Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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:
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these unaudited financial statements.
THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
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"“Company,” “IPG,” “we,” “us” or "our"“our”) in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"“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 preparationeffects of the novel coronavirus ("COVID-19") pandemic have impacted and will likely continue to impact our results of operations, cash flows and financial statements in conformity with U.S. GAAP requires us to make judgments,position. The Company’s Consolidated Financial Statements presented herein reflect the latest estimates and assumptions and estimatesmade by management that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and disclosed. expenses during the reporting periods presented. The Company believes it has used reasonable estimates and assumptions to assess the fair values of goodwill, long-lived assets and indefinite-lived intangible assets; assessment of the annual effective tax rate; valuation of deferred income taxes and allowance for expected credit losses on future uncollectible accounts receivable.
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 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2020 (the “2020 Annual Report”).
Cost of services is comprised of the expenses of our revenue-producing reportable segments, Integrated Agency Networks (“IAN”) and IPG DXTRA (“DXTRA”), including salaries and related expenses, office and other direct expenses and billable expenses, and includes an allocation of the centrally managed expenses from our "Corporate and Other" group. Office and other direct expenses include rent expense, professional fees, certain expenses incurred by our staff in servicing our clients and other costs directly attributable to client engagements.
Selling, general and administrative expenses are primarily the unallocated expenses from Corporate and Other, excluding depreciation and amortization.
Depreciation and amortization of fixed assets and intangible assets of the Company is disclosed as a separate operating expense.
Restructuring charges in 2021 consist of adjustments to the Company's restructuring actions taken during 2020 to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business, as discussed further in Note 7. Restructuring charges mainly include severance and termination costs and lease impairment costs.
In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments, consisting only of normal and recurring adjustments necessary for a fair statement of the information for each period contained therein. Certain reclassifications and immaterial revisionschanges have been made to prior-period financial statements to conform to the current-period presentation.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 2: Revenue
Disaggregation of Revenue
We have two reportable segments as of June 30, 2021: IAN and DXTRA, as further discussed in Note 11. IAN principally generates revenue from providing advertising and media services as well as a comprehensive array of global communications, marketing services and data management. DXTRA generates revenue from a comprehensive array of global public relations and communication services as well as providing events, sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting.
Our agencies are located in over 100 countries, including every significant world market. Our geographic revenue breakdown is listed below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
Total revenue: | 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 1,557.9 | | | $ | 1,309.6 | | | $ | 2,983.7 | | | $ | 2,879.2 | |
International: | | | | | | | |
United Kingdom | 209.6 | | | 159.3 | | | 413.1 | | | 356.4 | |
Continental Europe | 229.8 | | | 164.2 | | | 425.4 | | | 334.0 | |
Asia Pacific | 233.2 | | | 200.4 | | | 444.1 | | | 411.8 | |
Latin America | 104.4 | | | 65.7 | | | 188.0 | | | 152.5 | |
Other | 174.7 | | | 126.5 | | | 312.3 | | | 251.6 | |
Total International | 951.7 | | | 716.1 | | | 1,782.9 | | | 1,506.3 | |
Total Consolidated | $ | 2,509.6 | | | $ | 2,025.7 | | | $ | 4,766.6 | | | $ | 4,385.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
Net revenue: | 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 1,435.5 | | | $ | 1,227.2 | | | $ | 2,745.3 | | | $ | 2,547.2 | |
International: | | | | | | | |
United Kingdom | 194.6 | | | 147.2 | | | 378.6 | | | 312.9 | |
Continental Europe | 205.5 | | | 149.7 | | | 381.3 | | | 295.7 | |
Asia Pacific | 192.5 | | | 162.6 | | | 361.6 | | | 321.4 | |
Latin America | 96.9 | | | 62.3 | | | 172.3 | | | 141.6 | |
Other | 144.6 | | | 104.4 | | | 258.2 | | | 206.7 | |
Total International | 834.1 | | | 626.2 | | | 1,552.0 | | | 1,278.3 | |
Total Consolidated | $ | 2,269.6 | | | $ | 1,853.4 | | | $ | 4,297.3 | | | $ | 3,825.5 | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
IAN | Three months ended June 30, | | Six months ended June 30, |
Total revenue: | 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 1,267.3 | | | $ | 1,078.9 | | | $ | 2,425.2 | | | $ | 2,272.2 | |
International | 810.5 | | | 593.6 | | | 1,504.0 | | | 1,219.1 | |
Total IAN | $ | 2,077.8 | | | $ | 1,672.5 | | | $ | 3,929.2 | | | $ | 3,491.3 | |
| | | | | | | |
Net revenue: | | | | | | | |
United States | $ | 1,225.3 | | | $ | 1,048.4 | | | $ | 2,338.8 | | | $ | 2,160.3 | |
International | 729.2 | | | 537.3 | | | 1,349.8 | | | 1,089.9 | |
Total IAN | $ | 1,954.5 | | | $ | 1,585.7 | | | $ | 3,688.6 | | | $ | 3,250.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
DXTRA | Three months ended June 30, | | Six months ended June 30, |
Total revenue: | 2021 | | 2020 | | 2021 | | 2020 |
United States | $ | 290.6 | | | $ | 230.7 | | | $ | 558.5 | | | $ | 607.0 | |
International | 141.2 | | | 122.5 | | | 278.9 | | | 287.2 | |
Total DXTRA | $ | 431.8 | | | $ | 353.2 | | | $ | 837.4 | | | $ | 894.2 | |
| | | | | | | |
Net revenue: | | | | | | | |
United States | $ | 210.2 | | | $ | 178.8 | | | $ | 406.5 | | | $ | 386.9 | |
International | 104.9 | | | 88.9 | | | 202.2 | | | 188.4 | |
Total DXTRA | $ | 315.1 | | | $ | 267.7 | | | $ | 608.7 | | | $ | 575.3 | |
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Accounts receivable, net of allowance of $90.2 and $98.3, respectively | $ | 3,893.6 | | | $ | 4,646.4 | |
Accounts receivable, billable to clients | 2,043.4 | | | 1,820.7 | |
Contract assets | 39.4 | | | 51.8 | |
Contract liabilities (deferred revenue) | 678.5 | | | 657.8 | |
Contract assets are primarily comprised of contract incentives that are generally satisfied annually under the terms of our contracts and are transferred to accounts receivable when the right to payment becomes unconditional. Contract liabilities relate to advance consideration received from customers under the terms of our contracts primarily related to reimbursements of third-party expenses, whether we act as principal or agent, and to a lesser extent, periodic retainer fees, both of which are generally recognized shortly after billing.
The majority of our contracts are for periods of one year or less with the exception of our data management contracts. For those contracts with a term of more than one year, we had approximately $640.6 of unsatisfied performance obligations as of June 30, 2021, which will be recognized as services are performed over the remaining contractual terms through 2027.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 2:3: 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, 2017 | | December 31, 2016 |
Book Value | | Fair Value 1 | | Book Value | | Fair Value 1 |
2.25% Senior Notes due 2017 (less unamortized issuance costs of $0.1) | 2.30% | | $ | 299.9 |
| | $ | 300.2 |
| | $ | 299.4 |
| | $ | 301.4 |
|
4.00% Senior Notes due 2022 (less unamortized discount and issuance costs of $1.4 and $1.1, respectively) | 4.13% | | 247.5 |
| | 258.5 |
| | 247.0 |
| | 258.4 |
|
3.75% Senior Notes due 2023 (less unamortized discount and issuance costs of $0.8 and $2.2, respectively) | 4.32% | | 497.0 |
| | 520.5 |
| | 496.6 |
| | 503.3 |
|
4.20% Senior Notes due 2024 (less unamortized discount and issuance costs of $0.7 and $2.7, respectively) | 4.24% | | 496.6 |
| | 527.0 |
| | 496.2 |
| | 511.6 |
|
Other notes payable and capitalized leases | | | 45.9 |
| | 45.9 |
| | 65.4 |
| | 65.4 |
|
Total long-term debt | | | 1,586.9 |
| | | | 1,604.6 |
| | |
Less: current portion | | | 301.9 |
| | | | 323.9 |
| | |
Long-term debt, excluding current portion | | | $ | 1,285.0 |
| | | | $ | 1,280.7 |
| | |
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | June 30, 2021 | | December 31, 2020 |
|
3.750% Senior Notes due 2021 (less unamortized discount and issuance costs of $0.0 and $0.3, respectively) | 3.980% | | $ | 499.7 | | | $ | 499.1 | |
4.000% Senior Notes due 2022 | 4.130% | | 0 | | | 249.3 | |
3.750% Senior Notes due 2023 | 4.320% | | 0 | | | 498.8 | |
4.200% Senior Notes due 2024 (less unamortized discount and issuance costs of $0.1 and $0.6, respectively) | 4.240% | | 249.3 | | | 498.3 | |
4.650% Senior Notes due 2028 (less unamortized discount and issuance costs of $1.3 and $3.2, respectively) | 4.780% | | 495.5 | | | 495.2 | |
4.750% Senior Notes due 2030 (less unamortized discount and issuance costs of $3.4 and $5.4, respectively) | 4.920% | | 641.2 | | | 640.8 | |
2.400% Senior Notes due 2031 (less unamortized discount and issuance costs of $0.8 and $4.5, respectively) | 2.512% | | 494.7 | | | 0 | |
3.375% Senior Notes due 2041 (less unamortized discount and issuance costs of $1.1 and $5.7, respectively) | 3.448% | | 493.2 | | | 0 | |
5.400% Senior Notes due 2048 (less unamortized discount and issuance costs of $2.7 and $5.1, respectively) | 5.480% | | 492.2 | | | 492.1 | |
Other notes payable and capitalized leases | | | 45.2 | | | 44.7 | |
Total long-term debt | | | 3,411.0 | | | 3,418.3 | |
Less: current portion | | | 503.1 | | | 502.5 | |
Long-term debt, excluding current portion | | | $ | 2,907.9 | | | $ | 2,915.8 | |
As of June 30, 2021 and December 31, 2020, the estimated fair value of the Company's long-term debt was $3,862.1 and $3,995.0, respectively. Refer to Note 12 for details. Debt Transactions
2.400% Senior Notes due 2031
On February 25, 2021, we issued a total of $500.0 in aggregate principal amount of 2.400% unsecured senior notes (the “2.400% Senior Notes”) due March 1, 2031. Upon issuance, the 2.400% Senior Notes were reflected in our unaudited Consolidated Balance Sheets at $494.5, net of discount of $0.8 and net of capitalized debt issuance costs, including commissions and offering expenses of $4.7, both of which will be amortized in interest expense through the maturity date using the effective interest method. Interest is payable semi-annually in arrears on March 1st and September 1st of each year, commencing on September 1, 2021.
3.375% Senior Notes due 2041
On February 25, 2021, we issued a total of $500.0 in aggregate principal amount of 3.375% unsecured senior notes (the “3.375% Senior Notes”) due March 1, 2041. Upon issuance, the 3.375% Senior Notes were reflected in our unaudited Consolidated Balance Sheets at $493.1, net of discount of $1.1 and net of capitalized debt issuance costs, including commissions and offering expenses of $5.8, both of which will be amortized in interest expense through the maturity date using the effective interest method. Interest is payable semi-annually in arrears on March 1st and September 1st of each year, commencing on September 1, 2021.
| |
1 | See Note 11 for information on the fair value measurement of our long-term debt. |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Consistent with our other outstanding debt securities, the newly issued 2.400% and 3.375% Senior 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 may redeem the 2.400% and 3.375% Senior Notes at any time in whole, or from time to time in part, in accordance with the provisions of the indenture, including the applicable supplemental indentures, which contain make-whole provisions, under which the 2.400% and 3.375% Senior Notes were issued. Additionally, upon the occurrence of a change of control repurchase event with respect to the 2.400% and 3.375% Senior Notes, each holder of the 2.400% and 3.375% Senior Notes has the right to require the Company to purchase that holder’s 2.400% and 3.375% Senior Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, unless the Company has exercised its option to redeem all the 2.400% and 3.375% Senior Notes. The proceeds of the 2.400% and 3.375% Senior Notes were used in funding the early extinguishment of certain of our Senior Notes.
4.000% Senior Notes due 2022
In March 2021, we redeemed all $250.0 in aggregate principal amount of the 4.000% unsecured senior notes due 2022 (the "4.000% Senior Notes"). Total cash paid to redeem the 4.000% Senior Notes was $258.9. In connection with the redemption of the 4.000% Senior Notes, we recognized a loss on early extinguishment of debt of $9.2, which included a redemption premium of $8.6 and the write-off of the remaining unamortized discount and debt issuance costs of $0.6. The loss on early extinguishment of debt was recorded in Other expense, net within our unaudited Consolidated Statement of Operations.
3.750% Senior Notes due 2023
In March 2021, we redeemed all $500.0 in aggregate principal amount of the 3.750% unsecured senior notes due 2023 (the "3.750% Senior Notes"). Total cash paid to redeem the 3.750% Senior Notes was $532.9. In connection with the redemption of the 3.750% Senior Notes, we recognized a loss on early extinguishment of debt of $36.5, which included a redemption premium of $30.7, the write-off of the remaining unamortized discount and debt issuance costs of $1.1 and a related deferred loss in other comprehensive income of $4.7. The loss on early extinguishment of debt was recorded in Other expense, net within our unaudited Consolidated Statement of Operations.
4.200% Senior Notes due 2024
In March 2021, we redeemed $250.0 of the $500.0 in aggregate principal amount of the 4.200% unsecured senior notes due 2024 (the "4.200% Senior Notes"). Total cash paid to redeem the 4.200% Senior Notes was $282.2. In connection with the redemption of the 4.200% Senior Notes, we recognized a loss on early extinguishment of debt of $28.3, which included a redemption premium of $27.5, and the write-off of half of the remaining unamortized discount and unamortized debt issuance costs of $0.8. The loss on early extinguishment of debt was recorded in Other expense, net within our unaudited Consolidated Statement of Operations.
Credit AgreementsArrangements
Credit Agreement
We maintain a committed corporate credit facility, originally dated as of July 18, 2008, which has been amended and restated from time to time (the "Credit Agreement"). We use our Credit Agreement to increase our financial flexibility, to provide letters of credit primarily to support obligations of our subsidiaries and to support our commercial paper program. The Credit Agreement is a revolving facility, expiring in October 2020,November 2024, 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,$1,500.0, or the equivalent in other specified currencies. The Company has the ability to increase the commitments under the Credit Agreement from time to time by an additional amount of up to $250.0, provided the Company receives commitments for such increases and satisfies certain other conditions. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit on letters of credit of $200.0,$50.0, or the equivalent in other specified currencies. Our obligations under the Credit Agreement are unsecured. The Credit Agreement includes covenants that, among other things, (i) limit our liens and the liens of our consolidated subsidiaries, and (ii) limit subsidiary debt. The Credit Agreement also contains a financial covenant that requires us to maintain a certain leverage ratio on a consolidated basis as of the end of each fiscal quarter. As of SeptemberJune 30, 2017,2021, there were no0 borrowings under the Credit Agreement; however, we had $8.4$10.0 of letters of credit under the Credit Agreement, which reduced our total availability to $991.6.$1,490.0. We were in compliance with all of our covenants in the Credit Agreement as of SeptemberJune 30, 2017.2021.
364-Day Credit Facility
On October 25, 2017,March 27, 2020, we amendedentered into an agreement for a 364-day revolving credit facility (the "364-Day Credit Facility") that matured on March 26, 2021. The 364-Day Credit Facility was a revolving facility, under which amounts borrowed by us were to be repaid and restated ourreborrowed, subject to an aggregate lending limit of $500.0. The cost structure of the 364-Day Credit Agreement. See Note 14Agreement was based on the Company’s credit ratings. The applicable margin for further discussion.
Base Rate Advances (as defined in the 364-
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Day Credit Facility) was 0.250%, the applicable margin for Eurodollar Rate Advances (as defined in the 364-Day Credit Facility) was 1.250%, and the facility fee payable on a lender’s revolving commitment was 0.250%. The leverage ratio and other covenants set forth in the 364-Day Credit Facility were equivalent to the covenants contained in the Company’s existing Credit Agreement, which remains in full effect.
Uncommitted Lines of Credit
We also have uncommitted lines of credit with various banks whichthat permit borrowings at variable interest rates and whichthat are primarily used to fund working capital needs. We have guaranteed the repayment of some of these borrowings made by certain subsidiaries. If we lose access to these credit lines, we would have to provide funding directly to some of our international operations. As of SeptemberJune 30, 2017,2021, the Company had uncommitted lines of credit in an aggregate amount of $916.8,$965.9, under which we had outstanding borrowings of $152.5$56.7 classified as short-term borrowings on our Consolidated Balance Sheet. The average amount outstanding during the thirdsecond quarter of 20172021 was $124.7,$68.7 with a weighted-average interest rate of approximately 3.1%3.0%.
Commercial Paper
In June 2017, theThe Company established a commercial paper program under which the Company wasis authorized to issue unsecured commercial paper up to a maximum aggregate amount outstanding at any time of $1,000.0.$1,500.0. Borrowings under the program are supported by the Credit Agreement described above. Proceeds of the commercial paper will beare used for working capital and general corporate purposes, including the repayment of maturing indebtedness and other short-term liquidity needs. The maturities of the commercial paper vary but may not exceed 397 days from the date of issue. AsDuring the second quarter of September 30, 2017, the Company had outstanding2021, there was 0 commercial paper activity and, as of $359.3 classified as short-term borrowings on our Consolidated Balance Sheet. The average amount outstanding under the program during the third quarter of 2017June 30, 2021, there was $488.2, with a weighted-average interest rate of 1.4% and a weighted-average maturity of fourteen days.
On October 25, 2017, the Company increased the maximum aggregate amount outstanding at any time under our0 commercial paper program from $1,000.0 to $1,500.0. See Note 14 for further discussion.
Note 3: Earnings Per Share
The following sets forth basic and diluted earnings per common share available to IPG common stockholders.outstanding.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income available to IPG common stockholders | $ | 146.2 |
| | $ | 128.6 |
| | $ | 262.4 |
| | $ | 290.9 |
|
| | | | | | | |
Weighted-average number of common shares outstanding - basic | 389.5 |
| | 397.7 |
| | 391.2 |
| | 399.5 |
|
Dilutive effect of stock options and restricted shares | 7.7 |
| | 10.2 |
| | 7.4 |
| | 9.3 |
|
Weighted-average number of common shares outstanding - diluted | 397.2 |
| | 407.9 |
| | 398.6 |
| | 408.8 |
|
| | | | | | | |
Earnings per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.38 |
| | $ | 0.32 |
| | $ | 0.67 |
| | $ | 0.73 |
|
Diluted | $ | 0.37 |
| | $ | 0.32 |
| | $ | 0.66 |
| | $ | 0.71 |
|
Note 4: Acquisitions
We continue to evaluate strategic opportunities to expand our industry expertise, strengthen our position in high-growth and key strategic geographical markets and industry sectors, advance our technological capabilities and improve our operational efficiency through both acquisitions and increased ownership interests in current investments. 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. We have entered into agreements that may require us to purchase additional equity interests in certain consolidated and unconsolidated subsidiaries. The amounts at which we record these transactions in our financial statements are based on estimates of the future financial performance of the acquired entity, the timing of the exercise of these rights, foreign currency exchange rates and other factors.
During the first nine months of 2017, we completed seven acquisitions, including a strategic communications agency based in the U.K., an independent creative agency based in the U.K., a retail branding and design firm based in the U.S., a content creation and marketing agency based in the Netherlands, an independent media agency and digital consultancy based in Finland, and an integrated marketing communications agency based in Canada. All seven of our acquisitions were included in the Integrated Agency Networks ("IAN") operating segment. During the first nine months of 2017, we recorded approximately $48.1 of goodwill and intangible assets related to our acquisitions.
During the first nine months of 2016, we completed nine acquisitions, including a product and service design consultancy based in the U.S., an integrated healthcare marketing communications agency based in the U.S., a content creation and digital agency with offices in the U.S. and the U.K., a mobile consultancy and application development agency based in the U.K., a
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
branded content production agency specializing in sports and entertainment based in Australia, a full-service public relations and digital agency based in China, a search engine optimization and digital content marketing agency based in the U.K., a mobile focused digital agency based in the U.K. and a business consultancy services agency based in Australia. Of our nine acquisitions, three were included in the IAN operating segment, and six were included in the Constituency Management Group ("CMG") operating segment. During the first nine months of 2016, we recorded approximately $147.9 of goodwill and intangible assets related to our acquisitions, primarily in CMG.
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, |
| 2017 | | 2016 |
Cost of investment: current-year acquisitions | $ | 28.1 |
| | $ | 61.0 |
|
Cost of investment: prior-year acquisitions | 50.0 |
| | 37.2 |
|
Less: net cash acquired | (6.4 | ) | | (13.6 | ) |
Total cost of investment | 71.7 |
| | 84.6 |
|
Operating payments 1 | 37.5 |
| | 18.7 |
|
Total cash paid for acquisitions 2 | $ | 109.2 |
| | $ | 103.3 |
|
| |
1 | Represents cash payments for amounts that have been recognized in operating expenses since the date of acquisition either relating to adjustments to estimates in excess of the initial value of contingent payments recorded or were contingent upon the future employment of the former owners of the acquired companies. Amounts are reflected in the operating section of the unaudited Consolidated Statements of Cash Flows. |
| |
2 | Of the total cash paid for acquisitions, $22.6 and $47.9 for the nine months ended September 30, 2017 and 2016, respectively, are classified under the investing section of the unaudited Consolidated Statements of Cash Flows, as acquisitions, net of cash acquired. These amounts relate to initial payments for new transactions. Of the total cash paid for acquisitions, $49.1 and $36.7 for the nine months ended September 30, 2017 and 2016, respectively, are classified under the financing section of the unaudited Consolidated Statements of Cash Flows as acquisition-related payments. These amounts relate to deferred payments and increases in our ownership interest for prior acquisitions. |
Many of our acquisitions include provisions under which the noncontrolling equity owners may require us to purchase additional interests in a subsidiary at their discretion. Redeemable noncontrolling interests are adjusted quarterly to their estimated redemption value, but not less than their initial fair value. Any adjustments to the redemption value impact retained earnings, except for foreign currency translation adjustments.Note 4: Earnings (Loss) Per Share
The following table presents changes insets forth basic and diluted earnings (loss) per common share available to IPG common stockholders.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) available to IPG common stockholders | $ | 263.3 | | | $ | (45.6) | | | $ | 355.0 | | | $ | (40.9) | |
| | | | | | | |
Weighted-average number of common shares outstanding - basic | 393.3 | | | 389.4 | | | 392.4 | | 388.5 |
Dilutive effect of stock options and restricted shares | 5.7 | | | N/A | | 5.2 | | | N/A |
Weighted-average number of common shares outstanding - diluted | 399.0 | | | 389.4 | | | 397.6 | | 388.5 |
| | | | | | | |
Earnings (loss) per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.67 | | | $ | (0.12) | | | $ | 0.90 | | | $ | (0.11) | |
Diluted | $ | 0.66 | | | $ | (0.12) | | | $ | 0.89 | | | $ | (0.11) | |
Weighted-average number of common shares outstanding and loss per share available to IPG common stockholders were equal on a basic and diluted basis for the three and six months ended June 30, 2020, respectively, because our redeemable noncontrolling interests.potentially dilutive securities are anti-dilutive as a result of the net loss available to IPG common stockholders. The potential dilutive effect of stock options and restricted shares on basic weighted-average number of common shares outstanding totaling 2.9 and 3.3 were excluded from the diluted loss per share calculation for the three and six months ended June 30, 2020, respectively.
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Balance at beginning of period | $ | 252.8 |
| | $ | 251.9 |
|
Change in related noncontrolling interests balance | (9.5 | ) | | (1.5 | ) |
Changes in redemption value of redeemable noncontrolling interests: | | | |
Additions | 3.4 |
| | 6.8 |
|
Redemptions and other | (18.5 | ) | | (14.8 | ) |
Redemption value adjustments | 9.8 |
| | 4.5 |
|
Balance at end of period | $ | 238.0 |
| | $ | 246.9 |
|
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 5: Supplementary Data
Accrued Liabilities
The following table presents the components of accrued liabilities.
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Salaries, benefits and related expenses | $ | 441.9 | | | $ | 504.6 | |
Interest | 40.9 | | | 43.6 | |
Acquisition obligations | 32.8 | | | 47.9 | |
Income taxes payable | 26.2 | | | 50.6 | |
Restructuring charges | 22.4 | | | 69.5 | |
Office and related expenses | 18.2 | | | 25.5 | |
Other | 97.4 | | | 90.7 | |
Total accrued liabilities | $ | 679.8 | | | $ | 832.4 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Salaries, benefits and related expenses | $ | 341.3 |
| | $ | 499.0 |
|
Acquisition obligations | 53.2 |
| | 77.5 |
|
Office and related expenses | 48.8 |
| | 46.7 |
|
Interest | 17.0 |
| | 17.3 |
|
Other | 90.4 |
| | 153.5 |
|
Total accrued liabilities | $ | 550.7 |
| | $ | 794.0 |
|
Other (Expense) Income, Net
Results of operations for the three and nine months ended September 30, 2017 and 2016 include certain items that are not directly associated with our revenue-producing operations.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net (losses) gains on sales of businesses and investments | $ | (6.2 | ) | | $ | 3.9 |
| | $ | (18.3 | ) | | $ | (14.6 | ) |
Other (expense) income, net | (3.7 | ) | | 1.4 |
| | (6.2 | ) | | 1.1 |
|
Total other (expense) income, net | $ | (9.9 | ) | | $ | 5.3 |
| | $ | (24.5 | ) | | $ | (13.5 | ) |
Net (Losses) Gains on Sales of Businesses and Investments – During the three and nine months ended September 30, 2017, the amounts recognized are primarily related to sales of businesses and the classification of certain assets and liabilities, consisting primarily of accounts receivable and accounts payable, respectively, as held for sale within our IAN operating segment. During the three and nine months ended September 30, 2016, the amounts recognized are primarily related to sales of businesses within our IAN operating segment.
Share Repurchase Program
In February 2017, 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 "2017 Share Repurchase Program"), which was in addition to the remaining amount available to be repurchased from the $300.0 authorization made by the Board in February 2016 (the "2016 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. We expect to continue to repurchase our common stock in future periods, although the timing and amount of the repurchases will depend on market conditions and other funding requirements.
The following table presents our share repurchase activity under our share repurchase programs for the nine months ended September 30, 2017 and 2016.
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
Number of shares repurchased | 9.4 |
| | 8.5 |
|
Aggregate cost, including fees | $ | 216.0 |
| | $ | 193.3 |
|
Average price per share, including fees | $ | 22.92 |
| | $ | 22.69 |
|
We fully utilized the 2016 Share Repurchase Program during the third quarter of 2017. As of September 30, 2017, $239.5, excluding fees, remains available for repurchase under the 2017 Share Repurchase Program. The 2017 Share Repurchase Program has no expiration date.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Other Income (Expense), Net
Results of operations for the three and six months ended June 30, 2021 and 2020 include certain items that are not directly associated with our revenue-producing operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Loss on early extinguishment of debt | $ | 0 | | | $ | 0 | | | $ | (74.0) | | | $ | 0 | |
Net losses on sales of businesses | (1.7) | | | (19.9) | | | (14.2) | | | (43.2) | |
Other | 6.4 | | | (1.6) | | | 9.0 | | | (0.1) | |
Total other income (expense), net | $ | 4.7 | | | $ | (21.5) | | | $ | (79.2) | | | $ | (43.3) | |
Loss on early extinguishment of debt – During the first quarter of 2021, we recorded a loss of $74.0 related to the early extinguishment of all $250.0 in aggregate principal amount of our 4.000% unsecured senior notes due 2022, all $500.0 in aggregate principal amount of our 3.750% unsecured senior notes due 2023, and $250.0 of the $500.0 in aggregate principal amount of our 4.200% unsecured senior notes due 2024. See Note 3 for further information.
Net losses on sales of businesses – During the three and six months ended June 30, 2021 and 2020, the amounts recognized were related to sales of businesses and the classification of certain assets and liabilities, consisting primarily of cash, as held for sale, within our IAN and DXTRA reportable segments. The businesses held for sale primarily represent unprofitable, non-strategic agencies which are expected to be sold within the next twelve months.
Share Repurchase Program
On July 2, 2018, in connection with the announcement of the Acxiom acquisition, we announced that share repurchases will be suspended for a period of time in order to reduce the increased debt levels incurred in conjunction with the acquisition. As of June 30, 2021,$338.4, excluding fees, remains available for repurchase under the share repurchase programs authorized in previous years, which have no expiration date.
Redeemable Noncontrolling Interests
Many of our acquisitions include provisions under which the noncontrolling equity owners may require us to purchase additional interests in a subsidiary at their discretion. Redeemable noncontrolling interests are adjusted quarterly, if necessary, to their estimated redemption value, but not less than their initial fair value. Any adjustments to the redemption value impact retained earnings or additional paid in capital, except for foreign currency translation adjustments.
The following table presents changes in our redeemable noncontrolling interests.
| | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
Balance at beginning of period | $ | 93.1 | | | $ | 164.7 | |
Change in related noncontrolling interests balance | 0.6 | | | (3.1) | |
Changes in redemption value of redeemable noncontrolling interests: | | | |
| | | |
Redemptions | (21.1) | | | (2.5) | |
Redemption value adjustments | (0.4) | | | (3.9) | |
Balance at end of period | $ | 72.2 | | | $ | 155.2 | |
Note 6: Income Taxes
For the three and ninesix months ended SeptemberJune 30, 2017,2021, our effective income tax rates of 22.1% and 30.7%, respectively, wereexpense was positively impacted by a benefitexcess tax benefits on employee share-based payments, the majority of $31.2 relatedwhich were recognized in the first quarter due to foreignthe timing of the vesting of awards, and the revaluation of deferred tax creditsbalances resulting from distributionsthe enactment of unremitted earnings,tax law changes. This was partially offset by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances and bynet losses on sales of businesses and the classification of certain assets as held for sale for which we did notreceived minimal tax benefit, as well as by losses in certain foreign jurisdictions where we receive a fullno tax benefit. For the nine months ended September 30, 2017, our effective income tax rate was positively impacted by excess tax benefits on employee share-based payments, the majority of which is typically recognized in the first quarterbenefit due to the timing100% valuation allowances.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
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 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 $25.0$20.0 and $35.0$30.0 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.
We are effectively settled with respect to U.S. federal income tax audits through 2012, with the exception of 2009.2016. With limited exceptions, we are no longer subject to state and local income tax audits for years prior to 20072013 or non-U.S. income tax audits for years prior to 2006.2009.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 7: Restructuring Charges
Beginning in the second quarter of 2020, the Company took restructuring actions to lower its operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business (the “2020 Restructuring Plan”). These actions continued through the fourth quarter, and most were based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations to address certain operating expenses such as occupancy expense and salaries and related expenses.
Lease impairment costs, which relate to the office spaces that were vacated as part of the 2020 Restructuring Plan, included impairments of operating lease right-of-use assets and associated leasehold improvements, furniture and asset retirement obligations in addition to losses and gains related to early lease terminations. Lease impairments were calculated based on estimated fair values using market participant assumptions including forecasted net discounted cash flows related to the operating lease right-of-use assets.
All restructuring actions were identified and initiated in 2020, with all actions completed by the end of the fourth quarter of 2020. The amounts for the three and six months ended June 30, 2021 are adjustments to the actions taken in 2020.
The components of the restructuring charges related to the 2020 Restructuring Plan are listed below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, | | |
| 2021 | | 2020 | | 2021 | | 2020 | | | | |
Severance and termination costs | $ | 0.6 | | | $ | 44.6 | | | $ | 2.1 | | | $ | 44.6 | | | | | |
Lease impairment costs | (0.9) | | | 65.7 | | | (1.1) | | | 65.7 | | | | | |
Other restructuring costs | 0.1 | | | 2.3 | | | 0.1 | | | 2.3 | | | | | |
Total restructuring charges | $ | (0.2) | | | $ | 112.6 | | | $ | 1.1 | | | $ | 112.6 | | | | | |
Net restructuring charges were comprised of $0.0 at IAN, ($0.3) at DXTRA and $0.1 at Corporate and Other for the three month ended June 30, 2021, which include non-cash lease impairment costs of ($0.6) at IAN and ($0.3) at DXTRA. Net restructuring charges were comprised of $0.5 at IAN, $0.5 at DXTRA and $0.1 at Corporate and Other for the six months ended June 30, 2021, which include non-cash lease impairment costs of ($0.7) at IAN, ($0.3) at DXTRA and ($0.1) at Corporate and Other. Net restructuring charges were comprised of $68.8 at IAN and $36.7 at DXTRA for the three and six months ended June 30, 2020, which include non-cash lease impairment costs of $35.8 at IAN and $26.8 at DXTRA.
A summary of the restructuring activities taken in the first half of 2021 related to the 2020 Restructuring Plan is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Restructuring Plan |
| Liability at December 31, 2020 | | Restructuring Expense | | Non-Cash Items | | Cash Payments | | | | Liability at June 30, 2021 |
Severance and termination costs | $ | 74.6 | | | $ | 2.1 | | | $ | 0.3 | | | $ | 52.6 | | | | | $ | 23.8 | |
Lease impairment costs | 0.0 | | | (1.1) | | | (1.1) | | | 0.0 | | | | | 0.0 | |
Other restructuring costs | 0.0 | | | 0.1 | | | (0.1) | | | 0.2 | | | | | 0.0 | |
Total | $ | 74.6 | | | $ | 1.1 | | | $ | (0.9) | | | $ | 52.8 | | | | | $ | 23.8 | |
Note 7:8: Incentive Compensation Plans
We issue stock-based compensation and cash awards to our employees under a planvarious plans established by the Compensation and Leadership Talent Committee of the Board of Directors (the “Compensation Committee”"Compensation Committee") and approved by our shareholders.
stockholders. We issued the following stock-based awards under the 20142019 Performance Incentive Plan (the "2014"2019 PIP") during the ninesix months ended September June 30, 2017.2021.
| | | | | | | | | | | |
| Awards | | Weighted-average grant-date fair value (per award) |
Restricted stock (units) | 0.8 | | | $ | 26.23 | |
Performance-based stock (shares) | 0.5 | | | $ | 21.98 | |
Stock options (shares) | 0.3 | | | $ | 3.94 | |
Total stock-based compensation awards | 1.6 | | | |
|
| | | | | | |
| Awards | | Weighted-average grant-date fair value (per award) |
Stock-settled awards | 0.8 |
| | $ | 24.20 |
|
Performance-based awards | 4.8 |
| | $ | 20.06 |
|
Total stock-based compensation awards | 5.6 |
| | |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
During the ninesix months ended SeptemberJune 30, 2017,2021, the Compensation Committee granted performance cash awards under the 2019 PIP and restricted cash awards under the 2014 PIP2020 Restricted Cash Plan with a total annual target value of $54.3$39.4 and $2.8,$80.2, respectively. Cash awards are expensed over the vesting period, which is typically three years.years for performance cash awards and two years or three years for restricted cash awards.
Note 8:9: Accumulated Other Comprehensive Loss, Net of Tax
The following tables present the changes in accumulated other comprehensive loss, net of tax, by component.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2020 | $ | (637.6) | | | | | $ | 6.8 | | | $ | (249.4) | | | $ | (880.2) | |
Other comprehensive (loss) income before reclassifications | (24.4) | | | | | 13.6 | | | (1.2) | | | (12.0) | |
Amount reclassified from accumulated other comprehensive loss, net of tax | (1.5) | | | | | 3.6 | | | 3.8 | | | 5.9 | |
Balance as of June 30, 2021 | $ | (663.5) | | | | | $ | 24.0 | | | $ | (246.8) | | | $ | (886.3) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2019 | $ | (697.7) | | | $ | (3.5) | | | $ | (228.8) | | | $ | (930.0) | |
Other comprehensive (loss) income before reclassifications | (102.3) | | | (0.7) | | | 0.4 | | | (102.6) | |
Amount reclassified from accumulated other comprehensive loss, net of tax | (0.3) | | | 0.9 | | | 2.9 | | | 3.5 | |
Balance as of June 30, 2020 | $ | (800.3) | | | $ | (3.3) | | | $ | (225.5) | | | $ | (1,029.1) | |
Amounts reclassified from accumulated other comprehensive loss, net of tax, for the three and six months ended June 30, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, | | Affected Line Item in the Consolidated Statements of Operations |
| 2021 | | 2020 | | 2021 | | 2020 | |
Foreign currency translation adjustments | $ | (2.2) | | | $ | 3.3 | | | $ | (1.5) | | | $ | (0.3) | | | Other income (expense), net |
Net (gain) loss on derivative instruments | (0.3) | | | 0.6 | | | 4.9 | | | 1.2 | | | Other income (expense), net, Interest expense |
Amortization of defined benefit pension and postretirement plan items | 2.5 | | | 1.8 | | | 4.8 | | | 3.7 | | | Other income (expense), net |
Tax effect | (0.5) | | | (0.6) | | | (2.3) | | | (1.1) | | | Provision for income taxes |
Total amount reclassified from accumulated other comprehensive loss, net of tax | $ | (0.5) | | | $ | 5.1 | | | $ | 5.9 | | | $ | 3.5 | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Available-for-Sale Securities | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2016 | $ | (716.7 | ) | | $ | 0.6 |
| | $ | (8.4 | ) | | $ | (238.0 | ) | | $ | (962.5 | ) |
Other comprehensive income before reclassifications | 113.4 |
| | 0.0 |
| | 0.0 |
| | 6.3 |
| | 119.7 |
|
Amount reclassified from accumulated other comprehensive loss, net of tax | 1.8 |
| | (0.6 | ) | | 1.0 |
| | 7.9 |
| | 10.1 |
|
Balance as of September 30, 2017 | $ | (601.5 | ) | | $ | 0.0 |
| | $ | (7.4 | ) | | $ | (223.8 | ) | | $ | (832.7 | ) |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Available-for-Sale Securities | | Derivative Instruments | | Defined Benefit Pension and Other Postretirement Plans | | Total |
Balance as of December 31, 2015 | $ | (665.6 | ) | | $ | 1.3 |
| | $ | (9.6 | ) | | $ | (171.7 | ) | | $ | (845.6 | ) |
Other comprehensive income before reclassifications | 42.3 |
| | 0.4 |
| | 0.0 |
| | (65.0 | ) | | (22.3 | ) |
Amount reclassified from accumulated other comprehensive loss, net of tax | 2.3 |
| | (1.2 | ) | | 0.9 |
| | 3.1 |
| | 5.1 |
|
Balance as of September 30, 2016 | $ | (621.0 | ) | | $ | 0.5 |
| | $ | (8.7 | ) | | $ | (233.6 | ) | | $ | (862.8 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, | | Affected Line Item in the Consolidated Statements of Operations |
| 2017 | | 2016 | | 2017 | | 2016 | |
Foreign currency translation adjustments 1 | $ | 1.5 |
| | $ | (4.2 | ) | | $ | 1.8 |
| | $ | 2.3 |
| | Other (expense) income, net |
Gains on available-for-sale securities | (0.7 | ) | | (0.1 | ) | | (0.7 | ) | | (1.3 | ) | | Other (expense) income, net |
Losses on derivative instruments | 0.5 |
| | 0.5 |
| | 1.6 |
| | 1.5 |
| | Interest expense |
Amortization of defined benefit pension and postretirement plan items | 5.7 |
| | 1.3 |
| | 9.2 |
| | 4.0 |
| | Other (expense) income, net |
Tax effect | (0.6 | ) | | (0.4 | ) | | (1.8 | ) | | (1.4 | ) | | Provision for income taxes |
Total amount reclassified from accumulated other comprehensive loss, net of tax | $ | 6.4 |
| | $ | (2.9 | ) | | $ | 10.1 |
| | $ | 5.1 |
| | |
| |
1 | These foreign currency translation adjustments are primarily a result of the sales of businesses. |
Note 9:10: Employee Benefits
We have a defined benefit pension plan that covers certain U.S. employees (the “Domestic Pension Plan”). We also have numerous funded and unfunded plans outside the U.S. The Interpublic Limited 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.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, | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 0.0 |
| | $ | 0.0 |
| | $ | 1.0 |
| | $ | 2.4 |
| | $ | 0.0 |
| | $ | 0.0 |
|
Interest cost | 1.3 |
| | 1.4 |
| | 3.4 |
| | 4.1 |
| | 0.3 |
| | 0.4 |
|
Expected return on plan assets | (1.5 | ) | | (1.5 | ) | | (4.5 | ) | | (4.9 | ) | | 0.0 |
| | 0.0 |
|
Settlements and curtailments | 0.0 |
| | 0.0 |
| | 4.0 |
| | 0.1 |
| | 0.0 |
| | 0.0 |
|
Amortization of: | | | | | | | | | | | |
Prior service cost (credit) | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.1 |
| | (0.1 | ) | | (0.1 | ) |
Unrecognized actuarial losses | 0.3 |
| | 0.3 |
| | 1.4 |
| | 0.9 |
| | 0.0 |
| | 0.0 |
|
Net periodic cost | $ | 0.1 |
| | $ | 0.2 |
| | $ | 5.4 |
| | $ | 2.7 |
| | $ | 0.2 |
| | $ | 0.3 |
|
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, | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 0.0 |
| | $ | 0.0 |
| | $ | 2.9 |
| | $ | 7.3 |
| | $ | 0.0 |
| | $ | 0.0 |
|
Interest cost | 3.8 |
| | 4.4 |
| | 10.0 |
| | 13.3 |
| | 0.9 |
| | 1.1 |
|
Expected return on plan assets | (4.6 | ) | | (4.9 | ) | | (13.2 | ) | | (15.5 | ) | | 0.0 |
| | 0.0 |
|
Settlements and curtailments | 0.0 |
| | 0.0 |
| | 4.0 |
| | 0.3 |
| | 0.0 |
| | 0.0 |
|
Amortization of: | | | | | | | | | | | |
Prior service cost (credit) | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.1 |
| | (0.1 | ) | | (0.1 | ) |
Unrecognized actuarial losses | 1.1 |
| | 1.0 |
| | 4.1 |
| | 2.7 |
| | 0.0 |
| | 0.0 |
|
Net periodic cost | $ | 0.3 |
| | $ | 0.5 |
| | $ | 7.9 |
| | $ | 8.2 |
| | $ | 0.8 |
| | $ | 1.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Pension Plan | | Foreign Pension Plans | | Domestic Postretirement Benefit Plan |
Three Months Ended June 30, | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | 0.0 | | | $ | 0.0 | | | $ | 1.1 | | | $ | 1.1 | | | $ | 0.0 | | | $ | 0.0 | |
Interest cost | 0.8 | | | 0.9 | | | 2.0 | | | 2.3 | | | 0.1 | | | 0.2 | |
Expected return on plan assets | (1.4) | | | (1.4) | | | (5.3) | | | (4.6) | | | 0.0 | | | 0.0 | |
| | | | | | | | | | | |
Amortization of: | | | | | | | | | | | |
Prior service cost | 0.0 | | | 0.0 | | | 0.1 | | | 0.1 | | | 0.0 | | | 0.0 | |
Unrecognized actuarial losses | 0.3 | | | 0.4 | | | 1.7 | | | 1.3 | | | 0.4 | | | 0.0 | |
Net periodic cost | $ | (0.3) | | | $ | (0.1) | | | $ | (0.4) | | | $ | 0.2 | | | $ | 0.5 | | | $ | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Pension Plan | | Foreign Pension Plans | | Domestic Postretirement Benefit Plan |
Six Months Ended June 30, | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | 0.0 | | | $ | 0.0 | | | $ | 2.2 | | | $ | 2.3 | | | $ | 0.0 | | | $ | 0.0 | |
Interest cost | 1.5 | | | 1.9 | | | 4.0 | | | 4.6 | | | 0.3 | | | 0.4 | |
Expected return on plan assets | (2.8) | | | (2.8) | | | (10.5) | | | (9.3) | | | 0.0 | | | 0.0 | |
| | | | | | | | | | | |
Amortization of: | | | | | | | | | | | |
Prior service cost | 0.0 | | | 0.0 | | | 0.1 | | | 0.1 | | | 0.0 | | | 0.0 | |
Unrecognized actuarial losses | 0.8 | | | 0.8 | | | 3.4 | | | 2.7 | | | 0.5 | | | 0.1 | |
Net periodic cost | $ | (0.5) | | | $ | (0.1) | | | $ | (0.8) | | | $ | 0.4 | | | $ | 0.8 | | | $ | 0.5 | |
The components of net periodic cost other than the service cost component are included in the line item “Other income (expense) income,, net” in the Consolidated Statements of Operations.
During the ninesix months ended SeptemberJune 30, 2017,2021, we contributed $2.3$1.6 and $13.0$9.4 of cash to our domestic and foreign pension plans, respectively. For the remainder of 2017,2021, we expect to contribute approximately $0.3$1.0 and $5.0$9.0 of cash to our domestic and foreign pension plans, respectively.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 10:11: Segment Information
As of SeptemberJune 30, 2017,2021, we have two reportable segments: IAN and CMG.DXTRA. IAN is comprised of McCann Worldgroup, Foote, Cone & Belding ("FCB"), MullenLowe Group, Media, Data Services and Tech, which includes IPG Mediabrands, Acxiom and Kinesso, our digital specialist agencies and our domestic integrated agencies. CMGDXTRA is comprised of a number of our specialist marketing services offerings.offerings including Weber Shandwick, DeVries, Golin, FutureBrand, Jack Morton and Octagon Worldwide. We also report results for the “CorporateCorporate and other”Other group. TheWe continue to evaluate our financial reporting structure, and the profitability measure, employed by our chief operating decision maker for allocating resources to operating divisions and assessing operating division performance, is segment operating income (loss). Segment information is presented consistently with the basis described in our 2016 Annual Report on Form 10-K.
EBITA. Summarized financial information concerning our reportable segments is shown in the following tables.table.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Total revenue: | | | | | | | |
IAN | $ | 2,077.8 | | | $ | 1,672.5 | | | $ | 3,929.2 | | | $ | 3,491.3 | |
DXTRA | 431.8 | | | 353.2 | | | 837.4 | | | 894.2 | |
Total | $ | 2,509.6 | | | $ | 2,025.7 | | | $ | 4,766.6 | | | $ | 4,385.5 | |
| | | | | | | |
Net revenue: | | | | | | | |
IAN | $ | 1,954.5 | | | $ | 1,585.7 | | | $ | 3,688.6 | | | $ | 3,250.2 | |
DXTRA | 315.1 | | | 267.7 | | | 608.7 | | | 575.3 | |
Total | $ | 2,269.6 | | | $ | 1,853.4 | | | $ | 4,297.3 | | | $ | 3,825.5 | |
| | | | | | | |
Segment EBITA 1: | | | | | | | |
IAN | $ | 382.9 | | | $ | 100.4 | | | $ | 637.2 | | | $ | 199.4 | |
DXTRA | 54.7 | | | (26.3) | | | 95.1 | | | (4.0) | |
Corporate and Other | (31.6) | | | (11.8) | | | (61.7) | | | (35.9) | |
Total | $ | 406.0 | | | $ | 62.3 | | | $ | 670.6 | | | $ | 159.5 | |
| | | | | | | |
Amortization of acquired intangibles: | | | | | | | |
IAN | $ | 20.4 | | | $ | 20.8 | | | $ | 40.9 | | | $ | 41.0 | |
DXTRA | 1.2 | | | 1.0 | | | 2.3 | | | 2.1 | |
Corporate and Other | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | |
Total | $ | 21.6 | | | $ | 21.8 | | | $ | 43.2 | | | $ | 43.1 | |
| | | | | | | |
Depreciation and amortization 2: | | | | | | | |
IAN | $ | 42.1 | | | $ | 45.3 | | | $ | 83.5 | | | $ | 90.0 | |
DXTRA | 4.3 | | | 5.4 | | | 8.6 | | | 10.5 | |
Corporate and Other | 2.1 | | | 0.6 | | | 4.0 | | | 2.3 | |
Total | $ | 48.5 | | | $ | 51.3 | | | $ | 96.1 | | | $ | 102.8 | |
| | | | | | | |
Capital expenditures: | | | | | | | |
IAN | $ | 27.5 | | | $ | 19.8 | | | $ | 49.2 | | | $ | 53.5 | |
DXTRA | 1.6 | | | 1.3 | | | 2.3 | | | 2.9 | |
Corporate and Other | 4.7 | | | 6.2 | | | 10.6 | | | 15.5 | |
Total | $ | 33.8 | | | $ | 27.3 | | | $ | 62.1 | | | $ | 71.9 | |
1 Adjusted EBITA is calculated as net income (loss) available to IPG common stockholders before provision for incomes taxes, total (expenses) and other income, equity in net income (loss) of unconsolidated affiliates, net (income) loss attributable to noncontrolling interests and amortization of acquired intangibles.
2 Excludes amortization of acquired intangibles.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | | | | | | | |
IAN | $ | 1,520.2 |
| | $ | 1,503.2 |
| | $ | 4,465.6 |
| | $ | 4,453.3 |
|
CMG | 382.4 |
| | 419.0 |
| | 1,075.8 |
| | 1,128.8 |
|
Total | $ | 1,902.6 |
| | $ | 1,922.2 |
| | $ | 5,541.4 |
| | $ | 5,582.1 |
|
| | | | | | | |
Segment operating income (loss): | | | | | | | |
IAN | $ | 183.9 |
| | $ | 184.1 |
| | $ | 402.1 |
| | $ | 424.1 |
|
CMG | 50.1 |
| | 54.8 |
| | 127.4 |
| | 125.2 |
|
Corporate and other | (14.9 | ) | | (30.9 | ) | | (74.2 | ) | | (94.0 | ) |
Total | 219.1 |
| | 208.0 |
| | 455.3 |
| | 455.3 |
|
| | | | | | | |
Interest expense | (21.0 | ) | | (21.7 | ) | | (67.6 | ) | | (68.8 | ) |
Interest income | 4.1 |
| | 4.7 |
| | 14.0 |
| | 16.1 |
|
Other (expense) income, net | (9.9 | ) | | 5.3 |
| | (24.5 | ) | | (13.5 | ) |
Income before income taxes | $ | 192.3 |
| | $ | 196.3 |
| | $ | 377.2 |
| | $ | 389.1 |
|
| | | | | | | |
Depreciation and amortization of property and equipment and intangible assets: | | | | | | | |
IAN | $ | 30.7 |
| | $ | 29.1 |
| | $ | 90.8 |
| | $ | 85.9 |
|
CMG | 4.6 |
| | 4.9 |
| | 15.2 |
| | 14.6 |
|
Corporate and other | 6.9 |
| | 5.7 |
| | 18.5 |
| | 17.0 |
|
Total | $ | 42.2 |
| | $ | 39.7 |
| | $ | 124.5 |
| | $ | 117.5 |
|
| | | | | | | |
Capital expenditures: | | | | | | | |
IAN | $ | 29.3 |
| | $ | 39.7 |
| | $ | 77.9 |
| | $ | 86.9 |
|
CMG | 6.2 |
| | 4.7 |
| | 12.9 |
| | 8.4 |
|
Corporate and other | 4.3 |
| | 7.1 |
| | 17.9 |
| | 19.2 |
|
Total | $ | 39.8 |
| | $ | 51.5 |
| | $ | 108.7 |
| | $ | 114.5 |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 | | | | |
Total assets: | | | | | | | |
IAN | $ | 10,257.7 |
| | $ | 10,660.0 |
| | | | |
CMG | 1,433.4 |
| | 1,428.3 |
| | | | |
Corporate and other | 25.0 |
| | 396.9 |
| | | | |
Total | $ | 11,716.1 |
| | $ | 12,485.2 |
| | | | |
21
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Total assets: | | | |
IAN | $ | 14,245.0 | | | $ | 14,784.5 | |
DXTRA | 1,571.8 | | | 1,549.2 | |
Corporate and Other | 1,504.9 | | | 1,709.0 | |
Total | $ | 17,321.7 | | | $ | 18,042.7 | |
The following table presents the reconciliation of segment EBITA to Income (Loss) before income taxes.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
IAN EBITA | $ | 382.9 | | | $ | 100.4 | | | $ | 637.2 | | | $ | 199.4 | |
DXTRA EBITA | 54.7 | | | (26.3) | | | 95.1 | | | (4.0) | |
Corporate and Other EBITA | (31.6) | | | (11.8) | | | (61.7) | | | (35.9) | |
Less: consolidated amortization of acquired intangibles | 21.6 | | | 21.8 | | | 43.2 | | | 43.1 | |
Operating income | 384.4 | | | 40.5 | | | 627.4 | | | 116.4 | |
Total (expenses) and other income | (30.3) | | | (65.4) | | | (156.9) | | | (121.3) | |
Income (Loss) before income taxes | $ | 354.1 | | | $ | (24.9) | | | $ | 470.5 | | | $ | (4.9) | |
Note 11:12: 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 ninesix months ended SeptemberJune 30, 2017.2021. The following tables present information about our financial instruments measured at fair value on a recurring basis as of SeptemberJune 30, 20172021 and December 31, 2016,2020, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.
|
| | | | | | | | | | | | | | | | | |
| September 30, 2017 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 153.2 |
| | $ | 0.0 |
| | $ | 0.0 |
| | $ | 153.2 |
| | Cash and cash equivalents |
Short-term marketable securities | 0.1 |
| | 0.0 |
| | 0.0 |
| | 0.1 |
| | Other current assets |
Long-term investments | 0.4 |
| | 0.0 |
| | 0.0 |
| | 0.4 |
| | Other non-current assets |
Total | $ | 153.7 |
| | $ | 0.0 |
| | $ | 0.0 |
| | $ | 153.7 |
| | |
| | | | | | | | | |
As a percentage of total assets | 1.3 | % | | 0.0 | % | | 0.0 | % | | 1.3 | % | | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | 0.0 |
| | $ | 0.0 |
| | $ | 164.2 |
| | $ | 164.2 |
| | |
| | | | | | | | | |
| December 31, 2016 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 440.8 |
| | $ | 0.0 |
| | $ | 0.0 |
| | $ | 440.8 |
| | Cash and cash equivalents |
Short-term marketable securities | 3.0 |
| | 0.0 |
| | 0.0 |
| | 3.0 |
| | Other current assets |
Long-term investments | 0.4 |
| | 0.0 |
| | 0.0 |
| | 0.4 |
| | Other non-current assets |
Total | $ | 444.2 |
| | $ | 0.0 |
| | $ | 0.0 |
| | $ | 444.2 |
| | |
| | | | | | | | | |
As a percentage of total assets | 3.6 | % | | 0.0 | % | | 0.0 | % | | 3.6 | % | | |
| | | | | | | | | |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | 0.0 |
| | $ | 0.0 |
| | $ | 205.4 |
| | $ | 205.4 |
| | |
22
| |
1 | Contingent acquisition obligations includes deferred acquisition payments and unconditional obligations to purchase additional noncontrolling equity shares of consolidated subsidiaries. Fair value measurement of the obligations is based upon actual and projected operating performance targets as specified in the related agreements. The decrease in this balance of $41.2 from December 31, 2016 to September 30, 2017 is primarily due to payments of $91.4, partially offset by acquisitions and exercised options of $38.2. The amounts payable within the next twelve months are classified in accrued liabilities; any amounts payable thereafter are classified in other non-current liabilities. |
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 1,504.4 | | | $ | 0.0 | | | $ | 0.0 | | | $ | 1,504.4 | | | Cash and cash equivalents |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | 0.0 | | | $ | 0.0 | | | $ | 71.3 | | | $ | 71.3 | | | Accrued liabilities and Other non-current liabilities |
| | | | | | | | | |
| December 31, 2020 | | Balance Sheet Classification |
| Level 1 | | Level 2 | | Level 3 | | Total | |
Assets | | | | | | | | | |
Cash equivalents | $ | 1,507.4 | | | $ | 0.0 | | | $ | 0.0 | | | $ | 1,507.4 | | | Cash and cash equivalents |
Liabilities | | | | | | | | | |
Contingent acquisition obligations 1 | $ | 0.0 | | | $ | 0.0 | | | $ | 95.5 | | | $ | 95.5 | | | Accrued liabilities and Other non-current liabilities |
1Contingent acquisition obligations includes deferred acquisition payments and unconditional obligations to purchase additional noncontrolling equity shares of consolidated subsidiaries. Fair value measurement of the obligations is based upon actual and projected operating performance targets as specified in the related agreements. The decrease in this balance of $24.2 from December 31, 2020 to June 30, 2021 is primarily due to payments related to our deferred acquisitions payments from prior-year acquisitions partially offset by the exercises of redeemable noncontrolling interest and valuation adjustments in our consolidated subsidiaries. The amounts payable within the next twelve months are classified in accrued liabilities; any amounts payable thereafter are classified in other non-current liabilities.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The following table presents information about our financial instruments that are not measured at fair value on a recurring basis as of SeptemberJune 30, 20172021 and December 31, 2016,2020, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Total long-term debt | $ | 0.0 | | | $ | 3,819.0 | | | $ | 43.1 | | | $ | 3,862.1 | | | $ | 0.0 | | | $ | 3,951.1 | | | $ | 43.9 | | | $ | 3,995.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Total long-term debt | $ | 0.0 |
| | $ | 1,606.2 |
| | $ | 45.9 |
| | $ | 1,652.1 |
| | $ | 0.0 |
| | $ | 1,574.7 |
| | $ | 65.4 |
| | $ | 1,640.1 |
|
Our long-term debt is comprised of senior notes and other notes payable. The fair value of our senior notes, which are traded over-the-counter, is based on quoted prices for such securities, but for which fair value can also be derived from inputsin markets that are readily observable.not active. Therefore, these senior notes are classified as Level 2 within the fair value hierarchy.2. Our other notes payable are not actively traded, and their fair value is not solely derived from readily observable inputs. Thus, theThe fair value of our other notes payable is determined based on a discounted cash flow model and other proprietary valuation methods, and therefore areis classified as Level 3 within the fair value hierarchy.3. See Note 23 for further information on our long-term debt.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Certain non-financial assets and liabilities are measured atThe discount rates used as significant unobservable inputs in the Level 3 fair value onmeasurements of our contingent acquisition obligations and long-term debt as of June 30, 2021 ranged from 1.0% to 4.0% a recurring basis, primarily accrued restructuring charges.nd 0.4% to 3.4%, respectively.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, primarily goodwill (Level 3), intangible assets, and property and equipment. Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 12:13: Commitments and Contingencies
Guarantees
As discussed in our 2020 Annual Report, we have guaranteed certain obligations of our subsidiaries relating principally to operating leases, uncommitted lines of credit and cash pooling arrangements. As of June 30, 2021 and December 31, 2020, the amount of parent company guarantees on lease obligations was $600.6 and $630.8, respectively, the amount of parent company guarantees relating to uncommitted lines of credit was $434.6 and $399.6, respectively, and the amount of parent company guarantees related to daylight overdrafts, primarily utilized to manage intra-day overdrafts due to timing of transactions under cash pooling arrangements without resulting in incremental borrowings, was $107.3 and $109.2, respectively. In the event of non-payment by the applicable subsidiary of the obligations covered by a guarantee, we would be obligated to pay the amounts covered by that guarantee. As of June 30, 2021, there were 0 material assets pledged as security for such parent company guarantees.
Legal Matters
We are involved in various legal proceedings, and subject to investigations, inspections, audits, inquiries and similar actions by governmental authorities, arising in the normal course of business. The types of allegations that arise in connection with such legal proceedings may vary in nature, but can include claims related to contract, employment, tax and intellectual property matters. We evaluate all cases each reporting period and record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount, or potential range, of loss can be reasonably estimated. In certain cases, we cannot reasonably estimate the potential loss because, for example, the litigation is in its early stages. While any outcome related to litigation or such governmental proceedings in which we are involved cannot be predicted with certainty, management believes that the outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.
As previously disclosed, on April 10, 2015, a federal judge in Brazil authorized the search of the records of an agency's offices in São Paulo and Brasilia, in connection with an ongoing investigation by Brazilian authorities involving payments potentially connected to local government contracts. The Company had previously investigated the matter and taken a number of remedial and disciplinary actions. The Company is in the process of concluding a settlement related to these matters with government agencies.
The Company confirmed that one of its standalone domestic agencies has been contacted by the Department of Justice Antitrust Division for documents regarding video production practices and is cooperating with the government.
Guarantees
As discussed in our 2016 Annual Report on Form 10-K, we have guaranteed certain obligations of our subsidiaries relating principally to operating leases and uncommitted lines of credit of certain subsidiaries. The amount of parent company guarantees on lease obligations was $827.8 and $857.3 as of September 30, 2017 and December 31, 2016, respectively, and the amount of parent company guarantees primarily relating to uncommitted lines of credit was $413.8 and $395.6 as of September 30, 2017 and December 31, 2016, respectively.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Note 13:14: Recent Accounting Standards
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our Consolidated Financial Statements.
Derivatives and HedgingIncome Taxes
In August 2017, the Financial Accounting Standards Board (the "FASB") issued amended guidance on hedge accounting which expands an entity’s ability to hedge non-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new guidance also eliminates the requirement to separately measure and report hedge ineffectiveness. This amended guidance is effective beginning January 1,December 2019, with early adoption permitted. We are currently assessing the impact the adoption of the amended guidance will have on our Consolidated Financial Statements.
Pensions
In March 2017, the FASB issued amended guidance which requires presentation of all net periodic pension and postretirement benefit costs, other than service costs, in non-operating expenses in the Consolidated Statement of Operations. We have early adopted this amended guidance retrospectively as of the quarter ended March 31, 2017 using the practical expedient, which permits the use of amounts disclosed in our Employee Benefits note for prior comparative periods as the estimation basis for applying the retrospective presentation requirements. This resulted in the reclassification of a portion of postretirement costs from "Salaries and related expenses" to "Other (expense) income, net" in the amount of $4.8 and $0.8 for the three months ended September 30, 2017 and 2016, respectively, and $6.4 and $2.4 for the nine months ended September 30, 2017 and 2016, respectively.
Restricted Cash
In November 2016, the FASB issued amended guidance which requires that the Consolidated Statement of Cash Flows present the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. We have early adopted this amended guidance retrospectively as of the quarter ended March 31, 2017. The Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 now include restricted cash balances of $2.5 and $3.2, respectively, in the beginning-of-period totals and $3.1 and $3.9, respectively, in the end-of-period totals.
Financial Instrument Credit Losses
In June 2016, the FASB issued amended guidance onsimplify the accounting for credit losses onincome taxes by removing certain typesexceptions and amending certain sections of financial instruments, including trade receivables. The new model uses a forward-looking expected loss method, as opposed to the incurred loss method in current U.S. GAAP, which will generally result in earlier recognition of allowances for losses.existing guidance under ASC 740. This amended guidance iswas effective beginning January 1, 2020, with early adoption permitted as early as January 1, 2019. We are currently assessing the impact the adoption of the amended guidance will have on our Consolidated Financial Statements.
Leases
In February 2016, the FASB issued amended guidance on lease accounting which requires an entity to recognize a right-of-use asset and a corresponding lease liability on its balance sheet for virtually all of its leases with a term of more than 12 months, including those classified as operating leases. Both the asset and liability will initially be measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S. GAAP, the presentation of expenses and cash flows will depend primarily on the classification of the lease as either a finance or an operating lease.2021. The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities. This amended guidance, which will be effective beginning January 1, 2019, requires modified retrospective application, with early adoption permitted. We expect the adoption of this amended guidance todid not have a significant impact on our Consolidated Balance Sheets but not on our Consolidated Statements of Operations.
Fair Value Measurements
In January 2016, the FASB issued amended guidance which updates the fair value presentation requirements for certain financial instruments. Equity investments with readily determinable fair values, other than those accounted for using the equity method of accounting, will be measured at fair value with changes recorded through current earnings rather than other comprehensive income. This amended guidance will be effective for us beginning January 1, 2018, and is required to be adopted prospectively with a cumulative-effect adjustment recorded on our Consolidated Balance Sheets, if applicable. We do not expect the adoption of this amended guidance to have a significantmaterial impact on our Consolidated Financial Statements.
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Revenue Recognition
In May 2014, the FASB issued amended guidance on revenue recognition which requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. We expect to adopt the standard, which is effective January 1, 2018, using the full retrospective method. The standard impacts the timing of revenue recognition between quarters, primarily as a result of estimating variable consideration. We have determined that the standard will result in an increase in the number of performance obligations within certain of our contractual arrangements. The standard will also result in an increase in third party costs being included in revenue, primarily in connection with our events businesses, which will have no impact on operating income or net income. Additionally, we continue to evaluate the disclosures that may be required.
Note 14: Subsequent Events
On October 25, 2017, we amended and restated our Credit Agreement, which was most recently amended and restated on October 20, 2015. The amendment increases the revolving commitments under the Credit Agreement from $1,000.0 to $1,500.0 and extends the Credit Agreement's expiration to October 25, 2022. The Credit Agreement is a revolving facility, under which amounts borrowed by us or any of our subsidiaries designated under the Credit Agreement may be repaid and reborrowed. The cost structure, financial covenants and the ability to increase the commitments under the Credit Agreement from time to time by an additional amount of up to $250.0 remain unchanged by the amendment.
On October 25, 2017, the Company increased the maximum aggregate amount outstanding at any time under our commercial paper program from $1,000.0 to $1,500.0. Borrowings under the program continue to be supported by the Credit Agreement, and the proceeds of which will be used for working capital and general corporate purposes, including the repayment of maturing indebtedness and other short-term liquidity needs.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
|
| | | | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("(“MD&A"&A”) is intended to help you understand The Interpublic Group of Companies, Inc. and its subsidiaries (the "Company," "IPG," "we," "us"“Company,” “IPG,” “we,” “us” or "our"“our”). MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and the accompanying notes included in this report and our 2016Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report”), as well as our other reports and filings with the Securities and Exchange Commission (the "SEC"“SEC”). Our 2020 Annual Report includes additional information about our significant accounting policies and practices as well as details about the most significant risks and uncertainties associated with our financial and operating results. Our MD&A includes the following sections:
EXECUTIVE SUMMARY provides a discussion about our strategic outlook, factors influencing our business and an overview of our results of operations.
RESULTS OF OPERATIONS provides an analysis of the consolidated and segment results of operations for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES provides an overview of our cash flows, funding requirements, financing and sources of funds, and debt credit ratings.
CRITICAL ACCOUNTING ESTIMATES provides an update to the discussion in our 20162020 Annual Report on Form 10-K of our accounting policies that require critical judgment, assumptions and estimates.
RECENT ACCOUNTING STANDARDS, by reference to Note 1314 to the unaudited Consolidated Financial Statements, provides a discussion of certain accounting standards that have been recently adopted or that have not yet been required to be implemented and may be applicable to our future operations.
NON-GAAP FINANCIAL MEASURE, provides a reconciliation of non-GAAP financial measure with the most directly comparable generally accepted accounting principles in the United States (“U.S. GAAP”) financial measures and sets forth the reasons we believe that presentation of the non-GAAP financial measure contained therein provides useful information to investors regarding our results of operations and financial condition.
EXECUTIVE SUMMARY
Our Business
We are one of the world’s premier global advertising and marketing services companies. OurWith approximately 52,800 employees and operations in all major world markets, our companies specialize in consumer advertising, digital marketing, mediacommunications planning and media buying, public relations, and specialized communications disciplines.disciplines and data management. Our agencies create customized marketing programssolutions for clients that range in scale from large global marketers to regional and local clients. Comprehensive global services are critical to effectively serve our multinational and local clients in markets throughout the world as they seek to build brands, increase sales of their products and services, and gain market share.
We operate in a media landscape that continues to evolve at a rapid pace. Media channels continue to fragment, and clients face an increasingly complex consumer environment. To stay ahead of these challenges and to achieve our objectives, we have made and continue to make investments in creative, strategic and strategictechnology talent in areas including fast-growth digital marketing channels, high-growth geographic regions and strategic world markets. We consistently review opportunities within our Company to enhance our operations through mergersacquisitions and strategic alliances as well as through the development ofand internal programs that encourage intra-company collaboration. As appropriate, we also develop relationships with technology and emerging media companies that are building leading-edge marketing tools that complement our agencies'agencies’ skill sets and capabilities.
Our financial goals include competitive organic net revenue growth and operatingexpansion of Adjusted EBITA margin, expansion,as defined and discussed within the Non-GAAP Financial Measure section of this MD&A, which we expect will further strengthen our balance sheet and total liquidity and increase value to our shareholders. Accordingly, we remain focused on meeting the evolving needs of our clients while concurrently managing our cost structure. We continually seek greater efficiency in the delivery of our services, focusing on more effective resource utilization, including the productivity of our employees, real estate, information technology and shared services, such as finance, human resources and legal. The improvements we have made and continue to make in our financial reporting and business information systems in recent years allow us more timely and actionable insights from our global operations. Our disciplined approach to our balance sheet and liquidity provides us with a solid financial foundation and financial flexibility to manage and grow our business. We believe that our strategy and execution position us to meet our financial goals and to deliver long-term shareholder value.
The following tables present a summary
|
| | | | | | | | | | | |
| Three months ended September 30, 2017 | | Nine months ended September 30, 2017 |
% Increase/(Decrease) | Total | | Organic | | Total | | Organic |
Revenue | (1.0 | )% | | 0.5 | % | | (0.7 | )% | | 1.1 | % |
Salaries and related expenses | 0.0 | % | | 1.3 | % | | 0.4 | % | | 2.4 | % |
Office and general expenses | (6.2 | )% | | (3.3 | )% | | (4.0 | )% | | (1.3 | )% |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Impact of COVID-19
In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a pandemic, and it continues to spread extensively throughout the United States and the rest of the world. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as forced business closures and limits on operations, the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, adversely impacted our business and demand for our services. Some businesses adjusted, reduced or suspended operating activities, which negatively impacted the markets we serve and our results of operations, cash flows and financial position. More recently, we have positively benefited from the effects of robust economic recovery in many of our principal markets as vaccination efforts continue and the overall public health situation has improved. We continue to believe that our focus on our strategic strengths, which include talent, our differentiated go-to-market strategy, data management capabilities, and the relevance of our offerings, position us well to navigate a rapidly changing marketplace. The future course of the pandemic is unpredictable, and the extent of its impact on our results of operations, cash flows and financial position will vary depending on the duration and severity of the continuing economic and operational impacts of COVID-19. The pace of recent improvements in health and economic conditions has not been uniform across all geographies and could be threatened by such factors as the appearance and spread of variants to the COVID-19 virus and limitations on the effectiveness of mass vaccination and other public health efforts to mitigate the impact of the pandemic. |
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Operating margin | 11.5 | % | | 10.8 | % | | 8.2 | % | | 8.2 | % |
Expenses as % of revenue: | | | | | | | |
Salaries and related expenses | 64.5 | % | | 63.9 | % | | 67.5 | % | | 66.8 | % |
Office and general expenses | 24.0 | % | | 25.3 | % | | 24.3 | % | | 25.1 | % |
| | | | | | | |
Net income available to IPG common stockholders | $ | 146.2 |
| | $ | 128.6 |
| | $ | 262.4 |
| | $ | 290.9 |
|
| | | | | | | |
Earnings per share available to IPG common stockholders: | | | | | | | |
Basic | $ | 0.38 |
| | $ | 0.32 |
| | $ | 0.67 |
| | $ | 0.73 |
|
Diluted | $ | 0.37 |
| | $ | 0.32 |
| | $ | 0.66 |
| | $ | 0.71 |
|
At the outset of the COVID-19 pandemic, we responded swiftly in support of our people, our clients and our communities. To protect our employees, and to do our part in stopping the spread of COVID-19, within days, 95 percent of our global workforce moved to a remote work environment. While we currently anticipate a large portion of our workforce to return to the office at least part of the time in autumn 2021, the majority of our worldwide workforce continues to work from home. We recognized the importance of regular communication to reassure employees and to keep them updated on our plans as the pandemic unfolded, and IPG was recognized with top honors at the Corporate Content Awards North America for its outstanding communication during the pandemic. We adopted an approach of “organized flexibility” to facilitate the new working environments and take into account the need of many employees to work during non-traditional hours and juggle home lives and work responsibilities.We believe we have had significant success in maintaining and continuing to advance the quality of our services notwithstanding extensive changes required by the pandemic. With respect to managing costs, we undertook multiple initiatives to align our expenses with changes in revenue. The steps we took across our agencies and corporate group included deferred merit increases, freezes on hiring and temporary labor, major cuts in non-essential spending, staff reductions, furloughs in markets where that option was available and salary reductions, including voluntary salary reductions for our senior corporate management team. These actions have been discontinued in 2021 as revenue growth returns.
Starting in the second quarter of 2020 and continuing through the year 2020, the Company also took restructuring actions to lower our operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business. Most of these actions were based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations. Notably, we foresee a greater role for work-from-home in a hybrid office-home model to deliver and support our services in a post-COVID world.
Our Financial Information
When we analyze period-to-period changes in our operating performance, we determine the portion of the change that is attributable to changes in foreign currency rates and the net effect of acquisitions and divestitures, and the remainder we call organic change, which indicates how our underlying business performed. TheWe exclude the impact of billable expenses in analyzing our operating performance metrics that we useas the fluctuations from period to evaluate our results includeperiod are not indicative of the organic change in revenue, salaries and related expenses, and office and general expenses, and the components of operating expenses expressed as a percentage of total consolidated revenue. Additionally, in certainperformance of our discussions we analyze revenue by geographic regionunderlying businesses and also by business sector, in which we focushave no impact on our top 100 clients, which typically constitute approximately 55% to 60% of our annual consolidated revenues.operating income or net income.
The change in our operating performance attributable to changes in foreign currency rates is determined by converting the prior-period reported results using the current-period exchange rates and comparing these prior-period adjusted amounts to the prior-period reported results. Although the U.S. Dollar is our reporting currency, a substantial portion of our revenues and expenses are generated in foreign currencies. Therefore, our reported results are affected by fluctuations in the currencies in which we conduct our international businesses. Our exposure is mitigated as the majority of our revenues and expenses in any given market are generally denominated in the same currency. Both positive and negative currency fluctuations against the U.S. Dollar affect our consolidated results of operations, and the magnitude of the foreign currency impact to our operations related to each geographic region depends on the significance and operating performance of the region. The foreign currency that most adversely impacted ourOur results during the first nine monthshalf of 2017 was2021 were most favorably impacted by the British Pound Sterling, partially offset by the Brazilian Real.Euro, Australian Dollar and Canadian Dollar.
For purposes of analyzing changes in our operating performance attributable to the net effect of acquisitions and divestitures, transactions are treated as if they occurred on the first day of the quarter during which the transaction occurred.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
During the past few years, we have acquired companies that we believe will enhance our offerings and disposed of businesses that are not consistent with our strategic plan.
The metrics that we use to evaluate our financial performance include organic change in net revenue as well as the change in certain operating expenses, and the components thereof, expressed as a percentage of consolidated net revenue, as well as Adjusted EBITA. These metrics are also used by management to assess the financial performance of our reportable segments, Integrated Agency Networks (“IAN”) and IPG DXTRA (“DXTRA”). In certain of our discussions, we analyze net revenue by geographic region and by business sector, in which we focus on our top 500 clients, which typically constitute approximately 80% to 85% of our annual consolidated net revenues.
Results for the three and six months ended June 30, 2021, are not indicative of the results that may be expected for the fiscal year ending December 31, 2021. The Consolidated Financial Statements and MD&A presented herein reflect the latest estimates and assumptions made by us that affect the reported amounts of assets and liabilities and related disclosures as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. We believe we have used reasonable estimates and assumptions to assess the fair values of goodwill, long-lived assets and indefinite-lived intangible assets; assessment of the annual effective tax rate; valuation of deferred income taxes and allowance for expected credit losses on future uncollectible accounts receivable. If actual market conditions vary significantly from those currently projected, these estimates and assumptions could materially change resulting in adjustments to the carrying values of our assets and liabilities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
The following table presents a summary of our financial performance for the three and six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
Statement of Operations Data | 2021 | | 2020 | | % Increase/ (Decrease) | | 2021 | | 2020 | | % Increase/ (Decrease) |
REVENUE: | | | | | | | | | | | |
Net revenue | $ | 2,269.6 | | | $ | 1,853.4 | | | 22.5 | % | | $ | 4,297.3 | | | $ | 3,825.5 | | | 12.3 | % |
Billable expenses | 240.0 | | | 172.3 | | | 39.3 | % | | 469.3 | | | 560.0 | | | (16.2) | % |
Total revenue | $ | 2,509.6 | | | $ | 2,025.7 | | | 23.9 | % | | $ | 4,766.6 | | | $ | 4,385.5 | | | 8.7 | % |
| | | | | | | | | | | |
OPERATING INCOME | $ | 384.4 | | | $ | 40.5 | | | >100% | | $ | 627.4 | | | $ | 116.4 | | | >100% |
| | | | | | | | | | | |
Adjusted EBITA 1 | $ | 406.0 | | | $ | 62.3 | | | >100% | | $ | 670.6 | | | $ | 159.5 | | | >100% |
| | | | | | | | | | | |
NET INCOME (LOSS) AVAILABLE TO IPG COMMON STOCKHOLDERS | $ | 263.3 | | | $ | (45.6) | | | | | $ | 355.0 | | | $ | (40.9) | | | |
| | | | | | | | | | | |
Earnings (loss) per share available to IPG common stockholders: | | | | | | | | | | | |
Basic | $ | 0.67 | | | $ | (0.12) | | | | | $ | 0.90 | | | $ | (0.11) | | | |
Diluted | $ | 0.66 | | | $ | (0.12) | | | | | $ | 0.89 | | | $ | (0.11) | | | |
| | | | | | | | | | | |
Operating Ratios | | | | | | | | | | | |
Organic change in net revenue | 19.8 | % | | (9.9) | % | | | | 10.6 | % | | (5.0) | % | | |
| | | | | | | | | | | |
Operating margin on net revenue | 16.9 | % | | 2.2 | % | | | | 14.6 | % | | 3.0 | % | | |
Operating margin on total revenue | 15.3 | % | | 2.0 | % | | | | 13.2 | % | | 2.7 | % | | |
| | | | | | | | | | | |
Adjusted EBITA margin on net revenue 1 | 17.9 | % | | 3.4 | % | | | | 15.6 | % | | 4.2 | % | | |
| | | | | | | | | | | |
Expenses as a % of net revenue: | | | | | | | | | | | |
Salaries and related expenses | 65.4 | % | | 70.5 | % | | | | 67.0 | % | | 71.3 | % | | |
Office and other direct expenses | 13.3 | % | | 17.1 | % | | | | 13.8 | % | | 18.2 | % | | |
Selling, general and administrative expenses | 1.3 | % | | 0.2 | % | | | | 1.3 | % | | 0.7 | % | | |
Depreciation and amortization | 3.1 | % | | 3.9 | % | | | | 3.2 | % | | 3.8 | % | | |
Restructuring charges 2 | 0.0 | % | | 6.1 | % | | | | 0.0 | % | | 2.9 | % | | |
1 Adjusted EBITA is a financial measure that is not defined by U.S. GAAP. Adjusted EBITA is calculated as net income (loss) available to IPG common stockholders before provision for incomes taxes, total (expenses) and other income, equity in net income (loss) of unconsolidated affiliates, net (income) loss attributable to noncontrolling interests and amortization of acquired intangibles. Refer to the “Non-GAAP Financial Measure” section of this MD&A for additional information and for a reconciliation to U.S. GAAP measures.
2 For the three and six months ended June 30, 2021, results include net restructuring charges of $(0.2) and $1.1, respectively. For the three and six months ended June 30, 2020, results include restructuring charges of $112.6. See “Restructuring Charges” in this MD&A and Note 47 to the unaudited Consolidated Financial Statements for additional information on acquisitions.further information.
Our organic net revenue increase of 19.8% for the second quarter of 2021 was driven by net higher spending from existing clients across all sectors, most notably in the healthcare, auto and transportation, retail, and technology and telecom sectors, which also increased from net client wins. During the second quarter of 2021, our Adjusted EBITA margin increased to 17.9% from 3.4% in the prior-year period as the increase in net revenue, discussed below in the “Results of Operations” section, outpaced the overall increase in our operating expenses, excluding billable expenses and amortization of acquired intangibles.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Our organic net revenue increase of 10.6% for the first half of 2021 was driven by higher spending from existing clients across all sectors, most notably in the healthcare, retail, and auto and transportation sectors. During the first half of 2021, our Adjusted EBITA margin increased to 15.6% from 4.2% in the prior-year period as net revenue increased, discussed below in the “Results of Operations” section, and our operating expenses, excluding billable expenses and amortization of acquired intangibles, decreased.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
RESULTS OF OPERATIONS
Consolidated Results of Operations – Three and NineSix Months Ended SeptemberJune 30, 20172021 Compared to Three and NineSix Months Ended SeptemberJune 30, 20162020
REVENUENet Revenue
Our net revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. Most of our expenses are recognized ratably throughout the year and are therefore less seasonal than revenue. Our net revenue is typically lowest in the first quarter and highest in the fourth quarter, reflecting the seasonal spending of our clients, incentives earned at year end on various contracts and project work completed that is typically recognizedclients.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 1,853.4 | | | $ | 58.1 | | | $ | (8.0) | | | $ | 366.1 | | | $ | 2,269.6 | | | 19.8 | % | | 22.5 | % |
Domestic | 1,227.2 | | | — | | | (4.8) | | | 213.1 | | | 1,435.5 | | | 17.4 | % | | 17.0 | % |
International | 626.2 | | | 58.1 | | | (3.2) | | | 153.0 | | | 834.1 | | | 24.4 | % | | 33.2 | % |
United Kingdom | 147.2 | | | 19.9 | | | 0.0 | | | 27.5 | | | 194.6 | | | 18.7 | % | | 32.2 | % |
Continental Europe | 149.7 | | | 14.5 | | | (0.4) | | | 41.7 | | | 205.5 | | | 27.9 | % | | 37.3 | % |
Asia Pacific | 162.6 | | | 11.7 | | | (4.6) | | | 22.8 | | | 192.5 | | | 14.0 | % | | 18.4 | % |
Latin America | 62.3 | | | 2.3 | | | 1.8 | | | 30.5 | | | 96.9 | | | 49.0 | % | | 55.5 | % |
Other | 104.4 | | | 9.7 | | | 0.0 | | | 30.5 | | | 144.6 | | | 29.2 | % | | 38.5 | % |
The 17.4% organic increase during the fourth quarter.second quarter of 2021 in our domestic market was driven by growth across nearly all disciplines, most notably in our advertising and media businesses. In our international markets, the events marketing business, revenues can fluctuate due24.4% organic increase was driven by double-digit organic growth from all geographic regions, bolstered by strong performance at our media and advertising businesses in addition to our digital project-based offerings across all geographic regions.
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| | | Components of Change | | | | Change |
| Six months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Six months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 3,825.5 | | | $ | 87.4 | | | $ | (19.7) | | | $ | 404.1 | | | $ | 4,297.3 | | | 10.6 | % | | 12.3 | % |
Domestic | 2,547.2 | | | — | | | (12.2) | | | 210.3 | | | 2,745.3 | | | 8.3 | % | | 7.8 | % |
International | 1,278.3 | | | 87.4 | | | (7.5) | | | 193.8 | | | 1,552.0 | | | 15.2 | % | | 21.4 | % |
United Kingdom | 312.9 | | | 31.5 | | | 0.9 | | | 33.3 | | | 378.6 | | | 10.6 | % | | 21.0 | % |
Continental Europe | 295.7 | | | 27.7 | | | (1.9) | | | 59.8 | | | 381.3 | | | 20.2 | % | | 28.9 | % |
Asia Pacific | 321.4 | | | 20.6 | | | (8.6) | | | 28.2 | | | 361.6 | | | 8.8 | % | | 12.5 | % |
Latin America | 141.6 | | | (5.9) | | | 2.1 | | | 34.5 | | | 172.3 | | | 24.4 | % | | 21.7 | % |
Other | 206.7 | | | 13.5 | | | 0.0 | | | 38.0 | | | 258.2 | | | 18.4 | % | | 24.9 | % |
The 8.3% organic increase during the first half of 2021 in our domestic market was driven by growth across nearly all disciplines, most notably in our advertising and media businesses. In our international markets, the 15.2% organic increase was driven by strong performance at our media and advertising businesses in addition to our digital project-based offerings across all geographic regions.
Refer to the timingsegment discussion later in this MD&A for information on changes in net revenue by segment.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Salaries and Related Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2021 | | 2020 | | % Increase/ (Decrease) | | 2021 | | 2020 | | % Increase/ (Decrease) |
Salaries and related expenses | $ | 1,484.9 | | $ | 1,306.1 | | 13.7 | % | | $ | 2,878.0 | | $ | 2,728.9 | | 5.5 | % |
| | | | | | | | | | | |
As a % of net revenue: | | | | | | | | | | | |
Salaries and related expenses | 65.4 | % | | 70.5 | % | | | | 67.0 | % | | 71.3 | % | | |
Base salaries, benefits and tax | 53.0 | % | | 59.2 | % | | | | 55.4 | % | | 60.4 | % | | |
Incentive expense | 6.4 | % | | 4.1 | % | | | | 5.4 | % | | 3.9 | % | | |
Severance expense | 0.4 | % | | 3.0 | % | | | | 0.4 | % | | 2.1 | % | | |
Temporary help | 4.5 | % | | 3.1 | % | | | | 4.5 | % | | 3.8 | % | | |
All other salaries and related expenses | 1.1 | % | | 1.1 | % | | | | 1.3 | % | | 1.1 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 1,922.2 |
| | $ | 7.7 |
| | $ | (37.2 | ) | | $ | 9.9 |
| | $ | 1,902.6 |
| | 0.5 | % | | (1.0 | )% |
Domestic | 1,165.9 |
| | 0.0 |
| | (25.0 | ) | | 15.1 |
| | 1,156.0 |
| | 1.3 | % | | (0.8 | )% |
International | 756.3 |
| | 7.7 |
| | (12.2 | ) | | (5.2 | ) | | 746.6 |
| | (0.7 | )% | | (1.3 | )% |
United Kingdom | 174.0 |
| | (4.3 | ) | | 1.4 |
| | 5.3 |
| | 176.4 |
| | 3.0 | % | | 1.4 | % |
Continental Europe | 147.6 |
| | 6.4 |
| | (4.0 | ) | | 0.6 |
| | 150.6 |
| | 0.4 | % | | 2.0 | % |
Asia Pacific | 217.9 |
| | 0.8 |
| | (0.2 | ) | | (4.6 | ) | | 213.9 |
| | (2.1 | )% | | (1.8 | )% |
Latin America | 103.6 |
| | 2.4 |
| | (10.4 | ) | | (10.3 | ) | | 85.3 |
| | (9.9 | )% | | (17.7 | )% |
Other | 113.2 |
| | 2.4 |
| | 1.0 |
| | 3.8 |
| | 120.4 |
| | 3.4 | % | | 6.4 | % |
DuringNet revenue growth of 22.5% outpaced the thirdincrease in salaries and related expenses of 13.7% during the second quarter of 2017, our revenue decreased by $19.6, or 1.0%,2021 as compared to the third quarter of 2016, comprised of an organic revenue increase of $9.9, or 0.5% and a favorable foreign currency rate impact of $7.7, offset by the effect of net divestitures of $37.2. Our organic revenue increase wasprior-year period, primarily attributable to growth within the healthcare sector, offset by decreases in the technology and telecom sector. The organic revenue increase in our domestic market was mainly driven by our medialeverage in base salaries, benefits and advertising businesses,tax, partially offset by declines within our digital specialist agencies and a decrease in pass-through revenueincreased incentive expense, primarily related to certain projects where we acted as principal thatbetter-than-projected performance, and increased temporary help expense. Severance expense decreased in size or did not recur in our events businesses during the third quarter of 2017, the impact of which is also reflected as a comparable reduction in office and general expenses. In our international markets, the organic revenue decrease was primarily attributable to decreases at our advertising businesses in Latin America, most notably in Brazil, and the Asia Pacific region, partially offset by growth across all regions at our media businesses as well as growth at our advertising businesses in the United Kingdom.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Nine months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Nine months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 5,582.1 |
| | $ | (30.7 | ) | | $ | (73.8 | ) | | $ | 63.8 |
| | $ | 5,541.4 |
| | 1.1 | % | | (0.7 | )% |
Domestic | 3,426.2 |
| | 0.0 |
| | (52.5 | ) | | 54.6 |
| | 3,428.3 |
| | 1.6 | % | | 0.1 | % |
International | 2,155.9 |
| | (30.7 | ) | | (21.3 | ) | | 9.2 |
| | 2,113.1 |
| | 0.4 | % | | (2.0 | )% |
United Kingdom | 495.3 |
| | (44.5 | ) | | 12.5 |
| | 8.5 |
| | 471.8 |
| | 1.7 | % | | (4.7 | )% |
Continental Europe | 468.1 |
| | (3.9 | ) | | (13.3 | ) | | 6.1 |
| | 457.0 |
| | 1.3 | % | | (2.4 | )% |
Asia Pacific | 617.7 |
| | (0.7 | ) | | 2.4 |
| | (12.0 | ) | | 607.4 |
| | (1.9 | )% | | (1.7 | )% |
Latin America | 255.7 |
| | 14.3 |
| | (24.6 | ) | | (7.9 | ) | | 237.5 |
| | (3.1 | )% | | (7.1 | )% |
Other | 319.1 |
| | 4.1 |
| | 1.7 |
| | 14.5 |
| | 339.4 |
| | 4.5 | % | | 6.4 | % |
During the first nine months of 2017, our revenue decreased by $40.7, or 0.7%, compared to the first nine months of 2016, comprised of an organic revenue increase of $63.8, or 1.1%, offset by the effect of net divestitures of $73.8 and an adverse foreign currency rate impact of $30.7. Our organic revenue increase was primarily attributable to growth within the healthcare sector, offset by decreases in the technology and telecom sector. The organic increase in our domestic market was mainly driven by our media and advertising businesses, offset by weakness in our events and branding businesses. In our international markets, the organic revenue increase was primarily driven by growth across all regions at our media businesses and our advertising businesses in the United Kingdom, partially offset by decreases at our advertising businesses in the Asia Pacific and Latin America regions and our events businesses in the United Kingdom, primarily as a result of certain projects where we no longer actthe initiatives taken in the comparable prior-year quarter.
Net revenue growth of 12.3% outpaced the increase in salaries and related expenses of 5.5% during the first half of 2021 as principal.compared to the prior-year period, primarily driven by factors similar to those noted above for the second quarter of 2021.
ReferOffice and Other Direct Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2021 | | 2020 | | % Increase/ (Decrease) | | 2021 | | 2020 | | % Increase/ (Decrease) |
Office and other direct expenses | $ | 301.0 | | $ | 317.0 | | (5.0) | % | | $ | 593.9 | | $ | 695.2 | | (14.6) | % |
| | | | | | | | | | | |
As a % of net revenue: | | | | | | | | | | | |
Office and other direct expenses | 13.3 | % | | 17.1 | % | | | | 13.8 | % | | 18.2 | % | | |
Occupancy expense | 5.0 | % | | 6.6 | % | | | | 5.3 | % | | 6.6 | % | | |
All other office and other direct expenses 1 | 8.3 | % | | 10.5 | % | | | | 8.5 | % | | 11.6 | % | | |
1Includes client service costs, non-pass through production expenses, travel and entertainment, professional fees, spending to support new business activity, telecommunications, office supplies, bad debt expense, adjustments to contingent acquisition obligations, foreign currency losses (gains) and other expenses.
Office and other direct expenses decreased by 5.0% compared to the net revenue increase of 22.5% during the second quarter of 2021 as compared to the prior-year period. The decrease was mainly due to lower bad debt expense and a year-over-year change in contingent acquisition obligations, as well as savings on occupancy expense as a result of real estate restructuring actions taken in 2020.
Office and other direct expenses decreased by 14.6% compared to the net revenue increase of 12.3% during the first half of 2021 as compared to the prior-year period. The decrease in office and other direct expenses was mainly due to factors similar to those noted above for the second quarter of 2021 in addition to a decrease in travel and entertainment expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) are primarily the unallocated expenses of our "Corporate and Other" group, as detailed further in the segment discussion later in this MD&A, for information on changesexcluding depreciation and amortization. For the three months ended June 30, 2021, SG&A as a percentage of net revenue increased as compared to the prior-year period, primarily due to increases in revenue by segment.incentive expense and employee insurance expense. For the first half of 2021, SG&A as a
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
OPERATING EXPENSES
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Salaries and related expenses | $ | 1,227.6 |
| | $ | 1,228.0 |
| | $ | 3,742.3 |
| | $ | 3,726.3 |
|
Office and general expenses | 455.9 |
| | 486.2 |
| | 1,343.8 |
| | 1,400.5 |
|
Total operating expenses | $ | 1,683.5 |
| | $ | 1,714.2 |
| | $ | 5,086.1 |
| | $ | 5,126.8 |
|
Operating income | $ | 219.1 |
| | $ | 208.0 |
| | $ | 455.3 |
| | $ | 455.3 |
|
In the third quarterpercentage of 2017, total operating expenses decreased 1.8%, compared to ournet revenue decrease of 1.0%, from the third quarter of 2016, resulting in operating margin expansion to 11.5% from 10.8%. In the first nine months of 2017, total operating expenses decreased 0.8%, compared to our revenue decrease of 0.7%, from the first nine months of 2016, resulting in an operating margin of 8.2%, which remains flatincreased as compared to the prior-year period.
Salaries and Related Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | 2017 | Organic | | Total |
Three months ended September 30, | $ | 1,228.0 |
| | $ | 4.6 |
| | $ | (21.0 | ) | | $ | 16.0 |
| | $ | 1,227.6 |
| | 1.3 | % | | 0.0 | % |
Nine months ended September 30, | 3,726.3 |
| | (24.6 | ) | | (49.4 | ) | | 90.0 |
| | 3,742.3 |
| | 2.4 | % | | 0.4 | % |
Salaries and related expenses in the third quarter of 2017 decreased by $0.4 comparedperiod, primarily due to the third quarter of 2016, comprised of an organic increase of $16.0 and an adverse foreign currency rate impact of $4.6, offset by the effect of net divestitures of $21.0. The organic increase was primarily attributable to an increase in base salaries, benefits and tax, partially offset by lower incentive expense. Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased in the third quarter of 2017 to 64.5% from 63.9%, when compared to the prior-year period.
Salaries and related expenses in the first nine months of 2017 increased by $16.0 compared to the first nine months of 2016, comprised of an organic increase of $90.0, partially offset by the effect of net divestitures of $49.4 and a favorable foreign currency rate impact of $24.6. The organic increase was primarily driven by factors similar to those noted above for the thirdsecond quarter of 2017, as well as lower acquisition-related contractual compensation, which is classified within all other salaries2021 in addition to an increase in professional consulting fees partially offset by a decrease in travel and relatedentertainment expenses.
Depreciation and Amortization
During the second quarter and first half of 2021, depreciation and amortization expenses in the table below. Our staff cost ratio increased in the first nine months of 2017 to 67.5% from 66.8% whendecreased compared to the prior-year period.periods.
Restructuring Charges
Beginning in the second quarter of 2020, the Company took restructuring actions to lower its operating expenses structurally and permanently relative to revenue and to accelerate the transformation of our business (the “2020 Restructuring Plan”). These actions continued through the fourth quarter and most were based on our recent experience and learning in the COVID-19 pandemic and a resulting review of our operations to address certain operating expenses such as occupancy expense and salaries and related expenses.
Lease impairment costs, which relate to the office spaces that were vacated as part of the 2020 Restructuring Plan, included impairments of operating lease right-of-use assets and associated leasehold improvements, furniture and asset retirement obligations in addition to losses and gains related to early lease terminations. Lease impairments were calculated based on estimated fair values using market participant assumptions including forecasted net discounted cash flows related to the operating lease right-of-use assets.
All restructuring actions were identified and initiated in 2020, with all actions completed by the end of the fourth quarter of 2020. The amounts for the three and six months ended June 30, 2021 are adjustments to the actions taken in 2020.
The following table details our staff cost ratio.components of the restructuring charges related to the 2020 Restructuring Plan are listed below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Severance and termination costs | $ | 0.6 | | | $ | 44.6 | | | $ | 2.1 | | | $ | 44.6 | |
Lease impairment costs | (0.9) | | | 65.7 | | | (1.1) | | | 65.7 | |
Other restructuring costs | 0.1 | | | 2.3 | | | 0.1 | | | 2.3 | |
Total restructuring charges | $ | (0.2) | | | $ | 112.6 | | | $ | 1.1 | | | $ | 112.6 | |
Net restructuring charges were comprised of $0.0 at IAN, $(0.3) at DXTRA and $0.1 at Corporate and Other for the three month ended June 30, 2021, which include non-cash lease impairment costs of $(0.6) at IAN and $(0.3) at DXTRA. Net restructuring charges were comprised of $0.5 at IAN, $0.5 at DXTRA and $0.1 at Corporate and Other for the six months ended June 30, 2021, which include non-cash lease impairment costs of $(0.7) at IAN, $(0.3) at DXTRA and $(0.1) at Corporate and Other. Net restructuring charges were comprised of $68.8 at IAN and $36.7 at DXTRA for the three and six months ended June 30, 2020, which include non-cash lease impairment costs of $35.8 at IAN and $26.8 at DXTRA.
A summary of the restructuring activities taken in the first half of 2021 related to the 2020 Restructuring Plan is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Restructuring Plan |
| Liability at December 31, 2020 | | Restructuring Expense | | Non-Cash Items | | Cash Payments | | | | Liability at June 30, 2021 |
Severance and termination costs | $ | 74.6 | | | $ | 2.1 | | | $ | 0.3 | | | $ | 52.6 | | | | | $ | 23.8 | |
Lease impairment costs | 0.0 | | | (1.1) | | | (1.1) | | | 0.0 | | | | | 0.0 | |
Other restructuring costs | 0.0 | | | 0.1 | | | (0.1) | | | 0.2 | | | | | 0.0 | |
Total | $ | 74.6 | | | $ | 1.1 | | | $ | (0.9) | | | $ | 52.8 | | | | | $ | 23.8 | |
EXPENSES AND OTHER INCOME
|
| | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Salaries and related expenses | 64.5 | % | | 63.9 | % | | 67.5 | % | | 66.8 | % |
Base salaries, benefits and tax | 55.7 | % | | 53.5 | % | | 57.3 | % | | 55.6 | % |
Incentive expense | 2.0 | % | | 3.7 | % | | 3.1 | % | | 3.8 | % |
Severance expense | 0.8 | % | | 0.7 | % | | 1.0 | % | | 1.0 | % |
Temporary help | 3.8 | % | | 3.9 | % | | 3.9 | % | | 3.9 | % |
All other salaries and related expenses | 2.2 | % | | 2.1 | % | | 2.2 | % | | 2.5 | % |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Cash interest on debt obligations | $ | (41.7) | | | $ | (48.5) | | | $ | (88.8) | | | $ | (91.9) | |
Non-cash interest | (0.9) | | | (1.3) | | | (3.4) | | | (2.7) | |
Interest expense | (42.6) | | | (49.8) | | | (92.2) | | | (94.6) | |
Interest income | 7.6 | | | 5.9 | | | 14.5 | | | 16.6 | |
Net interest expense | (35.0) | | | (43.9) | | | (77.7) | | | (78.0) | |
Other income (expense), net | 4.7 | | | (21.5) | | | (79.2) | | | (43.3) | |
Total (expenses) and other income | $ | (30.3) | | | $ | (65.4) | | | $ | (156.9) | | | $ | (121.3) | |
Office and General Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | 2017 | Organic | | Total |
Three months ended September 30, | $ | 486.2 |
| | $ | (0.2 | ) | | $ | (13.9 | ) | | $ | (16.2 | ) | | $ | 455.9 |
| | (3.3 | )% | | (6.2 | )% |
Nine months ended September 30, | 1,400.5 |
| | (10.8 | ) | | (27.9 | ) | | (18.0 | ) | | 1,343.8 |
| | (1.3 | )% | | (4.0 | )% |
Office and general expensesNet interest expense decreased by $8.9 for the three months ended June 30, 2021 compared to a year ago, primarily attributable to decreased cash interest expense as a result of our $500.0 in aggregate principal amount 3.500% unsecured senior notes that matured in the thirdfourth quarter of 2017 decreased by $30.3 compared to the third quarter of 2016, comprised of an organic decrease of $16.2, the effect of net divestitures of $13.9 and a favorable foreign currency rate impact of $0.2. The organic decrease was attributable to lower production expenses related to pass-through costs, which are also reflected in revenue, partially offset by higher occupancy costs. Our office and general expense ratio, defined as office and general expenses as a percentage of total consolidated revenue, decreased in the third quarter of 2017 to 24.0% from 25.3%, when compared to the prior-year period.
Office and general expenses in the first nine months of 2017 decreased by $56.7 compared to the first nine months of 2016, comprised of an organic decrease of $18.0, the effect of net divestitures of $27.9 and a favorable foreign currency rate impact of $10.8. The organic decrease was primarily driven by factors similar to those noted above for the third quarter of 2017,2020, as well as decreasesan increase in adjustments to contingent acquisition obligations, as compared to the prior year. Our office and general expense ratio decreased in the first nine months of 2017 to 24.3% from 25.1%interest income.
Other Income (Expense), when compared to the prior-year period.
The following table details our office and general expense ratio.
|
| | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Office and general expenses | 24.0 | % | | 25.3 | % | | 24.3 | % | | 25.1 | % |
Professional fees | 1.4 | % | | 1.4 | % | | 1.6 | % | | 1.5 | % |
Occupancy expense (excluding depreciation and amortization) | 6.9 | % | | 6.6 | % | | 7.0 | % | | 6.8 | % |
Travel & entertainment, office supplies and telecommunications | 2.8 | % | | 2.8 | % | | 3.1 | % | | 3.2 | % |
All other office and general expenses 1 | 12.9 | % | | 14.5 | % | | 12.6 | % | | 13.6 | % |
| |
1 | Includes production expenses and, to a lesser extent, depreciation and amortization, bad debt expense, adjustments to contingent acquisition obligations, foreign currency losses (gains), spending to support new business activity, net restructuring and other reorganization-related charges (reversals), long-lived asset impairments and other expenses. |
EXPENSES AND OTHER INCOME
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cash interest on debt obligations | $ | (21.0 | ) | | $ | (19.5 | ) | | $ | (60.1 | ) | | $ | (59.8 | ) |
Non-cash interest | 0.0 |
| | (2.2 | ) | | (7.5 | ) | | (9.0 | ) |
Interest expense | (21.0 | ) | | (21.7 | ) | | (67.6 | ) | | (68.8 | ) |
Interest income | 4.1 |
| | 4.7 |
| | 14.0 |
| | 16.1 |
|
Net interest expense | (16.9 | ) | | (17.0 | ) | | (53.6 | ) | | (52.7 | ) |
Other (expense) income, net | (9.9 | ) | | 5.3 |
| | (24.5 | ) | | (13.5 | ) |
Total (expenses) and other income | $ | (26.8 | ) | | $ | (11.7 | ) | | $ | (78.1 | ) | | $ | (66.2 | ) |
Net Interest Expense
For the nine months ended September 30, 2017, net interest expense increased by $0.9 as compared to prior-year period, primarily due to lower interest income from our international markets, partially offset by a decrease in non-cash interest expense from revaluations of mandatorily redeemable noncontrolling interests.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Other (Expense) Income, Net
Results of operations for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 include certain items that are not directly associated with our revenue-producing operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Loss on early extinguishment of debt | $ | — | | | $ | — | | | $ | (74.0) | | | $ | — | |
Net losses on sales of businesses | (1.7) | | | (19.9) | | | (14.2) | | | (43.2) | |
Other | 6.4 | | | (1.6) | | | 9.0 | | | (0.1) | |
Total other income (expense), net | $ | 4.7 | | | $ | (21.5) | | | $ | (79.2) | | | $ | (43.3) | |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net (losses) gains on sales of businesses and investments | $ | (6.2 | ) | | $ | 3.9 |
| | $ | (18.3 | ) | | $ | (14.6 | ) |
Other (expense) income, net | (3.7 | ) | | 1.4 |
| | (6.2 | ) | | 1.1 |
|
Total other (expense) income, net | $ | (9.9 | ) | | $ | 5.3 |
| | $ | (24.5 | ) | | $ | (13.5 | ) |
Loss on early extinguishment of debt – During the first quarter of 2021, we recorded a loss of $74.0 related to the early extinguishment of our $250.0 in aggregate principal amount 4.000% unsecured senior notes due 2022, $500.0 in aggregate principal amount 3.750% unsecured senior notes due 2023, and $250.0 of the $500.0 in aggregate principal amount 4.200% unsecured senior notes due 2024. See Note 3 in Item 1, unaudited Consolidated Financial Statements, for further information.Net (Losses) Gainslosses on Salessales of Businesses and Investments businesses – During the three and ninesix months ended SeptemberJune 30, 2017,2021 and 2020, the amounts recognized are primarilywere related to sales of businesses and the classification of certain assets and liabilities, consisting primarily of accounts receivable and accounts payable, respectively,cash, as held for sale, within our Integrated Agency Networks ("IAN") operating segment. DuringIAN and DXTRA reportable segments. The businesses held for sale primarily represent unprofitable, non-strategic agencies which are expected to be sold within the three and nine months ended September 30, 2016, the amounts recognized are primarily related to sales of businesses within our IAN segment.next twelve months.
INCOME TAXES
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income before income taxes | $ | 192.3 |
| | $ | 196.3 |
| | $ | 377.2 |
| | $ | 389.1 |
|
Provision for income taxes | $ | 42.5 |
| | $ | 63.8 |
| | $ | 115.8 |
| | $ | 91.9 |
|
Effective income tax rate | 22.1 | % | | 32.5 | % | | 30.7 | % | | 23.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
INCOME (LOSS) BEFORE INCOME TAXES | $ | 354.1 | | | $ | (24.9) | | | $ | 470.5 | | | $ | (4.9) | |
Provision for income taxes | $ | 86.7 | | | $ | 19.0 | | | $ | 110.5 | | | $ | 36.2 | |
Our tax rates are affected by many factors, including our worldwide earnings from various countries, changes in legislation and tax characteristics of our income. For the three and ninesix months ended SeptemberJune 30, 2017,2021, our effective income tax rates of 22.1% and 30.7%, respectively, wereexpense was positively impacted by a benefitexcess tax benefits on employee share-based payments, the majority of $31.2 relatedwhich were recognized in the first quarter due to foreignthe timing of the vesting of awards, and the revaluation of deferred tax creditsbalances resulting from distributionsthe enactment of unremitted earnings,tax law changes. This was partially offset by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances and bynet losses on sales of businesses and the classification of certain assets as held for sale for which we did not receive a fullreceived minimal tax benefit. For the nine months ended September 30, 2017, our effective income tax rate was positively impacted by excess tax benefits on employee share-based payments, the majority of which is typically recognized in the first quarter due to the timing of the vesting of awards.
For the nine months ended September 30, 2016, our effective income tax rate of 23.6% was positively impacted by the settlement of 2011 and 2012 income tax audits which included the recognition of certain previously unrecognized tax benefits of $23.4, the reversal of valuation allowances of $12.2benefit, as a consequence of the disposition of certain businesses in Continental Europe, excess tax benefits on employee share-based payments and the recognition of previously unrecognized tax benefitswell as a result of a lapse in statute of limitations. The positive impacts to our tax rates were partially offset by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances.
For the three months ended June 30, 2020, our income tax provision was negatively impacted by losses in certain foreign jurisdictions where we received no tax benefit due to 100% valuation allowances, and by net losses on sales of businesses for which we did not receive a full tax benefit.
EARNINGS PER SHARE
Basic earnings per share available to IPG common stockholders for the three and nine months ended September 30, 2017 were $0.38 and $0.67, respectively, compared to $0.32 and $0.73 for the three and nine months ended September 30, 2016, respectively. Diluted earnings per share for the three and nine months ended September 30, 2017 were $0.37 and $0.66, respectively, compared to $0.32 and $0.71 for the three and nine months ended September 30, 2016, respectively.
For the three and nine months ended September 30, 2017, net income available to IPG common stockholders included $31.2 related to foreign tax credits from distributions of unremitted earnings, resulting in a positive impact of $0.08 on basic and diluted earnings per share for both periods. For the three and nine months ended September 30, 2017, net income available to IPG common stockholders included net losses of $7.0 and $19.2, respectively, on sales of businesses, and the classification
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
classification of certain assets as held for sale for which we received no tax benefit and by tax expense associated with the change to our assertion regarding the permanent reinvestment of undistributed earnings attributable to certain foreign subsidiaries.
For the ninesix months ended SeptemberJune 30, 2016,2020, our income tax provision was negatively impacted by the same factors noted for the three months ended June 30, 2020 in addition to net incomelosses on sales of businesses and the classification of certain assets as held for sale, for which we received minimal tax benefit.
EARNINGS (LOSS) PER SHARE
Basic earnings per share available to IPG common stockholders for the three and six months ended June 30, 2021 was $0.67 and $0.90, respectively, compared to loss per share of $0.12 and $0.11 for the three and six months ended June 30, 2020, respectively. Diluted earnings per share available to IPG common stockholders for the three and six months ended June 30, 2021 was $0.66 and $0.89, respectively, compared to diluted loss per share of $0.12 and $0.11 for the three and six months ended June 30, 2020, respectively.
Basic and diluted earnings per share for the three months ended June 30, 2021 included a negative impact of $0.04 from the amortization of acquired intangibles.
Basic and diluted earnings per share for the six months ended June 30, 2021 included a negative impact of $0.09 from the recognitionamortization of certain previously unrecognized tax benefits totaling $23.4,acquired intangibles, a negative impact of $0.03 from net losses of $15.7, net of tax, on sales of businesses in our international markets,and the classification of certain assets as held for sale and a benefitnegative impact of $12.2 related to$0.14 from the reversalsloss on early extinguishment of valuation allowances asdebt.
Basic and diluted loss per share for the three months ended June 30, 2020 included a consequencenegative impact of $0.05 from the amortization of acquired intangibles, a negative impact of $0.22 from restructuring charges, a negative impact of $0.05 from net losses on sales of businesses resulting in impactsand the classification of $0.06, ($0.04)certain assets as held for sale, and a negative impact of $0.03 respectively, to basicfrom a discrete tax item.
Basic and diluted earningsloss per share.share for the six months ended June 30, 2020 included a negative impact of $0.09 from the amortization of acquired intangibles, a negative impact of $0.22 from restructuring charges, a negative impact of $0.11 from net losses on sales of businesses and the classification of certain assets as held for sale, and a negative impact of $0.03 from a discrete tax item.
Segment Results of Operations – Three and NineSix Months Ended SeptemberJune 30, 20172021 Compared to Three and NineSix Months Ended SeptemberJune 30, 20162020
As discussed in Note 1011 to the unaudited Consolidated Financial Statements, we have two reportable segments as of SeptemberJune 30, 2017:2021: IAN and Constituency Management Group ("CMG").DXTRA. We also report results for the "Corporate“Corporate and other"Other” group.
IAN
REVENUENet Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 1,585.7 | | | $ | 48.6 | | | $ | (5.4) | | | $ | 325.6 | | | $ | 1,954.5 | | | 20.5 | % | | 23.3 | % |
Domestic | 1,048.4 | | | — | | | (3.8) | | | 180.7 | | | 1,225.3 | | | 17.2 | % | | 16.9 | % |
International | 537.3 | | | 48.6 | | | (1.6) | | | 144.9 | | | 729.2 | | | 27.0 | % | | 35.7 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 1,503.2 |
| | $ | 8.7 |
| | $ | (22.4 | ) | | $ | 30.7 |
| | $ | 1,520.2 |
| | 2.0 | % | | 1.1 | % |
Domestic | 893.8 |
| | 0.0 |
| | (17.4 | ) | | 31.6 |
| | 908.0 |
| | 3.5 | % | | 1.6 | % |
International | 609.4 |
| | 8.7 |
| | (5.0 | ) | | (0.9 | ) | | 612.2 |
| | (0.1 | )% | | 0.5 | % |
DuringThe organic increase during the thirdsecond quarter of 2017, IAN revenue increased2021 was driven by $17.0 compared to the third quarter of 2016, comprised of an organic revenue increase of $30.7 and a favorable foreign currency rate impact of $8.7, partially offset by the effect of net divestitures of $22.4. The organic revenue increase was primarily attributable to growth within the healthcare sector, partially offset by decreaseshigher spending from existing clients across all sectors, most notably in the financial services andhealthcare, technology and telecom, sectors.retail, and auto and transportation sectors, which also increased due to net client wins. The 17.2% organic revenue increase in our domestic market was mainly driven by our media and advertising businesses, partially offset by a decline within our digital specialist agencies. In our international markets,during the slight organic revenue decrease was primarily attributable to decreases at our advertising businesses in Latin America, most notably in Brazil, and the Asia Pacific region, as well as a decline in our digital specialist agencies in the United Kingdom, partially offset by growth across all regions at our media businesses as well as growth at our advertising businesses in the United Kingdom.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Nine months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Nine months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 4,453.3 |
| | $ | (15.9 | ) | | $ | (49.1 | ) | | $ | 77.3 |
| | $ | 4,465.6 |
| | 1.7 | % | | 0.3 | % |
Domestic | 2,675.9 |
| | 0.0 |
| | (36.0 | ) | | 67.7 |
| | 2,707.6 |
| | 2.5 | % | | 1.2 | % |
International | 1,777.4 |
| | (15.9 | ) | | (13.1 | ) | | 9.6 |
| | 1,758.0 |
| | 0.5 | % | | (1.1 | )% |
During the first nine monthssecond quarter of 2017, IAN revenue increased by $12.3 compared to the first nine months of 2016, comprised of an organic revenue increase of $77.3, partially offset by the effect of net divestitures of $49.1 and an adverse foreign currency rate impact of $15.9. The organic revenue increase was primarily attributable to growth within the healthcare sector, partially offset by decreases in the financial services and technology and telecom sectors. The organic revenue increase2021 in our domestic market was driven by growth across all disciplines, most notably atin our mediaadvertising and advertisingmedia businesses. In our international markets, the 27.0% organic increase was primarily driven by growthstrong performance at our media businesses across all regions, most notably in Canada within our Other region and in Latin America,advertising businesses as well as our advertising businesses in the United Kingdom, partially offset by decreases at our advertising businesses in the Asia Pacific and Latin Americadigital project-based offerings throughout all geographic regions.
|
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Segment operating income | $ | 183.9 |
| | $ | 184.1 |
| | (0.1 | )% | | $ | 402.1 |
| | $ | 424.1 |
| | (5.2 | )% |
Operating margin | 12.1 | % | | 12.2 | % | | | | 9.0 | % | | 9.5 | % | | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Six months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Six months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 3,250.2 | | | $ | 71.4 | | | $ | (11.4) | | | $ | 378.4 | | | $ | 3,688.6 | | | 11.6 | % | | 13.5 | % |
Domestic | 2,160.3 | | | 0.0 | | | (8.1) | | | 186.6 | | | 2,338.8 | | | 8.6 | % | | 8.3 | % |
International | 1,089.9 | | | 71.4 | | | (3.3) | | | 191.8 | | | 1,349.8 | | | 17.6 | % | | 23.8 | % |
Operating income decreased during the third quarter of 2017 when compared to the third quarter of 2016, due to anThe organic increase in revenue of $17.0, as discussed above, and a decrease in office and general expenses of $5.9, offset by an increase in salaries and related expenses of $23.1. The increase in salaries and related expenses was primarily due to an increase in base salaries, benefits and tax, partially offset by lower incentive expense. The decrease in office and general expenses was attributable to lower production expenses related to pass-through costs, which are also reflected in revenue, and lower bad debt expense, partially offset by higher occupancy costs.
Operating income decreased during the first nine monthshalf of 2017 when compared2021 was mainly attributable to a combination of higher spending from existing clients and net client wins in the healthcare, retail, auto and transportation, and technology and telecom sectors. The organic increases during the first nine monthshalf of 2016, comprised of an increase in revenue of $12.3, as discussed above, and a decrease in office and general expenses of $18.1, offset by an increase in salaries and related expenses of $52.4. The increase in salaries and related expenses was primarily driven by factors similar to those noted above for the third quarter of 2017, partially offset by lower acquisition-related contractual compensation. The decrease in office and general expenses was primarily driven by factors similar to those noted above for the third quarter of 2017.
CMG
REVENUE
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 419.0 |
| | $ | (1.0 | ) | | $ | (14.8 | ) | | $ | (20.8 | ) | | $ | 382.4 |
| | (5.0 | )% | | (8.7 | )% |
Domestic | 272.1 |
| | 0.0 |
| | (7.6 | ) | | (16.5 | ) | | 248.0 |
| | (6.1 | )% | | (8.9 | )% |
International | 146.9 |
| | (1.0 | ) | | (7.2 | ) | | (4.3 | ) | | 134.4 |
| | (2.9 | )% | | (8.5 | )% |
During the third quarter of 2017, CMG revenue decreased by $36.6 compared to the third quarter of 2016, due to an organic revenue decrease of $20.8, the effect of net divestitures of $14.8 and an adverse foreign currency rate impact of $1.0. The organic revenue decreases2021 in our domestic market of 8.6% and our international markets were primarily driven by a decrease in pass-through revenue related to certain projects where we acted as principal that decreased in size or did not recur in our events businesses during the third quartermarket of 2017, the impact of which is also reflected as a comparable reduction in office and general expenses.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Nine months ended September 30, 2016 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Nine months ended September 30, 2017 | Organic | | Total |
Consolidated | $ | 1,128.8 |
| | $ | (14.8 | ) | | $ | (24.7 | ) | | $ | (13.5 | ) | | $ | 1,075.8 |
| | (1.2 | )% | | (4.7 | )% |
Domestic | 750.3 |
| | 0.0 |
| | (16.5 | ) | | (13.1 | ) | | 720.7 |
| | (1.7 | )% | | (3.9 | )% |
International | 378.5 |
| | (14.8 | ) | | (8.2 | ) | | (0.4 | ) | | 355.1 |
| | (0.1 | )% | | (6.2 | )% |
During the first nine months of 2017, CMG revenue decreased by $53.0 compared to the first nine months of 2016, comprised of an organic revenue decrease of $13.5, the effect of net divestitures of $24.7 and an adverse foreign currency rate impact of $14.8. The organic revenue decreases in our domestic and international markets17.6% were primarily driven by factors similar to those noted above for the thirdsecond quarter of 2017, partially offset by growth at our sports marketing businesses2021.
Segment EBITA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Segment EBITA 1 | $ | 382.9 | | $ | 100.4 | | >100% | | $ | 637.2 | | $ | 199.4 | | >100% |
Segment EBITA margin on net revenue 1 | 19.6 | % | | 6.3 | % | | | | 17.3 | % | | 6.1 | % | | |
1 Segment EBITA and Segment EBITA margin on net revenue include restructuring charges of $0.5 in all regions.the six months ended June 30, 2021, respectively, and $68.8 in the three and six months ended June 30, 2020, respectively. See “Restructuring Charges” in this MD&A and Note 7 to the unaudited Consolidated Financial Statements for further information.
SEGMENT OPERATING INCOME
|
| | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Segment operating income | $ | 50.1 |
| | $ | 54.8 |
| | (8.6 | )% | | $ | 127.4 |
| | $ | 125.2 |
| | 1.8 | % |
Operating margin | 13.1 | % | | 13.1 | % | | | | 11.8 | % | | 11.1 | % | | |
Operating income decreasedSegment EBITA margin expanded during the thirdsecond quarter of 2017 when2021 compared to the third quarter of 2016, comprised of a decreaseprior-year period, as the increase in net revenue, of $36.6, as discussed above, a decreaseoutpaced the overall increase in officeour operating expense, excluding billable expenses and general expensesamortization of $21.0 and a decreaseacquired intangibles. Net revenue growth of 23.3% outpaced the increase in salaries and related expenses of $10.9. The decrease in office and general expenses wasas compared to the prior-year period, primarily due to lower production expensesleverage in base salaries, benefits and tax, partially offset by increased incentive expense, primarily related to pass-through costs, which are also reflectedbetter-than-projected performance, and increased temporary help expense. Severance expense decreased primarily as a result of the initiatives taken in revenue,the comparable prior-year quarter. Office and other direct expense decreased mainly due to lower bad debt expense and a change in year-over-year contingent acquisition obligations, as well as decreasessavings on occupancy expense as a result of our real estate restructuring actions taken in adjustments2020. During the second quarter of 2020, segment EBITA included restructuring charges of $68.8.
Segment EBITA margin increased during the first half of 2021 when compared to contingent acquisition obligations,the prior-year period, as net revenue increased 13.5% while operating expenses, excluding billable expenses and amortization of acquired intangibles, remained flat. Net revenue growth outpaced the increase in salaries and related expenses as compared to the prior year. Theyear period, mainly due to factors similar to those noted above for the second quarter of 2021. Office and other direct expenses decreased mainly due to factors similar to those noted above for the second quarter of 2021 in addition to a decrease in salariestravel and related expensesentertainment expenses. During the first half of 2021, segment EBITA included restructuring charges of $0.5, compared to restructuring charges of $68.8 during the first half of 2020.
Depreciation and amortization, excluding amortization of acquired intangibles, as a percentage of net revenue was primarily due2.2% and 2.3% during the second quarter and first half of 2021, respectively, which decreased compared to the prior-year periods.
DXTRA
Net Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Three months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Three months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 267.7 | | | $ | 9.5 | | | $ | (2.6) | | | $ | 40.5 | | | $ | 315.1 | | | 15.1 | % | | 17.7 | % |
Domestic | 178.8 | | | — | | | (1.0) | | | 32.4 | | | 210.2 | | | 18.1 | % | | 17.6 | % |
International | 88.9 | | | 9.5 | | | (1.6) | | | 8.1 | | | 104.9 | | | 9.1 | % | | 18.0 | % |
The organic increase during the second quarter of 2021 was mainly attributable to net divestitureshigher spending from existing clients in the auto and transportation, food and beverage and consumer goods sectors. The organic increase during the second quarter
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
of 2021 in our domestic market was driven by revenue increases at our public relations agencies and sports and experiential marketing businesses. In our international market, the organic increase was primarily driven by growth across all disciplines, most notably in the United Kingdom and Continental Europe regions.
Operating income increased | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Components of Change | | | | Change |
| Six months ended June 30, 2020 | Foreign Currency | | Net Acquisitions/ (Divestitures) | | Organic | | Six months ended June 30, 2021 | Organic | | Total |
Consolidated | $ | 575.3 | | | $ | 16.0 | | | $ | (8.3) | | | $ | 25.7 | | | $ | 608.7 | | | 4.5 | % | | 5.8 | % |
Domestic | 386.9 | | | — | | | (4.1) | | | 23.7 | | | 406.5 | | | 6.1 | % | | 5.1 | % |
International | 188.4 | | | 16.0 | | | (4.2) | | | 2.0 | | | 202.2 | | | 1.1 | % | | 7.3 | % |
The organic increase during the first nine monthshalf of 2017 when compared2021 was mainly attributable to higher spending from existing clients in the food and beverage, consumer goods, and auto and transportation sectors. The organic increase during the first nine monthshalf of 2016, comprised of a decrease2021 in revenue of $53.0, as discussed above, a decrease in office and general expenses of $35.0 and a decrease in salaries and related expenses of $20.2. The decreases in office and general and salaries and related expenses were primarilyour domestic market was driven by the factors similar to those noted above for the thirdsecond quarter of 2017.2021. The organic increase during the first half of 2021 in our international market was primarily driven by increases at our public relations agencies and brand consultancy businesses, primarily in the United Kingdom, partially offset by revenue decreases at our sports and experiential marketing businesses, primarily in Asia Pacific region.
Segment EBITA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Segment EBITA 1 | $ | 54.7 | | $ | (26.3) | | >100% | | $ | 95.1 | | $ | (4.0) | | >100% |
Segment EBITA margin on net revenue 1 | 17.4 | % | | (9.8) | % | | | | 15.6 | % | | (0.7) | % | | |
1 Segment EBITA and Segment EBITA margin on net revenue include restructuring charges of $(0.3) and $0.5 in the three and six months ended June 30, 2021, respectively, and $36.7 in the three and six months ended June 30, 2020, respectively. See “Restructuring Charges” in this MD&A and Note 7 to the unaudited Consolidated Financial Statements for further information.
Segment EBITA margin increased during the second quarter of 2021 compared to the prior-year period, as net revenue increased, as discussed above, and our operating expenses, excluding billable expenses and amortization of acquired intangibles, decreased. Net revenue growth of 17.7% outpaced the increase in salaries and related expenses, as compared to the prior-year period, primarily due to leverage in base salaries, benefits and tax and severance expense as a result of the initiatives taken in the comparable prior-year quarter, partially offset by increased incentive expense, primarily related to better-than-projected performance, and increased temporary help expense. Office and other direct expense decreased mainly due to a change in year-over-year contingent acquisition obligations and a decrease in new business and promotion expenses, as well as savings on occupancy expense as a result of our real estate restructuring actions taken in 2020. During the second quarter of 2021, segment EBITA included restructuring charges of $(0.3) compared to restructuring charges of $36.7 during the second quarter of 2020.
Segment EBITA margin increased during the first half of 2021 when compared to the prior-year period, as net revenue increased 5.8% while operating expenses, excluding billable expenses and amortization of acquired intangibles, decreased. Net revenue growth outpaced the increase in salaries and related expenses as compared to the prior year period, mainly due to factors similar to those noted above for the second quarter of 2021. Office and other direct expenses decreased mainly due to factors similar to those noted above for the second quarter of 2021, in addition to a decrease in travel and entertainment expense. During the first half of 2021, segment EBITA included restructuring charges of $0.5 compared to the restructuring charges of $36.7 during the first half of 2020.
Depreciation and amortization, excluding amortization of acquired intangibles, as a percentage of net revenue was 1.4% during the second quarter and first half of 2021, which decreased as compared to the prior-year periods.
CORPORATE AND OTHER
Certain corporateCorporate and other charges are reported as separate line items within total segment operating income (loss)Other is primarily comprised of selling, general and includeadministrative expenses including corporate office expenses as well as shared service center and certain other centrally managed expenses that are not fully allocated to operating divisions. Salaries and related expenses includedivisions; salaries, long-term incentives, annual bonuses and other miscellaneous benefits for corporate office employees. Office and general expenses primarily includeemployees; professional fees related to internal control compliance, financial statement audits and legal, information technology and other
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
consulting services that are engaged and managed through the corporate office. Officeoffice; and general expenses also include rental expense and depreciation of leasehold improvements for properties occupied by corporate office employees. A portion of centrally managed expenses areis allocated to operating divisions based on a formula that uses the planned revenues of each of the operating units. Amounts allocated also include specific charges for information technology-related projects, which are allocated based on utilization.
During the second quarter of 2021, Corporate and otherOther expenses decreased during the third quarter of 2017increased by $16.0$19.8 to $14.9$31.6 compared to the third quarter of 2016,prior-year period, primarily due to lowerincreases in incentive expense and employee insurance expense. During the first nine monthshalf of 2017, corporate2021, Corporate and otherOther expenses decreasedincreased by $19.8$25.8 to $74.2$61.7 compared to the prior-year period, primarily attributable to factors similar to those noted for the second quarter of 2021 in addition to increases in professional consulting fees.
During the second quarter and first nine monthshalf of 2016, also primarily due2021, Corporate and Other expense included $0.1 of restructuring charges, compared to lower incentive expense.$7.1 of restructuring charges during the second quarter and first half of 2020.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW OVERVIEW
The following tables summarize key financial data relating to our liquidity, capital resources and uses of capital.
|
| | | | | | | |
| Nine months ended September 30, |
Cash Flow Data | 2017 | | 2016 |
Net income, adjusted to reconcile to net cash used in operating activities 1 | $ | 494.9 |
| | $ | 538.4 |
|
Net cash used in working capital 2 | (612.5 | ) | | (491.8 | ) |
Changes in other non-current assets and liabilities using cash | (21.4 | ) | | (73.5 | ) |
Net cash used in operating activities | $ | (139.0 | ) | | $ | (26.9 | ) |
Net cash used in investing activities | $ | (140.5 | ) | | $ | (167.5 | ) |
Net cash used in financing activities | $ | (113.1 | ) | | $ | (466.9 | ) |
| | | | | | | | | | | |
| Six months ended June 30, |
Cash Flow Data | 2021 | | 2020 |
Net income, adjusted to reconcile to net cash provided by (used in) operating activities 1 | $ | 683.0 | | | $ | 286.4 | |
Net cash used in working capital 2 | (395.3) | | | (636.5) | |
Changes in other assets and liabilities using cash | (69.3) | | | (14.1) | |
Net cash provided by (used in) operating activities | $ | 218.4 | | | $ | (364.2) | |
Net cash used in investing activities | (43.1) | | | (93.3) | |
Net cash (used in) provided by financing activities | (314.5) | | | 377.7 | |
| |
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, net losses on sales of businesses and deferred income taxes. |
| |
2 | Reflects changes in accounts receivable, expenditures billable to clients, other current assets, accounts payable and accrued liabilities. |
1Reflects net income (loss) adjusted primarily for depreciation and amortization of fixed assets and intangible assets, loss on early extinguishment of debt, deferred income taxes, amortization of restricted stock and other non-cash compensation, net losses on sales of businesses and non-cash restructuring charges.
2Reflects changes in accounts receivable, other current assets, accounts payable, accrued liabilities and contract liabilities.
Operating Activities
Net cash used in operating activities during the first nine months of 2017 was $139.0, which was an increase of $112.1 as compared to the first nine months of 2016 driven by higher use of cash in working capital. Working capital in the first nine months of 2016 benefited from the spending patterns of our clients compared to the first nine months of 2017. Due to the seasonality of our business, we typically use cash from working capital in the first nine months of a year, with the largest impact in the first quarter, and generate cash from working capital in the fourth quarter, of a year. Thedriven by the seasonally strong media spending by our clients. Quarterly and annual working capital use inresults are impacted by the first nine monthsfluctuating annual media spending budgets of 2017 was primarily attributable to our clients as well as their changing media businesses.spending patterns throughout each year across various countries.
The timing of media buying on behalf of our clients across various countries affects our working capital and operating cash flow and can be volatile. In most of our businesses, our agencies enter into commitments to pay production and media costs on behalf of clients. To the extent possible, we pay production and media charges after we have received funds from our clients. The amounts involved, which substantially exceed our revenues, and primarily affect the level of accounts receivable, expenditures billable to clients, accounts payable, accrued liabilities and accruedcontract liabilities. Our assets include both cash received and accounts receivable from clients for these pass-through arrangements, while our liabilities include amounts owed on behalf of clients to media and production suppliers.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
Our accrued liabilities are also affected by the timing of certain other payments. For example, while annual cash incentive awards are accrued throughout the year, they are generally paid during the first quarter of the subsequent year.
The effect of foreign exchange rate changes on cash, cash equivalents and restricted cash included in the unaudited Consolidated Statements of Cash Flows resulted in a net increasedecrease of $0.4$27.9 during the first nine monthshalf of 2017.
We expect our cash flow from operations and existing cash and cash equivalents to be sufficient to meet our anticipated operating requirements at a minimum for the next twelve months. We also have a commercial paper program, a committed corporate credit facility, and uncommitted lines of credit and a commercial paper program available to support our operating needs. Borrowings under our commercial paper program are supported by our committed corporate credit agreement. We continue to maintain a disciplined approach to managing liquidity, with flexibility over significant uses of cash, including our capital expenditures, cash used for new acquisitions, our common stock repurchase program and our common stock dividends.
From time to time, we evaluate market conditions and financing alternatives for opportunities to raise additional funds or otherwise improve our liquidity profile, enhance our financial flexibility and manage market risk. Our ability to access the capital markets depends on a number of factors, which include those specific to us, such as our credit ratings, and those related to the financial markets, such as the amount or terms of available credit. There can be no guarantee that we would be able to access new sources of liquidity, or continue to access existing sources of liquidity, on commercially reasonable terms, or at all.
Our most significant funding requirements include our operations, non-cancelable operating lease obligations, capital expenditures, acquisitions, common stock dividends, taxes, and debt service. Additionally, we may be required to make payments to minority shareholders in certain subsidiaries if they exercise their options to sell us their equity interests.
share, and there is no significant change in the number of outstanding shares as of SeptemberJune 30, 2017,2021, we would expect to pay approximately $280.0$425.0 over the next twelve months. Whether to declare and the amount of any such future dividend is at the discretion of our Board of Directors and will depend upon factors such as our earnings, financial position and cash requirements.
Substantially all of our operating cash flow is generated by our agencies. Our cash balances are held in numerous jurisdictions throughout the world, including at the holding company level. Below is a summary of our sources of liquidity.
We use our Credit Agreement to increase our financial flexibility, to provide letters of credit primarily to support obligations of our subsidiaries and to support our commercial paper program. The Credit Agreement is a revolving facility, expiring in November 2024, 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 $1,500.0, or the equivalent in other currencies. The Company has the ability to increase the commitments under the Credit Agreement from time to time by an additional amount of up to $250.0, provided the Company receives commitments for such increases and satisfies certain other conditions. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit on letters of credit of $200.0,$50.0, or the equivalent in other specified currencies. Our obligations under the Credit Agreement are unsecured. As of SeptemberJune 30, 2017,2021, there were no borrowings under the Credit Agreement; however, we had $8.4$10.0 of letters of credit under the Credit Agreement, which reduced our total availability to $991.6.$1,490.0.
We aggregate our domestic cash position on a daily basis. Outside the United States, we use cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, several IPG agencies agree with a single bank that the cash balances of any of the agencies with the bank will be subject to a full right of set-off against amounts that other agencies owe the bank, and the bank provides for overdrafts as long as the net balance for all the agencies does not exceed an agreed-upon level. Typically, each agency pays interest on outstanding overdrafts and receives interest on cash balances. Our unaudited Consolidated Balance Sheets reflect cash, net of bank overdrafts, under all of our pooling arrangements, and as of SeptemberJune 30, 2017,2021, the amount netted was $1,567.0.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
There has been no change in internal control over financial reporting in the quarter ended SeptemberJune 30, 2017,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.