INTERPUBLIC GROUP OF COMPANIES, INC. - Quarter Report: 2013 June (Form 10-Q)

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Non-accelerated filer

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2013



	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-6686

THE INTERPUBLIC GROUP OF COMPANIES, INC.

(Exact name of registrant as specified in its charter)



Delaware		13-1024020
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1114 Avenue of the Americas, New York, New York 10036

(Address of principal executive offices) (Zip Code)

(212) 704-1200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

The number of shares of the registrant’s common stock outstanding as of July 15, 2013 was 422,150,896.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012	2
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012	3
	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	5
	Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2013 and 2012	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6.	Exhibits	34
SIGNATURES		35
INDEX TO EXHIBITS		36

INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE

This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or comparable terminology are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update publicly any of them in light of new information or future events.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:


•	potential effects of a challenging economy, for example, on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;


•	our ability to attract new clients and retain existing clients;


•	our ability to retain and attract key employees;


•	risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions associated with any effects of a weakened economy;


•	potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;


•	risks associated with the effects of global, national and regional economic and political conditions, including counterparty risks and fluctuations in economic growth rates, interest rates and currency exchange rates; and


•	developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.

Investors should carefully consider these factors and the additional risk factors outlined in more detail under Item 1A, Risk Factors, in our most recent annual report on Form 10-K.

Table of Contents

Part I – FINANCIAL INFORMATION



Item 1.	Financial Statements (Unaudited)

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
REVENUE	$	1,756.2		$	1,715.7		$	3,299.2		$	3,222.5

OPERATING EXPENSES:
Salaries and related expenses	1,120.2			1,088.9			2,252.3			2,193.8
Office and general expenses	461.2			450.4			914.5			891.7
Total operating expenses	1,581.4			1,539.3			3,166.8			3,085.5

OPERATING INCOME	174.8			176.4			132.4			137.0

EXPENSES AND OTHER INCOME:
Interest expense	(37.5		)	(32.7		)	(74.3		)	(65.3		)
Interest income	5.8			6.7			12.2			14.7
Other income, net	4.8			4.7			6.6			3.4
Total (expenses) and other income	(26.9		)	(21.3		)	(55.5		)	(47.2		)

Income before income taxes	147.9			155.1			76.9			89.8
Provision for income taxes	62.0			50.1			49.6			30.9
Income of consolidated companies	85.9			105.0			27.3			58.9
Equity in net income of unconsolidated affiliates	0.2			0.5			0.3			0.9
NET INCOME	86.1			105.5			27.6			59.8
Net income attributable to noncontrolling interests	(3.3		)	(3.6		)	(1.1		)	(0.9		)
NET INCOME ATTRIBUTABLE TO IPG	82.8			101.9			26.5			58.9
Dividends on preferred stock	(2.9		)	(2.9		)	(5.8		)	(5.8		)
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS	$	79.9		$	99.0		$	20.7		$	53.1

Earnings per share available to IPG common stockholders:
Basic	$	0.19		$	0.23		$	0.05		$	0.12
Diluted	$	0.18		$	0.22		$	0.05		$	0.12

Weighted-average number of common shares outstanding:
Basic	425.1			437.4			419.7			437.5
Diluted	448.3			477.7			425.1			459.7

Dividends declared per common share	$	0.075		$	0.060		$	0.15		$	0.12

The accompanying notes are an integral part of these unaudited financial statements.

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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in Millions)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
NET INCOME	$	86.1		$	105.5		$	27.6		$	59.8

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments	(74.5		)	(66.3		)	(113.3		)	(21.2		)

Available-for-sale securities:
Changes in market value of available-for-sale securities	0.4			135.0			0.8			135.5
Less: recognition of previously unrealized (gains) losses included in net income	(0.4		)	0.0			(1.4		)	0.6
Income tax effect	0.1			(50.6		)	0.2			(50.6		)
	0.1			84.4			(0.4		)	85.5

Derivative instruments:
Changes in fair value of derivative instruments	0.0			(15.8		)	0.0			(18.6		)
Less: recognition of previously unrealized losses in net income	0.5			0.0			0.9			0.0
Income tax effect	(0.2		)	7.7			(0.4		)	7.7
	0.3			(8.1		)	0.5			(10.9		)

Defined benefit pension and other postretirement plans:
Net actuarial gains for the period	1.1			1.3			0.0			1.0
Less: amortization of unrecognized losses, transition obligation and prior service cost included in net income	2.7			1.8			5.5			3.7
Other	(0.2		)	0.0			(0.7		)	(0.1		)
Income tax effect	(1.3		)	(1.2		)	(2.0		)	(1.7		)
	2.3			1.9			2.8			2.9

Other comprehensive (loss) income, net of tax	(71.8		)	11.9			(110.4		)	56.3
TOTAL COMPREHENSIVE INCOME (LOSS)	14.3			117.4			(82.8		)	116.1
Less: comprehensive income (loss) attributable to noncontrolling interests	1.5			2.0			(1.9		)	(0.2		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO IPG	$	12.8		$	115.4		$	(80.9	)	$	116.3

The accompanying notes are an integral part of these unaudited financial statements.

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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Millions)

(Unaudited)



	June 30, 2013			December 31, 2012
ASSETS:
Cash and cash equivalents	$	1,613.9		$	2,574.8
Marketable securities	4.6			16.0
Accounts receivable, net of allowance of $62.2 and $59.0	4,047.8			4,496.6
Expenditures billable to clients	1,545.9			1,318.8
Other current assets	391.9			332.1
Total current assets	7,604.1			8,738.3
Furniture, equipment and leasehold improvements, net of accumulated depreciation of $1,144.6 and $1,134.9	475.9			504.8
Deferred income taxes	178.4			160.5
Goodwill	3,580.7			3,580.6
Other non-current assets	497.6			509.7
TOTAL ASSETS	$	12,336.7		$	13,493.9

LIABILITIES:
Accounts payable	$	5,891.0		$	6,584.8
Accrued liabilities	548.6			728.2
Short-term borrowings	186.0			172.1
Current portion of long-term debt	594.8			216.6
Total current liabilities	7,220.4			7,701.7
Long-term debt	1,478.6			2,060.8
Deferred compensation	471.7			489.0
Other non-current liabilities	558.6			558.6
TOTAL LIABILITIES	9,729.3			10,810.1

Redeemable noncontrolling interests (see Note 5)	231.0			227.2

STOCKHOLDERS’ EQUITY:
Preferred stock	221.5			221.5
Common stock	51.1			48.8
Additional paid-in capital	2,735.7			2,465.4
Retained earnings	696.5			738.3
Accumulated other comprehensive loss, net of tax	(395.4		)	(288.0		)
	3,309.4			3,186.0
Less: Treasury stock	(965.1		)	(765.4		)
Total IPG stockholders’ equity	2,344.3			2,420.6
Noncontrolling interests	32.1			36.0
TOTAL STOCKHOLDERS’ EQUITY	2,376.4			2,456.6
TOTAL LIABILITIES AND EQUITY	$	12,336.7		$	13,493.9

The accompanying notes are an integral part of these unaudited financial statements.

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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Millions)

(Unaudited)



	Six months ended June 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	27.6		$	59.8
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of fixed assets and intangible assets	77.4			71.4
Provision for uncollectible receivables	7.4			9.1
Amortization of restricted stock and other non-cash compensation	24.9			29.4
Net amortization of bond discounts (premiums) and deferred financing costs	4.0			(0.7		)
Deferred income tax benefit	(14.3		)	(43.4		)
Other	(11.5		)	8.8
Changes in assets and liabilities, net of acquisitions and dispositions, providing (using) cash:
Accounts receivable	330.5			675.1
Expenditures billable to clients	(255.7		)	(278.2		)
Other current assets	(56.4		)	(46.0		)
Accounts payable	(573.4		)	(622.2		)
Accrued liabilities	(150.3		)	(189.9		)
Other non-current assets and liabilities	(1.6		)	(13.8		)
Net cash used in operating activities	(591.4		)	(340.6		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, including deferred payments, net of cash acquired	(48.2		)	(51.6		)
Capital expenditures	(46.8		)	(58.2		)
Net sales (purchases) and maturities of short-term marketable securities	11.6			(0.3		)
Proceeds from sales of businesses and investments, net of cash sold	3.1			12.6
Other investing activities	(2.1		)	(0.1		)
Net cash used in investing activities	(82.4		)	(97.6		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of long-term debt	(1.2		)	(400.5		)
Proceeds from issuance of long-term debt	0.0			246.8
Repurchase of common stock	(180.6		)	(118.1		)
Common stock dividends	(62.7		)	(52.3		)
Exercise of stock options	31.5			7.7
Acquisition-related payments	(26.8		)	(34.5		)
Net increase in short-term bank borrowings	19.1			28.5
Distributions to noncontrolling interests	(7.0		)	(9.0		)
Preferred stock dividends	(5.8		)	(5.8		)
Excess tax benefit on share-based compensation	7.4			0.0
Other financing activities	0.1			(3.9		)
Net cash used in financing activities	(226.0		)	(341.1		)
Effect of foreign exchange rate changes on cash and cash equivalents	(61.1		)	(21.4		)
Net decrease in cash and cash equivalents	(960.9		)	(800.7		)
Cash and cash equivalents at beginning of period	2,574.8			2,302.7
Cash and cash equivalents at end of period	$	1,613.9		$	1,502.0

The accompanying notes are an integral part of these unaudited financial statements.

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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in Millions)

(Unaudited)



	Preferred Stock		Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Tax			Treasury Stock			Total IPG Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
			Shares		Amount
Balance at December 31, 2012	$	221.5	492.0		$	48.8		$	2,465.4		$	738.3		$	(288.0	)	$	(765.4	)	$	2,420.6		$	36.0		$	2,456.6
Net income											26.5									26.5			1.1			27.6
Other comprehensive loss														(107.4		)				(107.4		)	(3.0		)	(110.4		)
Reclassifications related to redeemable noncontrolling interests																							3.6			3.6
Distributions to noncontrolling interests																							(7.0		)	(7.0		)
Change in redemption value of redeemable noncontrolling interests											0.6									0.6						0.6
Repurchase of common stock																	(180.6		)	(180.6		)				(180.6		)
Common stock dividends											(62.7		)							(62.7		)				(62.7		)
Preferred stock dividends											(5.8		)							(5.8		)				(5.8		)
Conversion of convertible notes to common stock			16.9		1.7			198.3												200.0						200.0
Capped call transaction								19.1									(19.1		)	0.0						0.0
Stock-based compensation			2.4		0.4			32.1												32.5						32.5
Exercise of stock options			3.5		0.4			31.5												31.9						31.9
Shares withheld for taxes			(1.5	)	(0.2		)	(19.4		)										(19.6		)				(19.6		)
Excess tax benefit from stock-based compensation								6.8												6.8						6.8
Other								1.9			(0.4		)							1.5			1.4			2.9
Balance at June 30, 2013	$	221.5	513.3		$	51.1		$	2,735.7		$	696.5		$	(395.4	)	$	(965.1	)	$	2,344.3		$	32.1		$	2,376.4

The accompanying notes are an integral part of these unaudited financial statements.

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THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY – (CONTINUED)

(Amounts in Millions)

(Unaudited)



	Preferred Stock		Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Tax			Treasury Stock			Total IPG Stockholders’ Equity			Noncontrolling Interests			Total Stockholders’ Equity
			Shares		Amount
Balance at December 31, 2011	$	221.5	491.4		$	48.2		$	2,427.5		$	405.1		$	(225.7	)	$	(414.9	)	$	2,461.7		$	35.6		$	2,497.3
Net income											58.9									58.9			0.9			59.8
Other comprehensive income														57.4						57.4			(1.1		)	56.3
Reclassifications related to redeemable noncontrolling interests								12.0												12.0			3.7			15.7
Noncontrolling interest transactions																							(0.8		)	(0.8		)
Distributions to noncontrolling interests																							(9.0		)	(9.0		)
Change in redemption value of redeemable noncontrolling interests											3.1									3.1						3.1
Repurchase of common stock																	(118.1		)	(118.1		)				(118.1		)
Common stock dividends											(52.3		)							(52.3		)				(52.3		)
Preferred stock dividends											(5.8		)							(5.8		)				(5.8		)
Stock-based compensation			1.7		0.6			20.8												21.4						21.4
Exercise of stock options			0.8		0.1			7.7												7.8						7.8
Shares withheld for taxes			(2.0	)	(0.2		)	(22.9		)										(23.1		)				(23.1		)
Other								1.8			(0.8		)							1.0			(0.9		)	0.1
Balance at June 30, 2012	$	221.5	491.9		$	48.7		$	2,446.9		$	408.2		$	(168.3	)	$	(533.0	)	$	2,424.0		$	28.4		$	2,452.4

The accompanying notes are an integral part of these unaudited financial statements.

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Notes to Consolidated Financial Statements

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 1: Basis of Presentation

The unaudited Consolidated Financial Statements have been prepared by The Interpublic Group of Companies, Inc. and its subsidiaries (the “Company,” “IPG,” “we,” “us” or “our”) in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, they do not include certain information and disclosures required for complete financial statements. The preparation of financial statements in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with our 2012 Annual Report on Form 10-K.

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 have been made to prior-period financial statements to conform to the current-period presentation.

Note 2: Debt and Credit Arrangements

Long-Term Debt

A summary of the carrying amounts and fair values of our long-term debt is listed below.



	Effective Interest Rate	June 30, 2013				December 31, 2012
	Effective Interest Rate	Book Value		Fair Value ¹		Book Value		Fair Value ¹
6.25% Senior Unsecured Notes due 2014 (less unamortized discount of $0.1)	6.29%	$	352.0	$	371.0	$	352.8	$	372.6
10.00% Senior Unsecured Notes due 2017 (less unamortized discount of $7.4 )	10.38%	592.6		630.8		591.9		660.8
2.25% Senior Notes due 2017 (less unamortized discount of $0.6)	2.30%	299.4		293.5		299.3		297.8
4.00% Senior Notes due 2022 (less unamortized discount of $2.7)	4.13%	247.3		241.0		247.1		258.7
3.75% Senior Notes due 2023 (less unamortized discount of $1.4)	4.32%	498.6		464.2		498.5		499.7
4.75% Convertible Senior Notes due 2023		0.0		0.0		200.5		202.8
Other notes payable and capitalized leases		83.5		81.6		87.3		90.8
Total long-term debt		2,073.4				2,277.4
Less: current portion ²		594.8				216.6
Long-term debt, excluding current portion		$	1,478.6			$	2,060.8


¹	See Note 11 for information on the fair value measurement of our long-term debt.

In June 2013, we exercised our option to redeem all of the 10.00% Senior Unsecured Notes due 2017 (the "10.00% Notes") on July 15, 2013, as such, we included our 10.00% Notes in the current portion of long-term debt on our June 30, 2013 unaudited Consolidated Balance Sheet. We included our 4.75% Convertible Senior Notes due 2023 (the “4.75% Notes”) in the current portion of long-term debt on our December 31, 2012 Consolidated Balance Sheet because holders of the 4.75% Notes had an option to require us to repurchase their Notes for cash, stock or a combination, at our election, at par on March 15, 2013. The 4.75% Notes were retired in the first quarter of 2013.

Debt Transactions

10.00% Senior Unsecured Notes due 2017

In June 2013, we announced the exercise of the Company's option to redeem for cash all of the 10.00% Notes, of which an aggregate principal amount of $600.0 was outstanding. The redemption was on July 15, 2013. The redemption price was equal to 105% of the aggregate principal amount of the 10.00% Notes. See Note 14 for further information regarding subsequent events.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

4.75% Convertible Senior Notes due 2023

In March 2013, we retired all $200.0 in aggregate principal amount of our 4.75% Notes. Of the amount retired, $199.997 in aggregate principal amount of the 4.75% Notes was converted, at the election of the holders, into Interpublic common stock at a conversion rate of 84.3402 shares (actual number) per $1,000 (actual number) principal amount, or approximately 16.9 shares.

Capped Call

In November 2010, we purchased capped call options to hedge the risk of price appreciation on the shares of our common stock into which our 4.75% Notes were convertible. In March 2013, we exercised our capped call options and elected net share settlement. During the first half of 2013, we received a total of 1.5 settlement shares from the option counterparties.

Interest Rate Swaps

We enter into interest rate swaps to manage our exposure to changes in interest rates. In March and April 2012, we entered into forward-starting interest rate swap agreements with an aggregate notional amount of $300.0 to effectively lock in the benchmark rate for a forecasted issuance of debt to occur prior to December 31, 2013. These swaps qualified for hedge accounting as cash flow hedges, and, as such, the effective portion of the losses on the swaps was recorded in other comprehensive income and the ineffective portion of the losses on the swaps was recorded in other income, net. In November 2012, we terminated these swaps when we issued our 3.75% Senior Notes due 2022 (the "3.75% Notes"). The deferred losses on the swaps, recorded in accumulated other comprehensive loss, are amortized as an increase to interest expense over the term of the 3.75% Notes.

During the first half of 2013, we reclassified $0.9 from accumulated other comprehensive loss into interest expense. Over the next twelve months, we expect to reclassify $1.8 from accumulated other comprehensive loss into interest expense in our unaudited Consolidated Statements of Operations.

Credit Agreements

We maintain a committed corporate credit facility to increase our financial flexibility (the "Credit Agreement"). The Credit Agreement is a revolving facility expiring in May 2016, under which amounts borrowed by us or any of our subsidiaries designated under the Credit Agreement may be repaid and reborrowed, subject to an aggregate lending limit of $1,000.0 or the equivalent in other currencies. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit on letters of credit of $200.0 or the equivalent in other currencies. Our obligations under the Credit Agreement are unsecured.

We were in compliance with all of our covenants in the Credit Agreement as of June 30, 2013.

Note 3: Convertible Preferred Stock

The conversion rate of our 5¹/4% Series B Cumulative Convertible Perpetual Preferred Stock (the "Series B Preferred Stock")is subject to adjustment upon the occurrence of certain events, including the payment of cash dividends on our common stock. During the first quarter of 2013, the conversion rate per share for our Series B Preferred Stock was adjusted from 76.2197 to 77.1251 as a result of the cumulative effect of the cash dividends declared and paid on our common stock during the fourth quarter of 2012 and first quarter of 2013, resulting in a corresponding adjustment of the conversion price from $13.12 to $12.97. There was no additional adjustment required to the conversion rate in the second quarter of 2013.

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 4: Earnings Per Share

The following sets forth basic and diluted earnings per common share available to IPG common stockholders.



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Net income available to IPG common stockholders - basic	$	79.9	$	99.0	$	20.7	$	53.1
Adjustments: Effect of dilutive securities
Interest on 4.75% Notes ¹	0.0		1.0		0.0		0.0
Interest on 4.25% Notes ²	0.0		0.0		0.0		0.3
Preferred stock dividends	2.9		2.9		0.0		0.0
Net income available to IPG common stockholders - diluted	$	82.8	$	102.9	$	20.7	$	53.4


Weighted-average number of common shares outstanding - basic	425.1		437.4		419.7		437.5
Add: Effect of dilutive securities
Restricted stock, stock options and other equity awards	6.1		6.9		5.4		6.6
4.75% Notes ¹	0.0		16.7		0.0		0.0
4.25% Notes ²	0.0		0.0		0.0		15.6
Preferred stock outstanding	17.1		16.7		0.0		0.0
Weighted-average number of common shares outstanding - diluted	448.3		477.7		425.1		459.7


Earnings per share available to IPG common stockholders - basic	$	0.19	$	0.23	$	0.05	$	0.12
Earnings per share available to IPG common stockholders - diluted	$	0.18	$	0.22	$	0.05	$	0.12

¹ We retired all of our outstanding 4.75% Notes in March 2013. See Note 2 for further information on our 4.75% Notes. For purposes of calculating diluted earnings per share, the potentially dilutive shares are pro-rated based on the period they were outstanding.

² We retired all of our outstanding 4.25% Notes in March 2012. For purposes of calculating diluted earnings per share, the potentially dilutive shares are pro-rated based on the period they were outstanding.

The following table presents the potential shares excluded from the diluted earnings per share calculation because the effect of including these potential shares would be antidilutive.



	Three months ended June 30,		Six months ended June 30,
	2013	2012	2013	2012
4.75% Notes ¹	0.0	0.0	6.6	16.7
Preferred stock outstanding	0.0	0.0	17.1	16.7
Total	0.0	0.0	23.7	33.4

Securities excluded from the diluted earnings per share calculation because the exercise price was greater than the average market price:
Stock options ²	0.2	7.1	1.3	7.1


¹	We retired all of our outstanding 4.75% Notes in March 2013. See Note 2 for further information on our 4.75% Notes. For purposes of calculating diluted earnings per share, the potentially dilutive shares are pro-rated based on the period they were outstanding.


²	These options are outstanding at the end of the respective periods. In any period in which the exercise price is less than the average market price, these options have the potential to be dilutive, and application of the treasury stock method would reduce this amount.

Note 5: Acquisitions

We continue to evaluate strategic opportunities to expand our industry expertise, strengthen our position in high-growth and key strategic geographical markets and industry sectors, advance technological capabilities and improve 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. In addition, we have entered into agreements that may require us to purchase additional equity interests in certain

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

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, changes in foreign currency exchange rates and other factors.

During the first half of 2013, we completed eight acquisitions, including a full-service digital agency in India, a public relations consultancy in India and a mobile marketing agency in Australia. Of our eight acquisitions, seven were included in the Integrated Agency Networks (“IAN”) operating segment and one was included in the Constituency Management Group ("CMG") operating segment. During the first half of 2013, we recorded approximately $66.0 of goodwill and intangible assets related to these acquisitions.

During the first half of 2012, we completed six acquisitions, most notably a healthcare market research and consulting agency and a search marketing agency in the United Kingdom. Of our six acquisitions, three were included in the IAN operating segment and three were included in the CMG operating segment. During the first half of 2012, we recorded approximately $79.0 of goodwill and intangible assets related to these acquisitions.

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.



	Six months ended June 30,
	2013			2012
Cost of investment: current-year acquisitions	$	51.9		$	59.3
Cost of investment: prior-year acquisitions	27.8			35.4
Less: net cash acquired	(4.7		)	(8.6		)
Total cost of investment	75.0			86.1

Operating expense ¹	0.0			3.2
Total cash paid for acquisitions ²	$	75.0		$	89.3


¹	Represents cash payments made that were either in excess of the contractual value or contingent upon the future employment of the former owners of acquired companies.

Of the total cash paid, $26.8 and $34.5 for the six months ended June 30, 2013, and 2012, respectively, are classified under the financing section of the unaudited Consolidated Statements of Cash Flows within acquisition-related payments. These amounts relate to increases in our ownership interests in our consolidated subsidiaries, as well as deferred payments for acquisitions that closed on or after January 1, 2009. Of the total cash paid, $48.2 and $51.6 for the six months ended June 30, 2013, and 2012, respectively, are classified under the investing section of the unaudited Consolidated Statements of Cash Flows within acquisitions, including deferred payments, net of cash acquired. These amounts relate to initial payments for new transactions and deferred payments for acquisitions that closed prior to January 1, 2009.

Many of our acquisitions also include provisions under which the noncontrolling equity owners may require us to purchase additional interests in a subsidiary at their discretion. The following table presents changes in our redeemable noncontrolling interests.



	Six months ended June 30,
	2013			2012
Balance at beginning of period	$	227.2		$	243.4
Change in related noncontrolling interests balance	(3.6		)	(3.7		)
Changes in redemption value of redeemable noncontrolling interests:
Additions	12.5			1.0
Redemptions and other	(2.1		)	(14.2		)
Redemption value adjustments¹	(3.0		)	(4.2		)
Balance at end of period	$	231.0		$	222.3


¹	Redeemable noncontrolling interests are reported at their estimated redemption value in each reporting period, but not less than their initial fair value. Any adjustment to the redemption value impacts retained earnings or additional paid-in capital, except adjustments as a result of currency translation.

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 6: Supplementary Data

Accrued Liabilities

The following table presents the components of accrued liabilities.



	June 30, 2013		December 31, 2012
Salaries, benefits and related expenses	$	329.3	$	478.2
Office and related expenses	50.3		51.6
Acquisition obligations	11.9		29.5
Interest	48.3		42.4
Professional fees	20.0		21.7
Other	88.8		104.8
Total accrued liabilities	$	548.6	$	728.2

Other Income, Net

Results of operations for the three and six months ended June 30, 2013 and 2012 include certain items that are not directly associated with our revenue-producing operations.



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Gains (losses) on sales of businesses and investments	$	0.5	$	1.6	$	2.7	$	(1.8	)
Vendor discounts and credit adjustments	0.3		2.5		0.5		4.9
Other income, net	4.0		0.6		3.4		0.3
Total other income, net	$	4.8	$	4.7	$	6.6	$	3.4

Sales of Businesses and Investments – During the first half of 2013, the gains on sales of businesses and investments primarily related to a gain recognized in the first quarter of 2013 from the sale of marketable securities in the Asia Pacific region within our IAN segment. During the first half of 2012, the losses on sales of businesses and investments primarily related to a loss recognized from the sale of a business in the domestic market within our IAN segment, which was partially offset by a gain recognized in the second quarter of 2012 related to the sale of a business in an international market within our CMG segment.

Vendor Discounts and Credit Adjustments – We are in the process of settling our liabilities related to vendor discounts and credits established as part of the 2004 Restatement. These adjustments reflect the reversal of certain of these liabilities as a result of differences resulting from settlements with clients or vendors or where the statute of limitations has lapsed.

Other Income, net – During the second quarter of 2013, other income, net primarily included a non-cash gain on re-measurement to fair value of an equity interest in an affiliate, located in the Asia Pacific region within our CMG segment, upon acquiring a controlling interest.

Accumulated Other Comprehensive Loss, Net of Tax

The following table presents the changes in accumulated other comprehensive loss, net of tax by component.



	Foreign Currency Translation Adjustments			Available-for-Sale Securities			Derivative Instruments			Defined Benefit Pension and Other Postretirement Plans			Total
Balance as of December 31, 2012	$	(130.1	)	$	0.8		$	(12.7	)	$	(146.0	)	$	(288.0	)
Other comprehensive (loss) income before reclassifications	(110.3		)	0.8			0.0			(0.7		)	(110.2		)
Amount reclassified from accumulated other comprehensive loss, net of tax	0.0			(1.2		)	0.5			3.5			2.8
Total change for the period	(110.3		)	(0.4		)	0.5			2.8			(107.4		)
Balance as of June 30, 2013	$	(240.4	)	$	0.4		$	(12.2	)	$	(143.2	)	$	(395.4	)

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Amounts reclassified from accumulated other comprehensive loss, net of tax for the three and six months ended June 30, 2013 are as follows:



	Three months ended June 30, 2013			Six months ended June 30, 2013			Affected Line Item in the Consolidated Statement of Operations
Foreign currency translation adjustments	$	0.0		$	0.0
Gains on available-for-sale securities	(0.4		)	(1.4		)	Other income, net
Losses on derivative instruments	0.5			0.9			Interest expense
Amortization of defined benefit pension and postretirement plans items ¹	2.7			5.5
Tax effect	(1.4		)	(2.2		)	Provision for income taxes
Total amount reclassified from accumulated other comprehensive loss, net of tax	$	1.4		$	2.8


¹	These accumulated other comprehensive loss components are included in the computation of net periodic cost. See Note 9 for further information.

Share Repurchase Program

In February 2013, 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 "2013 share repurchase program"). In March 2013, the Board authorized an increase in the amount available under our 2013 share repurchase program up to $500.0, excluding fees, of our common stock to be used towards the repurchase of shares resulting from the conversion to common stock of the 4.75% Notes. In February 2012, the Board authorized a share repurchase program to repurchase from time to time up to $300.0, excluding fees, of our common stock (the "2012 share repurchase program"). In November 2012, the Board authorized an increase in the amount available under our 2012 share repurchase program up to $400.0, excluding fees, of our common stock, as a result of the sale of our remaining holdings in Facebook. We may effect such repurchases through open market purchases, trading plans established in accordance with SEC rules, derivative transactions or other means.

The following table presents our share repurchase activity under our share repurchase programs.



	Six months ended June 30,
	2013		2012
Number of shares repurchased	13.7		11.0
Aggregate cost, including fees	$	180.6	$	118.1
Average price per share, including fees	$	13.22	$	10.78

As of June 30, 2013, $419.5 remains available for repurchase under the 2013 share repurchase program. The 2013 share repurchase program has no expiration date. We fully utilized the 2012 share repurchase program in the second quarter of 2013.

Note 7: Income Taxes

For the three and six months ended June 30, 2013, our effective income tax rate of 41.9% and 64.5%, respectively, was negatively impacted primarily by losses in certain foreign locations where we receive no tax benefit due to 100% valuation allowances.

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 and $35.0 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. income tax audits for years prior to 2009. With limited exceptions, we are no longer subject to state and local income tax audits for years prior to 1999, or non-U.S. income tax audits for years prior to 2005.

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 8: Incentive Compensation Plans

We issue stock-based compensation and cash awards to our employees under a plan established by the Compensation and Leadership Talent Committee of the Board of Directors (the “Compensation Committee”) and approved by our shareholders.

We issued the following stock-based awards under the 2009 Performance Incentive Plan (the “2009 PIP”) during the six months ended June 30, 2013.



	Awards	Weighted-average grant-date fair value (per award)
Stock options	0.7	$	4.14
Stock-settled awards	1.0	$	12.91
Performance-based awards	1.5	$	11.91
Total stock-based compensation awards	3.2

During the six months ended June 30, 2013, the Compensation Committee granted performance cash awards under the 2009 PIP with a total target value of $73.8. Of this amount, awards with a total target value of $35.2 will be settled in shares upon vesting. The number of shares to be settled on the vesting date will be calculated as the cash value adjusted for performance divided by our stock price on the vesting date. Additionally, during the six months ended June 30, 2013, the Compensation Committee granted cash awards under the Interpublic Restricted Cash Plan with a total target value of $1.1. Cash awards are amortized over the vesting period, typically three years.

Note 9: Employee Benefits

We have a defined benefit pension plan (the “Domestic Pension Plan”) that covers certain U.S. employees. We also have numerous funded and unfunded plans outside the U.S. The Interpublic 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. 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 June 30,	2013			2012			2013			2012			2013		2012
Service cost	$	0.0		$	0.0		$	2.6		$	2.6		$	0.0	$	0.1
Interest cost	1.3			1.5			5.2			5.6			0.3		0.6
Expected return on plan assets	(1.9		)	(1.9		)	(4.8		)	(4.6		)	0.0		0.0
Amortization of:
Transition obligation	0.0			0.0			0.0			0.0			0.0		0.1
Prior service cost (credit)	0.0			0.0			0.1			0.0			0.0		(0.1		)
Unrecognized actuarial losses (gains)	1.9			1.7			0.7			0.2			0.0		(0.1		)
Net periodic cost	$	1.3		$	1.3		$	3.8		$	3.8		$	0.3	$	0.6



	Domestic Pension Plan						Foreign Pension Plans						Domestic Postretirement Benefit Plan
Six months ended June 30,	2013			2012			2013			2012			2013		2012
Service cost	$	0.0		$	0.0		$	5.1		$	5.3		$	0.0	$	0.1
Interest cost	2.7			3.1			10.6			11.0			0.8		1.2
Expected return on plan assets	(3.9		)	(3.8		)	(9.6		)	(9.1		)	0.0		0.0
Amortization of:
Transition obligation	0.0			0.0			0.0			0.0			0.0		0.1
Prior service cost (credit)	0.0			0.0			0.1			0.0			0.0		(0.1		)
Unrecognized actuarial losses	4.0			3.2			1.4			0.5			0.0		0.0
Net periodic cost	$	2.8		$	2.5		$	7.6		$	7.7		$	0.8	$	1.3

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

During the six months ended June 30, 2013, we contributed $0.5 and $7.6 of cash to our domestic and foreign pension plans, respectively. For the remainder of 2013, we do not expect to make any additional cash contributions to our domestic pension plan and we expect to contribute approximately $12.0 of cash to our foreign pension plans.

Note 10: Segment Information

We have two reportable segments, IAN and CMG. IAN is comprised of McCann Worldgroup, Draftfcb, Lowe & Partners, IPG Mediabrands and our domestic integrated agencies. CMG is comprised of a number of our specialist marketing services offerings. We also report results for the “Corporate and other” group. The profitability measure employed by our chief operating decision maker for allocating resources to operating divisions and assessing operating division performance is operating income. The segment information is presented consistently with the basis described in our 2012 Annual Report on Form 10-K.

Summarized financial information concerning our reportable segments is shown in the following table.



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Revenue:
IAN	$	1,435.7		$	1,423.3		$	2,676.8		$	2,667.2
CMG	320.5			292.4			622.4			555.3
Total	$	1,756.2		$	1,715.7		$	3,299.2		$	3,222.5

Segment operating income:
IAN	$	169.2		$	177.3		$	146.6		$	162.0
CMG	34.6			31.2			48.6			38.7
Corporate and other	(29.0		)	(32.1		)	(62.8		)	(63.7		)
Total	174.8			176.4			132.4			137.0

Interest expense	(37.5		)	(32.7		)	(74.3		)	(65.3		)
Interest income	5.8			6.7			12.2			14.7
Other income, net	4.8			4.7			6.6			3.4
Income before income taxes	$	147.9		$	155.1		$	76.9		$	89.8

Depreciation and amortization of fixed assets and intangible assets:
IAN	$	31.6		$	29.9		$	62.5		$	58.3
CMG	3.9			3.3			7.7			6.7
Corporate and other	3.7			3.6			7.2			6.4
Total	$	39.2		$	36.8		$	77.4		$	71.4

Capital expenditures:
IAN	$	13.5		$	19.9		$	23.5		$	32.7
CMG	3.1			3.6			4.1			5.6
Corporate and other	12.4			12.3			19.2			19.9
Total	$	29.0		$	35.8		$	46.8		$	58.2

	June 30, 2013			December 31, 2012
Total assets:
IAN	$	10,602.4		$	11,035.3
CMG	1,143.3			1,073.1
Corporate and other	591.0			1,385.5
Total	$	12,336.7		$	13,493.9

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 11: Fair Value Measurements

Authoritative guidance for fair value measurements establishes a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:



Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Instruments that are Measured at Fair Value on a Recurring Basis

We primarily apply the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis. There were no changes to our valuation techniques used to determine the fair value of financial instruments during the six months ended June 30, 2013. The following tables present information about our financial instruments measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.



	June 30, 2013												Balance Sheet Classification
	Level 1			Level 2			Level 3			Total			Balance Sheet Classification
Assets
Cash equivalents	$	994.5		$	0.0		$	0.0		$	994.5		Cash and cash equivalents
Short-term marketable securities	4.6			0.0			0.0			4.6			Marketable securities
Long-term investments	1.4			0.0			0.0			1.4			Other assets
Total	$	1,000.5		$	0.0		$	0.0		$	1,000.5

As a percentage of total assets	8.1		%	0.0		%	0.0		%	8.1		%

Liabilities
Mandatorily redeemable noncontrolling interests ¹	$	0.0		$	0.0		$	25.7		$	25.7

	December 31, 2012												Balance Sheet Classification
	Level 1			Level 2			Level 3			Total			Balance Sheet Classification
Assets
Cash equivalents	$	1,806.6		$	0.0		$	0.0		$	1,806.6		Cash and cash equivalents
Short-term marketable securities	16.0			0.0			0.0			16.0			Marketable securities
Long-term investments	1.5			0.0			0.0			1.5			Other assets
Total	$	1,824.1		$	0.0		$	0.0		$	1,824.1

As a percentage of total assets	13.5		%	0.0		%	0.0		%	13.5		%

Liabilities
Mandatorily redeemable noncontrolling interests ¹	$	0.0		$	0.0		$	25.3		$	25.3

Relates to unconditional obligations to purchase additional noncontrolling equity shares of consolidated subsidiaries. Fair value measurement of the obligation was based upon the amount payable as if the forward contracts were settled. The amount redeemable within the next twelve months is classified in accrued liabilities; any interests redeemable thereafter are classified in other non-current liabilities.

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The following table presents additional information about financial instruments measured at fair value on a recurring basis and for which we utilize Level 3 inputs to determine fair value for the six months ended June 30, 2013.



Liabilities	Mandatorily Redeemable Noncontrolling Interests
Balance at December 31, 2012	$	25.3
Level 3 additions	1.0
Level 3 reductions	(0.9		)
Realized losses included in net income	0.3
Balance at June 30, 2013	$	25.7

Realized losses included in net income for mandatorily redeemable noncontrolling interests are reported as a component of interest expense in the unaudited Consolidated Statements of Operations.

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 June 30, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.



	June 30, 2013					December 31, 2012
	Level 1	Level 2	Level 3	Total		Level 1		Level 2		Level 3		Total
Total long-term debt	0.0	2,000.5	81.6	$	2,082.1	$	0.0	$	2,292.4	$	90.8	$	2,383.2

Our long-term debt comprises senior notes and other notes payable. The fair value of our senior notes traded over-the-counter is based on quoted prices for such securities, but which fair value can also be derived from inputs that are readily observable. Therefore, these senior notes are classified as Level 2 within the fair value hierarchy. Our other notes payable are not actively traded and their fair value is not solely derived from readily observable inputs. Thus, the fair value of our other notes payable is determined based on a discounted cash flow model and other proprietary valuation methods, and therefore is classified as Level 3 within the fair value hierarchy. See Note 2 for further information on our long-term debt.

Non-financial Instruments that are Measured at Fair Value on a Nonrecurring Basis

Certain non-financial instruments are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets, and property, plant 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.

Note 12: Commitments and Contingencies

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. 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.

Guarantees

As discussed in our 2012 Annual Report on Form 10-K, we have guaranteed certain obligations of our subsidiaries relating principally to operating leases and credit facilities of certain subsidiaries. The amount of parent company guarantees on lease obligations was $400.0 and $410.3 as of June 30, 2013 and December 31, 2012, respectively, and the amount of parent company guarantees primarily relating to credit facilities was $257.3 and $283.4 as of June 30, 2013 and December 31, 2012, respectively.

Table of Contents

Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 13: Recent Accounting Standards

Comprehensive Income

In February 2013, the Financial Accounting Standards Board ("FASB") issued amended guidance for presenting comprehensive income, which is effective for us January 1, 2013, and applied prospectively. This amended guidance requires an entity to disclose significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items in net income. The adoption of this amended guidance required us to include additional disclosures in our unaudited Consolidated Financial Statements. See Note 6 for further information.

Note 14: Subsequent Events

On July 15, 2013, we redeemed all $600.0 in aggregate principal amount of the 10.00% Notes. Total cash paid to redeem the 10.00% Notes was $630.0. In connection with the redemption of the 10.00% Notes, we recognized a loss on extinguishment of debt of $45.2, which includes the write-off of the remaining unamortized discount of $7.3, unamortized debt issuance costs of $7.9 and a redemption premium of $30.0. The loss on extinguishment of debt will be recorded in the third quarter of 2013, in other income, net within our unaudited Consolidated Statement of Operations. See Note 2 for further information on the 10.00% Notes.

Table of Contents

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”) is intended to help you understand The Interpublic Group of Companies, Inc. and its subsidiaries (“IPG,” “we,” “us” or “our”). MD&A should be read in conjunction with our unaudited Consolidated Financial Statements and the accompanying notes included in this report and our 2012 Annual Report on Form 10-K, as well as our other reports and filings with the Securities and Exchange Commission (“SEC”). Our Annual Report includes additional information about our significant accounting policies and practices as well as details about our 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 2012 Annual Report on Form 10-K of our accounting policies that require critical judgment, assumptions and estimates.

RECENT ACCOUNTING STANDARDS, by reference to Note 13 to the unaudited Consolidated Financial Statements, provides a discussion of certain accounting standards that have been adopted during 2013 or that have not yet been required to be implemented and may be applicable to our future operations.

EXECUTIVE SUMMARY

We are one of the world’s premier global advertising and marketing services companies. Our companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines. Our agencies create customized marketing programs 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 and strategic talent in fast-growth digital marketing channels, high-growth geographic regions and strategic world markets. In addition, we consistently review opportunities within our company to enhance our operations through mergers and strategic alliances, as well as the development of 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' skill sets and capabilities.

Our long-term financial goals include competitive organic revenue growth and operating margin expansion, which we expect will further strengthen our 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 in our financial reporting and business information systems in recent years, and which continue, 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 our business.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

The following tables present a summary of financial performance for the three and six months ended June 30, 2013, as compared with the same periods in 2012.



	Three months ended June 30, 2013						Six months ended June 30, 2013
% Increase	Total			Organic			Total			Organic
Revenue	2.4		%	2.2		%	2.4		%	2.3		%
Salaries and related expenses	2.9		%	2.8		%	2.7		%	2.5		%
Office and general expenses	2.4		%	2.8		%	2.6		%	3.1		%

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Operating margin	10.0		%	10.3		%	4.0		%	4.3		%
Expenses as % of revenue:
Salaries and related expenses	63.8		%	63.5		%	68.3		%	68.1		%
Office and general expenses	26.3		%	26.3		%	27.7		%	27.7		%

Net income available to IPG common stockholders	$	79.9		$	99.0		$	20.7		$	53.1

Earnings per share available to IPG common stockholders:
Basic	$	0.19		$	0.23		$	0.05		$	0.12
Diluted	$	0.18		$	0.22		$	0.05		$	0.12

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. The performance metrics that we use to evaluate our results include 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 certain of our discussions we analyze revenue by business sector, where we focus on our top 100 clients, which typically constitute approximately 55% to 60% of our annual consolidated revenues. We also analyze revenue by geographic region.

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. We do not use derivative financial instruments to manage this translation risk. 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 on us related to each geographic region depends on the significance and operating performance of the region. The primary foreign currencies that impacted our results during the first half of 2013 include the Brazilian Real, Japanese Yen, Pound Sterling and the South African Rand. During the first half of 2013, the U.S. Dollar was stronger relative to several foreign currencies in regions where we primarily conduct our business as compared to the prior-year period, which had a negative impact on our consolidated results of operations. For the second quarter and first half of 2013, foreign currency fluctuations resulted in net decreases of approximately 1% in revenues and operating expenses, which had a minimal impact on our operating margin percentage.

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. 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. For the second quarter and first half of 2013, the net effect of acquisitions and divestitures was an increase to revenue and operating expenses compared to the prior-year periods.

Table of Contents

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 Six Months Ended June 30, 2013 Compared to Three and Six Months Ended June 30, 2012

REVENUE



			Components of Change											Change
	Three months ended June 30, 2012		Foreign Currency			Net Acquisitions/ (Divestitures)			Organic			Three months ended June 30, 2013		Organic		Total
Consolidated	$	1,715.7	$	(17.4	)	$	19.9		$	38.0		$	1,756.2	2.2	%	2.4	%
Domestic	950.9		0.0			14.1			31.6			996.6		3.3	%	4.8	%
International	764.8		(17.4		)	5.8			6.4			759.6		0.8	%	(0.7	)%
United Kingdom	126.7		(4.3		)	(1.3		)	(1.7		)	119.4		(1.3	)%	(5.8	)%
Continental Europe	210.7		2.4			0.0			(16.8		)	196.3		(8.0	)%	(6.8	)%
Asia Pacific	211.0		(6.5		)	6.9			9.6			221.0		4.5	%	4.7	%
Latin America	107.5		(5.2		)	0.2			17.3			119.8		16.1	%	11.4	%
Other	108.9		(3.8		)	0.0			(2.0		)	103.1		(1.8	)%	(5.3	)%

During the second quarter of 2013, our revenue increased by $40.5, or 2.4%, compared to the second quarter of 2012, due to an organic revenue increase of $38.0, or 2.2%, and the effect of net acquisitions of $19.9, partially offset by an adverse foreign currency rate impact of $17.4. Our organic revenue increase was primarily attributable to net higher spending from existing clients and net client wins in our domestic market, primarily in the auto and transportation and consumer goods sectors, partially offset by the loss of certain client assignments in the technology and telecom and retail sectors in prior periods. In our international markets, the organic revenue increase was primarily in the Latin America region, most notably in Brazil, and in the Asia Pacific region, predominantly in Australia, partially offset by an organic revenue decrease in the Continental Europe region due to a continued challenging economic climate. The organic revenue increase in our international markets was primarily due to net client wins, most notably in the technology and telecom and auto and transportation sectors, partially offset by a decrease in spending from existing clients, primarily in the food and beverage and consumer goods sectors.

Our revenue is directly impacted by our ability to win new clients and the retention and spending levels of existing clients. Most of our expenses are recognized ratably throughout the year and are therefore less seasonal than revenue. Our revenue is typically lowest in the first quarter and highest in the fourth quarter. This reflects the seasonal spending of our clients, incentives earned at year end on various contracts and project work completed that is typically recognized during the fourth quarter. In the events marketing business, revenues can fluctuate due to the timing of completed projects, as revenue is typically recognized when the project is complete. We generally act as principal for these projects and accordingly record the gross amount billed to the client as revenue and the related costs incurred as pass-through costs in office and general expenses.



			Components of Change											Change
	Six months ended June 30, 2012		Foreign Currency			Net Acquisitions/ (Divestitures)			Organic			Six months ended June 30, 2013		Organic		Total
Consolidated	$	3,222.5	$	(29.6	)	$	33.2		$	73.1		$	3,299.2	2.3	%	2.4	%
Domestic	1,830.6		0.0			24.6			35.8			1,891.0		2.0	%	3.3	%
International	1,391.9		(29.6		)	8.6			37.3			1,408.2		2.7	%	1.2	%
United Kingdom	251.9		(4.9		)	(0.2		)	11.0			257.8		4.4	%	2.3	%
Continental Europe	378.0		4.8			(0.5		)	(26.5		)	355.8		(7.0	)%	(5.9	)%
Asia Pacific	381.9		(11.0		)	9.0			17.0			396.9		4.5	%	3.9	%
Latin America	186.8		(11.1		)	0.3			30.1			206.1		16.1	%	10.3	%
Other	193.3		(7.4		)	0.0			5.7			191.6		2.9	%	(0.9	)%

During the first half of 2013, our revenue increased by $76.7, or 2.4%, compared to the first half of 2012, due to an organic revenue increase of $73.1, or 2.3%, and the effect of net acquisitions of $33.2, partially offset by an adverse foreign currency rate impact of $29.6. Our organic revenue increase was primarily attributable to net client wins, in most client sectors, most notably in the auto and transportation sector, and throughout nearly all geographic regions. Regionally, the largest organic increases were

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

in the domestic market due to strong growth in the second quarter of 2013, in the Latin America region, primarily in Brazil, in the Asia Pacific region, predominantly in Australia, and in the United Kingdom, which had an organic revenue increase in the first quarter of 2013. Partially offsetting these increases was an organic revenue decrease in the Continental Europe region due to a continued challenging economic climate.

Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Salaries and related expenses	$	1,120.2	$	1,088.9	$	2,252.3	$	2,193.8
Office and general expenses	461.2		450.4		914.5		891.7
Total operating expenses	$	1,581.4	$	1,539.3	$	3,166.8	$	3,085.5
Operating income	$	174.8	$	176.4	$	132.4	$	137.0

Salaries and Related Expenses



			Components of Change									Change
	2012		Foreign Currency			Net Acquisitions/ (Divestitures)		Organic		2013		Organic		Total
Three months ended June 30,	$	1,088.9	$	(9.4	)	$	10.3	$	30.4	$	1,120.2	2.8	%	2.9	%
Six months ended June 30,	2,193.8		(16.6		)	20.1		55.0		2,252.3		2.5	%	2.7	%

Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased in the second quarter of 2013 to 63.8% from 63.5% when compared to the prior-year period. Salaries and related expenses in the second quarter of 2013 increased by $31.3 compared to the second quarter of 2012, due to an organic increase of $30.4 and the effect of net acquisitions of $10.3, partially offset by a favorable foreign currency rate impact of $9.4. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $34.6, primarily due to increases in our workforce, predominantly in our international regions, most notably in the Asia Pacific and Latin America regions, and at businesses where we had revenue growth or new business wins, as well as modest wage increases.

Our staff cost ratio increased in the first half of 2013 to 68.3% from 68.1% when compared to the prior-year period. Salaries and related expenses in the first half of 2013 increased by $58.5 compared to the first half of 2012, due to an organic increase of $55.0 and the effect of net acquisitions of $20.1, partially offset by a favorable foreign currency rate impact of $16.6. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $59.5, driven by factors similar to those noted above for the second quarter of 2013. Partially offsetting the organic increase was a reduction in incentive award expense of $11.8, primarily attributable to lower long-term incentive award expense due to our under performance relative to certain targets in 2012.

The following table details our salaries and related expenses as a percentage of total consolidated revenue.



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Salaries and related expenses	63.8	%	63.5	%	68.3	%	68.1	%
Base salaries, benefits and tax	53.5	%	52.6	%	57.1	%	56.4	%
Incentive expense	2.8	%	3.3	%	3.4	%	3.8	%
Severance expense	1.3	%	1.2	%	1.5	%	1.3	%
Temporary help	3.6	%	3.7	%	3.7	%	3.8	%
All other salaries and related expenses	2.6	%	2.7	%	2.6	%	2.8	%

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Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Office and General Expenses



			Components of Change									Change
	2012		Foreign Currency			Net Acquisitions/ (Divestitures)		Organic		2013		Organic		Total
Three months ended June 30,	$	450.4	$	(5.0	)	$	3.4	$	12.4	$	461.2	2.8	%	2.4	%
Six months ended June 30,	891.7		(10.1		)	5.4		27.5		914.5		3.1	%	2.6	%

Our office and general expense ratio, defined as office and general expenses as a percentage of total consolidated revenue, remained flat at 26.3% for the second quarter of 2013 when compared to the prior-year period. Office and general expenses in the second quarter of 2013 increased by $10.8 compared to the second quarter of 2012, primarily due to an organic increase of $12.4, partially offset by a favorable foreign currency rate impact of $5.0. The organic increase was primarily attributable to higher production expenses related to pass-through costs, which are also reflected in revenue, and an increase in occupancy costs, partially offset by certain adjustments to contingent acquisition obligations and foreign currency adjustments.

Our office and general expense ratio remained flat at 27.7% for the first half of 2013 when compared to the prior-year period. Office and general expenses in the first half of 2013 increased by $22.8 compared to the first half of 2012, primarily due to an organic increase of $27.5, partially offset by a favorable foreign currency rate impact of $10.1. The organic increase was driven by factors similar to those noted above for the second quarter of 2013.

The following table details our office and general expenses as a percentage of total consolidated revenue.



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Office and general expenses	26.3	%	26.3	%	27.7	%	27.7	%
Professional fees	1.7	%	1.7	%	1.7	%	1.8	%
Occupancy expense (excluding depreciation and amortization)	7.1	%	7.0	%	7.5	%	7.5	%
Travel & entertainment, office supplies and telecommunications	3.8	%	3.9	%	3.8	%	4.0	%
All other office and general expenses	13.7	%	13.7	%	14.7	%	14.4	%

All other office and general expenses primarily include production expenses, and, to a lesser extent, depreciation and amortization, bad debt expense, adjustments for contingent acquisition obligations, foreign currency gains (losses), restructuring and other reorganization-related charges (reversals), long-lived asset impairments and other expenses.

EXPENSES AND OTHER INCOME



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Cash interest on debt obligations	$	(33.6	)	$	(31.1	)	$	(69.7	)	$	(65.3	)
Non-cash interest	(3.9		)	(1.6		)	(4.6		)	0.0
Interest expense	(37.5		)	(32.7		)	(74.3		)	(65.3		)
Interest income	5.8			6.7			12.2			14.7
Net interest expense	(31.7		)	(26.0		)	(62.1		)	(50.6		)
Other income, net	4.8			4.7			6.6			3.4
Total (expenses) and other income	$	(26.9	)	$	(21.3	)	$	(55.5	)	$	(47.2	)

Net Interest Expense

For the three and six months ended June 30, 2013, net interest expense increased by $5.7 and $11.5 as compared to the respective prior-year periods. Cash interest expense increased primarily due to our increase in debt from the issuances in the fourth quarter of 2012. We expect our cash interest expense to decrease in the second half of 2013, as we retired our 4.75% Convertible Senior Notes due 2023 (the "4.75% Notes") in the first quarter of 2013 and we redeemed all of our 10.00% Senior Unsecured Notes due 2017 (the "10.00% Notes") in July 2013. Non-cash interest expense increased primarily because the premiums associated with our 4.25% Convertible Senior Notes due 2023, which were retired in the first quarter of 2012, and our 4.75% Notes, were fully amortized.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Other Income, Net

Results of operations for the three and six months ended June 30, 2013 and 2012 include certain items that are not directly associated with our revenue-producing operations.



	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Gains (losses) on sales of businesses and investments	$	0.5	$	1.6	$	2.7	$	(1.8	)
Vendor discounts and credit adjustments	0.3		2.5		0.5		4.9
Other income, net	4.0		0.6		3.4		0.3
Total other income, net	$	4.8	$	4.7	$	6.6	$	3.4

Sales of Businesses and Investments – During the first half of 2013, the gains on sales of businesses and investments primarily related to a gain recognized in the first quarter of 2013 from the sale of marketable securities in the Asia Pacific region within our Integrated Agency Networks ("IAN") segment. During the first half of 2012, the losses on sales of businesses and investments primarily related to a loss recognized from the sale of a business in the domestic market within our IAN segment, which was partially offset by a gain recognized in the second quarter of 2012 related to the sale of a business in an international market within our Constituency Management Group ("CMG") segment.

INCOME TAXES



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Income before income taxes	$	147.9		$	155.1		$	76.9		$	89.8
Provision for income taxes	$	62.0		$	50.1		$	49.6		$	30.9
Effective income tax rate	41.9		%	32.3		%	64.5		%	34.4		%

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 six months ended June 30, 2013, our effective income tax rate of 41.9% and 64.5%, respectively, was negatively impacted primarily by losses in certain foreign locations where we receive no tax benefit due to 100% valuation allowances.

For the three months ended June 30, 2012, our effective income tax rate of 32.3% was positively impacted by the reversal of a $26.2 valuation allowance associated with the Asia Pacific region. The reversal was partially offset by an adjustment of $19.5 associated with the establishment of a reserve for a tax contingency for the years 2007 through 2010. Combined, these two items increased net income for the second quarter of 2012 by $6.7. For the six months ended June 30, 2012, our effective income tax rate of 34.4% was positively impacted by a benefit derived from the deduction of foreign tax credits that were previously fully valued and the reversal of certain valuation allowances in Europe and the Asia Pacific region. The effective income tax rate was negatively impacted primarily by losses in certain foreign locations for which we receive no tax benefit due to 100% valuation allowances and the tax contingency charge established in the second quarter of 2012.

Segment Results of Operations – Three and Six Months Ended June 30, 2013 Compared to Three and Six Months Ended June 30, 2012

As discussed in Note 10 to the unaudited Consolidated Financial Statements, we have two reportable segments as of June 30, 2013: IAN and CMG. We also report results for the "Corporate and other" group.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

IAN

REVENUE



			Components of Change							Change
	Three months ended June 30, 2012		Foreign Currency			Net Acquisitions/ (Divestitures)		Organic	Three months ended June 30, 2013	Organic	Total
Consolidated	$	1,423.3	$	(15.7	)	$	17.2	$