| | 3.1 |
| | 10.6 |
| | 9.5 |
|
Corporate and other | 3.4 |
| | 3.2 |
| | 9.8 |
| | 9.4 |
|
Total | $ | 37.4 |
| | $ | 36.2 |
| | $ | 108.8 |
| | $ | 109.5 |
|
| | | | | | | |
Capital expenditures: | | | | | | | |
IAN | $ | 19.9 |
| | $ | 19.3 |
| | $ | 52.6 |
| | $ | 56.1 |
|
CMG | 11.9 |
| | 3.3 |
| | 17.5 |
| | 7.5 |
|
Corporate and other | 9.3 |
| | 7.6 |
| | 29.2 |
| | 19.7 |
|
Total | $ | 41.1 |
| | $ | 30.2 |
| | $ | 99.3 |
| | $ | 83.3 |
|
| | | | | | | |
| September 30, 2012 | | December 31, 2011 | | | | |
Total assets: | | | | | | | |
IAN | $ | 10,276.9 |
| | $ | 10,589.2 |
| | | | |
CMG | 1,091.7 |
| | 1,019.9 |
| | | | |
Corporate and other | 360.1 |
| | 1,267.5 |
| | | | |
Total | $ | 11,728.7 |
| | $ | 12,876.6 |
| | | | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 11: Fair Value Measurements
Authoritative guidance for fair value measurements establishes a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
|
| | |
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. |
Financial Instruments that are Measured at Fair Value on a Recurring Basis
We primarily apply the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis. There were no changes to our valuation techniques used to determine the fair value of financial instruments during the nine months ended September 30, 2012. The following tables present information about our financial instruments measured at fair value on a recurring basis as of September 30, 2012 and September 30, 2011, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
|
| | | | | | | | | | | | | | | | | |
| September 30, 2012 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 692.3 |
| | $ | 0.0 |
| | $ | 0.0 |
| | $ | 692.3 |
| | Cash and cash equivalents |
Short-term marketable securities | 14.3 |
| | 0.0 |
| | 0.0 |
| | 14.3 |
| | Marketable securities |
Restricted marketable securities 1 | 0.0 |
| | 94.7 |
| | 0.0 |
| | 94.7 |
| | Restricted marketable securities |
Long-term investments | 1.4 |
| | 0.0 |
| | 0.0 |
| | 1.4 |
| | Other assets |
Total | $ | 708.0 |
| | $ | 94.7 |
| | $ | 0.0 |
| | $ | 802.7 |
| | |
| | | | | | | | | |
As a percentage of total assets | 6.0 | % | | 0.8 | % | | 0.0 | % | | 6.8 | % | | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Interest rate swap agreements 2 | $ | 0.0 |
| | $ | 22.3 |
| | $ | 0.0 |
| | $ | 22.3 |
| | Accrued liabilities |
Mandatorily redeemable noncontrolling interests 3 | 0.0 |
| | 0.0 |
| | 24.5 |
| | 24.5 |
| | |
| | | | | | | | | |