UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2019

or

	☐	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.)

909 Third Avenue, New York, New York 10022

(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	IPG	The New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ý    No ¨

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.

Large Accelerated Filer		☒		Accelerated Filer		☐
Non-accelerated Filer		☐		Smaller Reporting Company		☐
				Emerging Growth Company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 October 15, 2019 was 387,732,100.

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INDEX
		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	6
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6.	Exhibits	40
INDEX TO EXHIBITS		41
SIGNATURES		42

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 and our quarterly reports on Form 10-Q. 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;

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

•	failure to realize the anticipated benefits on the acquisition of the Acxiom business.

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 and our quarterly reports on Form 10-Q.

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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 September 30,								Nine months ended September 30,
	2019				2018				2019				2018
REVENUE:
Net revenue	$	2,061.4			$	1,895.7			$	6,192.1			$	5,617.9
Billable expenses	376.7				401.8				1,127.4				1,240.5
Total revenue	2,438.1				2,297.5				7,319.5				6,858.4
OPERATING EXPENSES:
Salaries and related expenses	1,334.4				1,251.4				4,136.7				3,874.6
Office and other direct expenses	367.9				317.0				1,144.4				974.1
Billable expenses	376.7				401.8				1,127.4				1,240.5
Cost of services	2,079.0				1,970.2				6,408.5				6,089.2
Selling, general and administrative expenses	9.8				21.6				69.3				85.5
Depreciation and amortization	69.0				44.0				213.1				134.0
Restructuring charges	0.0				0.0				33.9				0.0
Total operating expenses	2,157.8				2,035.8				6,724.8				6,308.7
OPERATING INCOME	280.3				261.7				594.7				549.7
EXPENSES AND OTHER INCOME:
Interest expense	(49.7		)		(27.6		)		(151.1		)		(73.6		)
Interest income	9.5				5.3				25.0				14.0
Other expense, net	(7.4		)		(15.3		)		(18.1		)		(56.0		)
Total (expenses) and other income	(47.6		)		(37.6		)		(144.2		)		(115.6		)
Income before income taxes	232.7				224.1				450.5				434.1
Provision for income taxes	64.6				60.7				118.7				137.0
Income of consolidated companies	168.1				163.4				331.8				297.1
Equity in net income (loss) of unconsolidated affiliates	0.3				0.1				(0.1		)		(1.9		)
NET INCOME	168.4				163.5				331.7				295.2
Net income attributable to noncontrolling interests	(2.8		)		(2.5		)		(4.6		)		(2.5		)
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS	$	165.6			$	161.0			$	327.1			$	292.7
Earnings per share available to IPG common stockholders:
Basic	$	0.43			$	0.42			$	0.85			$	0.76
Diluted	$	0.42			$	0.41			$	0.84			$	0.75
Weighted-average number of common shares outstanding:
Basic	386.7				382.6				385.8				383.2
Diluted	391.8				388.4				390.3				388.4

 

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 COMPREHENSIVE INCOME

(Amounts in Millions)

(Unaudited)

	Three months ended September 30,								Nine months ended September 30,
	2019				2018				2019				2018
NET INCOME	$	168.4			$	163.5			$	331.7			$	295.2
OTHER COMPREHENSIVE LOSS
Foreign currency translation:
Foreign currency translation adjustments	(50.9		)		(27.9		)		(38.4		)		(121.9		)
Reclassification adjustments recognized in net income	(0.6		)		3.3				5.2				16.7
	(51.5		)		(24.6		)		(33.2		)		(105.2		)
Derivative instruments:
Recognition of previously unrealized losses in net income	0.6				0.6				1.8				1.7
Income tax effect	(0.2		)		(0.2		)		(0.4		)		(0.5		)
	0.4				0.4				1.4				1.2
Defined benefit pension and other postretirement plans:
Net actuarial gains (losses) for the period	0.0				0.0				0.7				(1.4		)
Amortization of unrecognized losses, transition obligation and prior service cost included in net income	1.7				1.8				5.0				5.7
Settlement and curtailment losses included in net income	0.0				0.1				0.0				0.3
Other	(0.1		)		0.0				0.2				(0.4		)
Income tax effect	(0.2		)		(0.1		)		(0.4		)		0.0
	1.4				1.8				5.5				4.2
Other comprehensive loss, net of tax	(49.7		)		(22.4		)		(26.3		)		(99.8		)
TOTAL COMPREHENSIVE INCOME	118.7				141.1				305.4				195.4
Less: comprehensive income attributable to noncontrolling interests	1.4				2.0				3.4				0.2
COMPREHENSIVE INCOME ATTRIBUTABLE TO IPG	$	117.3			$	139.1			$	302.0			$	195.2

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)

	September 30, 2019				December 31, 2018
ASSETS:
Cash and cash equivalents	$	520.5			$	673.4
Accounts receivable, net of allowance of $38.8 and $42.5, respectively	4,047.8				5,126.6
Accounts receivable, billable to clients	2,018.7				1,900.6
Assets held for sale	22.8				5.7
Other current assets	440.2				476.6
Total current assets	7,050.0				8,182.9
Property and equipment, net of accumulated depreciation of $1,097.4 and $1,034.9, respectively	758.2				790.9
Deferred income taxes	279.1				247.0
Goodwill	4,847.4				4,875.9
Other intangible assets	1,032.3				1,094.7
Operating lease right-of-use assets	1,573.5				0.0
Other non-current assets	457.1				428.9
TOTAL ASSETS	$	15,997.6			$	15,620.3
LIABILITIES:
Accounts payable	$	5,656.0			$	6,698.1
Accrued liabilities	634.3				806.9
Contract liabilities	562.4				533.9
Short-term borrowings	244.8				73.7
Current portion of long-term debt	3.3				0.1
Current portion of operating leases	261.6				0.0
Liabilities held for sale	36.0				11.2
Total current liabilities	7,398.4				8,123.9
Long-term debt	3,367.1				3,660.2
Non-current operating leases	1,434.4				0.0
Deferred compensation	394.8				422.7
Other non-current liabilities	714.4				812.8
TOTAL LIABILITIES	13,309.1				13,019.6
Redeemable noncontrolling interests (see Note 5)	185.4				167.9
STOCKHOLDERS’ EQUITY:
Common stock	38.7				38.3
Additional paid-in capital	941.0				895.9
Retained earnings	2,455.5				2,400.1
Accumulated other comprehensive loss, net of tax	(966.2		)		(941.1		)
Total IPG stockholders’ equity	2,469.0				2,393.2
Noncontrolling interests	34.1				39.6
TOTAL STOCKHOLDERS’ EQUITY	2,503.1				2,432.8
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	15,997.6			$	15,620.3

 

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 STATEMENTS OF CASH FLOWS

(Amounts in Millions) (Unaudited)

	Nine months ended September 30,
	2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	331.7			$	295.2
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	213.1				134.0
Provision for uncollectible receivables	7.7				9.4
Amortization of restricted stock and other non-cash compensation	58.3				59.7
Net amortization of bond discounts and deferred financing costs	7.0				4.2
Deferred income tax provision	(1.5		)		(22.9		)
Net losses on sales of businesses	19.5				50.0
Other	1.5				4.2
Changes in assets and liabilities, net of acquisitions and divestitures, providing (using) cash:
Accounts receivable	1,010.2				443.6
Accounts receivable, billable to clients	(152.0		)		(303.0		)
Other current assets	(29.5		)		(100.6		)
Accounts payable	(952.7		)		(766.9		)
Accrued liabilities	(73.5		)		(186.5		)
Contract liabilities	37.2				46.1
Change in operating lease right-of-use assets and lease liabilities	2.8				0.0
Other non-current assets and liabilities	(56.2		)		6.8
Net cash provided by (used in) operating activities	423.6				(326.7		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(133.8		)		(105.7		)
Acquisitions, net of cash acquired	(0.6		)		(12.0		)
Other investing activities	13.7				1.1
Net cash used in investing activities	(120.7		)		(116.6		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings	173.1				(4.6		)
Exercise of stock options	4.2				9.1
Proceeds from long-term debt	0.0				1,994.2
Repurchases of common stock	0.0				(117.1		)
Repayment of long-term debt	(300.2		)		(4.9		)
Common stock dividends	(272.2		)		(241.6		)
Tax payments for employee shares withheld	(22.3		)		(28.8		)
Acquisition-related payments	(15.3		)		(30.4		)
Distributions to noncontrolling interests	(12.4		)		(13.4		)
Other financing activities	0.1				(11.9		)
Net cash (used in) provided by financing activities	(445.0		)		1,550.6
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(11.1		)		(35.3		)
Net (decrease) increase in cash, cash equivalents and restricted cash	(153.2		)		1,072.0
Cash, cash equivalents and restricted cash at beginning of period	677.2				797.7
Cash, cash equivalents and restricted cash at end of period	$	524.0			$	1,869.7

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)

	Common Stock							Additional Paid-In Capital				Retained Earnings				Accumulated  Other Comprehensive Loss, Net of Tax				Total IPG Stockholders’ Equity				Noncontrolling Interests				Total Stockholders’ Equity
	Shares			Amount
Balance at June 30, 2019	386.4			$	38.6			$	921.4			$	2,381.8			$	(917.9	)		$	2,423.9			$	34.5			$	2,458.4
Net income												165.6								165.6				2.8				168.4
Other comprehensive loss																(48.3		)		(48.3		)		(1.4		)		(49.7		)
Reclassifications related to redeemable noncontrolling interests																								2.4				2.4
Distributions to noncontrolling interests																								(4.3		)		(4.3		)
Change in redemption value of redeemable noncontrolling interests												0.0								0.0								0.0
Common stock dividends ($0.235 per share)												(90.8		)						(90.8		)						(90.8		)
Stock-based compensation	0.1			0.0				16.2												16.2								16.2
Exercise of stock options	0.5			0.1				3.6												3.7								3.7
Shares withheld for taxes	(0.1	)		0.0				(0.2		)										(0.2		)						(0.2		)
Other								0.0				(1.1		)						(1.1		)		0.1				(1.0		)
Balance at September 30, 2019	386.9			$	38.7			$	941.0			$	2,455.5			$	(966.2	)		$	2,469.0			$	34.1			$	2,503.1

	Common Stock							Additional Paid-In Capital				Retained Earnings				Accumulated  Other Comprehensive Loss, Net of Tax				Total IPG Stockholders’ Equity				Noncontrolling Interests				Total Stockholders’ Equity
	Shares			Amount
Balance at December 31, 2018	383.6			$	38.3			$	895.9			$	2,400.1			$	(941.1	)		$	2,393.2			$	39.6			$	2,432.8
Cumulative effect of accounting change												2.2								2.2								2.2
Net income												327.1								327.1				4.6				331.7
Other comprehensive loss																(25.1		)		(25.1		)		(1.2		)		(26.3		)
Reclassifications related to redeemable noncontrolling interests																								2.0				2.0
Distributions to noncontrolling interests																								(12.4		)		(12.4		)
Change in redemption value of redeemable noncontrolling interests												1.4								1.4								1.4
Common stock dividends ($0.235 per share)												(272.2		)						(272.2		)						(272.2		)
Stock-based compensation	3.7			0.4				64.3												64.7								64.7
Exercise of stock options	0.6			0.1				4.2												4.3								4.3
Shares withheld for taxes	(1.0	)		(0.1		)		(22.4		)										(22.5		)						(22.5		)
Other								(1.0		)		(3.1		)						(4.1		)		1.5				(2.6		)
Balance at September 30, 2019	386.9			$	38.7			$	941.0			$	2,455.5			$	(966.2	)		$	2,469.0			$	34.1			$	2,503.1

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)

	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 June 30, 2018	390.5			$	39.0			$	1,022.9			$	2,076.7			$	(903.4	)		$	(173.5	)		$	2,061.7			$	29.9			$	2,091.6
Net income												161.0												161.0				2.5				163.5
Other comprehensive loss																(21.9		)						(21.9		)		(0.5		)		(22.4		)
Reclassifications related to redeemable     noncontrolling interests																												0.8				0.8
Distributions to noncontrolling interests																												(2.8		)		(2.8		)
Change in redemption value of redeemable     noncontrolling interests												1.6												1.6								1.6
Repurchases of common stock																				(2.6		)		(2.6		)						(2.6		)
Common stock dividends ($0.210 per share)												(80.4		)										(80.4		)						(80.4		)
Stock-based compensation	0.1			0.0				15.3																15.3								15.3
Exercise of stock options	0.5			0.1				2.1																2.2								2.2
Shares withheld for taxes	0.0			0.0				(0.4		)														(0.4		)						(0.4		)
Other								1.9				(0.5		)										1.4				2.4				3.8
Balance at September 30, 2018	391.1			$	39.1			$	1,041.8			$	2,158.4			$	(925.3	)		$	(176.1	)		$	2,137.9			$	32.3			$	2,170.2

	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, 2017	386.2			$	38.6			$	955.2			$	2,104.5			$	(827.8	)		$	(59.0	)		$	2,211.5			$	34.8			$	2,246.3
Net income												292.7												292.7				2.5				295.2
Other comprehensive loss																(97.5		)						(97.5		)		(2.3		)		(99.8		)
Reclassifications related to redeemable     noncontrolling interests																												7.1				7.1
Distributions to noncontrolling interests																												(13.4		)		(13.4		)
Change in redemption value of redeemable     noncontrolling interests								41.8				4.5												46.3								46.3
Repurchases of common stock																				(117.1		)		(117.1		)						(117.1		)
Common stock dividends ($0.210 per share)												(241.6		)										(241.6		)						(241.6		)
Stock-based compensation	4.7			0.5				63.3																63.8								63.8
Exercise of stock options	1.4			0.1				9.1																9.2								9.2
Shares withheld for taxes	(1.2	)		(0.1		)		(28.9		)														(29.0		)						(29.0		)
Other								1.3				(1.7		)										(0.4		)		3.6				3.2
Balance at September 30, 2018	391.1			$	39.1			$	1,041.8			$	2,158.4			$	(925.3	)		$	(176.1	)		$	2,137.9			$	32.3			$	2,170.2

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 2018 Annual Report on Form 10-K.

Cost of services is comprised of the expenses of our revenue-producing reportable segments, Integrated Agency Networks ("IAN") and Constituency Management Group ("CMG"), including salaries and related expenses, office and other direct expenses and billable expenses, and includes an allocation of the centrally managed expenses of 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 of our Corporate and other group, 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 relate to the Company's implementation of a cost initiative to better align our cost structure with our revenue, as discussed further in Note 9.

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

Note 2:  Revenue

Disaggregation of Revenue

We have two reportable segments as of September 30, 2019: IAN and CMG, as further discussed in Note 13. IAN principally generates revenue from providing advertising and media services as well as a comprehensive array of global communications, marketing services and data management. CMG generates revenue from providing events and public relations services as well as sports and entertainment marketing, corporate and brand identity, and strategic marketing consulting.

Our agencies are located in over 110 countries, including every significant world market. Our geographic revenue breakdown is listed below.

	Three months ended September 30,								Nine months ended September 30,
Total revenue:	2019				2018				2019				2018
United States	$	1,550.9			$	1,407.1			$	4,681.1			$	4,203.5
International:
United Kingdom	201.9				220.9				617.9				626.9
Continental Europe	177.6				177.5				565.8				564.3
Asia Pacific	262.7				267.3				753.3				803.0
Latin America	109.2				95.3				300.3				267.8
Other	135.8				129.4				401.1				392.9
Total International	887.2				890.4				2,638.4				2,654.9
Total Consolidated	$	2,438.1			$	2,297.5			$	7,319.5			$	6,858.4

 

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

	Three months ended September 30,								Nine months ended September 30,
Net revenue:	2019				2018				2019				2018
United States	$	1,313.0			$	1,160.9			$	3,964.8			$	3,424.7
International:
United Kingdom	172.1				174.0				522.8				513.2
Continental Europe	155.7				152.0				495.8				489.4
Asia Pacific	205.0				210.6				588.1				603.6
Latin America	97.8				84.0				270.2				239.9
Other	117.8				114.2				350.4				347.1
Total International	748.4				734.8				2,227.3				2,193.2
Total Consolidated	$	2,061.4			$	1,895.7			$	6,192.1			$	5,617.9

 

IAN	Three months ended September 30,								Nine months ended September 30,
Total revenue:	2019				2018				2019				2018
United States	$	1,185.3			$	1,064.2			$	3,611.2			$	3,150.6
International	718.6				710.5				2,133.5				2,122.1
Total IAN	$	1,903.9			$	1,774.7			$	5,744.7			$	5,272.7
Net revenue:
United States	$	1,103.0			$	952.9			$	3,354.0			$	2,814.2
International	640.9				627.6				1,906.9				1,876.7
Total IAN	$	1,743.9			$	1,580.5			$	5,260.9			$	4,690.9

 

CMG	Three months ended September 30,								Nine months ended September 30,
Total revenue:	2019				2018				2019				2018
United States	$	365.6			$	342.9			$	1,069.9			$	1,052.9
International	168.6				179.9				504.9				532.8
Total CMG	$	534.2			$	522.8			$	1,574.8			$	1,585.7
Net revenue:
United States	$	210.0			$	208.0			$	610.8			$	610.5
International	107.5				107.2				320.4				316.5
Total CMG	$	317.5			$	315.2			$	931.2			$	927.0

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

	September 30, 2019				December 31, 2018
Accounts receivable, net of allowance of $38.8 and $42.5, respectively	$	4,047.8			$	5,126.6
Accounts receivable, billable to clients	2,018.7				1,900.6
Contract assets	57.8				67.9
Contract liabilities (deferred revenue)	562.4				533.9

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

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. For those contracts with a term of more than one year, we had approximately $759.0 of unsatisfied performance obligations as of September 30, 2019, which will be recognized as services are performed over the remaining contractual terms.

Note 3:  Leases

Effective January 1, 2019, we adopted Accounting Standards Codification Topic 842, Leases, using the modified retrospective transition method. As such, we have recognized a right-of-use asset and a corresponding lease liability on our Consolidated Balance Sheet for virtually all of our leases with a term of more than twelve months. Prior-year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. As an accounting policy, we have elected not to apply the recognition requirements to short-term leases, not to separate non-lease components from lease components, and have elected the package of transition provisions available for existing contracts, which allowed us to carry forward our historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs.

We do not have a material amount of finance leases and the majority of our operating leases, for which we serve as the lessee, consist primarily of real-estate property for our offices around the world. Both the asset and liability are measured at the present value of the future lease payments, with the asset being subject to adjustments such as initial direct costs, prepaid lease payments, and lease incentives. Many of our leases provide for renewal and/or termination options, as well as escalation clauses, which are also factored into our lease payments when appropriate. Our leases have remaining lease terms of 1 year to 20 years. The discount rate used to measure the lease asset and liability is determined at the beginning of the lease term using the rate implicit in the lease, if readily determinable, or using the Company's collateralized credit-adjusted borrowing rate.

The following table presents information on our operating leases for the three and nine months ended September 30, 2019.

	Three months ended September 30, 2019				Nine months ended September 30, 2019
Operating lease cost	$	80.9			$	240.3
Short-term lease cost	3.1				13.1
Sublease income	(3.8		)		(8.6		)
Total lease cost	$	80.2			$	244.8
					Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities					$	247.2
Right-of-use assets obtained in exchange for lease liabilities					$	359.0
					As of September 30, 2019
Weighted-average remaining lease term					Eight years
Weighted-average discount rate					4.32		%

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Our future payments of our operating leases as of September 30, 2019 are listed in the table below.

Period	Net Rent
2019	$	83.6
2020	322.9
2021	291.5
2022	260.5
2023	202.3
Thereafter	861.2
Total future lease payments	2,022.0
Less: imputed interest	(326.0		)
Present value of future lease payments	1,696.0
Less: current portion of operating leases	261.6
Non-current operating leases	$	1,434.4

Our future payments of our operating leases as of December 31, 2018 are listed in the table below.

Period	Rent Obligations				Sublease Rental Income				Net Rent
2019	$	352.0			$	(7.7	)		$	344.3
2020	324.3				(5.2		)		319.1
2021	282.3				(2.2		)		280.1
2022	242.5				(1.3		)		241.2
2023	184.0				(0.6		)		183.4
Thereafter	714.6				(0.5		)		714.1
Total future lease payments	$	2,099.7			$	(17.5	)		$	2,082.2

As of September 30, 2019, we have additional operating leases that have not yet commenced with future lease payments of approximately $151.0 that will commence between 2019 and 2020 with lease terms of 4 to 15 years.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 4:  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, 2019								December 31, 2018
			Book Value				Fair Value 1				Book Value				Fair Value 1
3.50% Senior Notes due 2020 (less unamortized discount and issuance costs of $0.5 and $1.5, respectively)	3.89%		$	498.0			$	505.8			$	496.6			$	499.9
3.75% Senior Notes due 2021 (less unamortized discount and issuance costs of $0.3 and $2.1, respectively)	3.98%		497.6				513.2				496.8				503.2
4.00% Senior Notes due 2022 (less unamortized discount and issuance costs of $0.8 and $0.6, respectively)	4.13%		248.6				258.6				248.2				250.3
3.75% Senior Notes due 2023 (less unamortized discount and issuance costs of $0.5 and $1.4, respectively)	4.32%		498.1				523.6				497.7				491.4
4.20% Senior Notes due 2024 (less unamortized discount and issuance costs of $0.5 and $1.9, respectively)	4.24%		497.6				535.9				497.3				492.6
4.65% Senior Notes due 2028 (less unamortized discount and issuance costs of $1.6 and $4.0, respectively)	4.78%		494.4				561.4				494.0				494.1
5.40% Senior Notes due 2048 (less unamortized discount and issuance costs of $2.8 and $5.4, respectively)	5.48%		491.8				596.7				491.7				474.1
Term Loan due 2021 - LIBOR plus 1.25%			100.0				100.0				400.0				400.0
Other notes payable and capitalized leases			44.3				44.3				38.0				38.0
Total long-term debt			3,370.4								3,660.3
Less: current portion			3.3								0.1
Long-term debt, excluding current portion			$	3,367.1							$	3,660.2

1	See Note 14 for information on the fair value measurement of our long-term debt.

Term Loan Agreement

On October 1, 2018, in order to fund the acquisition of Acxiom, we entered into financing arrangements with third-party lenders under a three-year term loan agreement (the "Term Loan Agreement"). On June 13, 2019 and September 9, 2019, we repaid $100.0 and $200.0, respectively, of the outstanding balance which reduced our borrowings under the agreement to $100.0. Consistent with our other debt securities, the Term Loan Agreement includes covenants that, among other things, limit our liens and the liens of certain of our consolidated subsidiaries. We were in compliance with all of our covenants in the Term Loan Agreement as of September 30, 2019.

Credit Agreements

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 2022, 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 $50.0, or the equivalent in other currencies. Our obligations under the Credit Agreement are unsecured. As of September 30, 2019, there were no borrowings under the Credit Agreement; however, we had $8.6 of letters of credit under the Credit Agreement, which reduced our total availability to $1,491.4. We were in compliance with all of our covenants in the Credit Agreement as of September 30, 2019.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

We also have uncommitted lines of credit with various banks that permit borrowings at variable interest rates and that 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 operations. As of September 30, 2019, the Company had uncommitted lines of credit in an aggregate amount of $1,091.2, under which we had outstanding borrowings of $64.8 classified as short-term borrowings on our Consolidated Balance Sheet. The average amount outstanding during the third quarter of 2019 was $106.6, with a weighted-average interest rate of approximately 5.3%.

Commercial Paper

The Company is authorized to issue unsecured commercial paper up to a maximum aggregate amount outstanding at any time of $1,500.0. Borrowings under the program are supported by the Credit Agreement described above. Proceeds of the commercial paper are 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. As of September 30, 2019, there was $180.0 of commercial paper outstanding classified as short-term borrowings on our Consolidated Balance Sheet. The average amount outstanding under the program during the third quarter of 2019 was $349.5, with a weighted-average interest rate of 2.5% and a weighted-average maturity of 9 days.

Note 5:  Acquisitions

Acxiom Acquisition

On October 1, 2018, the Company completed its acquisition of Acxiom. The purchase accounting for the transaction was finalized during the third quarter of 2019, including the assignment of goodwill related to the transaction-associated synergies. There were no material adjustments to the preliminary amounts recorded.

Other Acquisitions

During the first nine months of 2019, we completed one acquisition, a content communications agency based in the U.K. This acquisition was included in the IAN reportable segment. During the first nine months of 2019, we recorded $7.6 of goodwill and intangible assets related to our acquisitions.

During the first nine months of 2018, we completed three acquisitions, including a full-service digital agency based in Brazil, an entertainment marketing and brand licensing agency in the fashion and lifestyle sector based in the United Kingdom., and a content-focused social creative agency based in the United Kingdom All three of our acquisitions were included in the CMG reportable segment. During the first nine months of 2018, we recorded $24.0 of goodwill and intangible assets related to our 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.

	Nine months ended September 30,
	2019				2018
Cost of investment: current-year acquisitions	$	0.6			$	12.3
Cost of investment: prior-year acquisitions	15.3				30.6
Less: net cash acquired	—				(0.5		)
Total cost of investment	15.9				42.4
Operating payments 1	9.3				18.3
Total cash paid for acquisitions 2	$	25.2			$	60.7

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, $0.6 and $12.0 for the nine months ended September 30, 2019 and 2018, 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, $15.3 and $30.4 for the nine months ended September 30, 2019 and 2018, 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.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

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 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.

	Nine months ended September 30,
	2019				2018
Balance at beginning of period	$	167.9			$	252.1
Change in related noncontrolling interests balance	(2.1		)		(15.5		)
Changes in redemption value of redeemable noncontrolling interests:
Additions	24.3				0.0
Redemptions	(3.1		)		(33.7		)
Redemption value adjustments	(1.6		)		(43.2		)
Balance at end of period	$	185.4			$	159.7

Note 6: Earnings Per Share

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

	Three months ended September 30,								Nine months ended September 30,
	2019				2018				2019				2018
Net income available to IPG common stockholders	$	165.6			$	161.0			$	327.1			$	292.7
Weighted-average number of common shares outstanding - basic	386.7				382.6				385.8				383.2
Dilutive effect of stock options and restricted shares	5.1				5.8				4.5				5.2
Weighted-average number of common shares outstanding - diluted	391.8				388.4				390.3				388.4
Earnings per share available to IPG common stockholders:
Basic	$	0.43			$	0.42			$	0.85			$	0.76
Diluted	$	0.42			$	0.41			$	0.84			$	0.75

Note 7:  Supplementary Data

Accrued Liabilities

The following table presents the components of accrued liabilities.

	September 30, 2019				December 31, 2018
Salaries, benefits and related expenses	$	395.3			$	494.9
Interest	59.1				43.6
Acquisition obligations	41.6				65.7
Office and related expenses	24.3				52.2
Restructuring charges	3.6				0.0
Other	110.4				150.5
Total accrued liabilities	$	634.3			$	806.9

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Other Expense, Net

Results of operations for the three and nine months ended September 30, 2019 and 2018 include certain items that are not directly associated with our revenue-producing operations.

	Three months ended September 30,								Nine months ended September 30,
	2019				2018				2019				2018
Net losses on sales of businesses	$	(7.7	)		$	(5.8	)		$	(19.5	)		$	(50.0	)
Other	0.3				(9.5		)		1.4				(6.0		)
Total other expense, net	$	(7.4	)		$	(15.3	)		$	(18.1	)		$	(56.0	)

Net losses on sales of businesses – During the three and nine months ended September 30, 2019, 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 reportable segment. During the three and nine months ended September 30, 2018, 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 CMG reportable segments. The businesses held for sale primarily represent unprofitable, non-strategic agencies which are expected to be sold within the next twelve months.

Other – During the nine months ended September 30, 2019, the amounts recognized are primarily a result of changes in fair market value of equity investments, partially offset by the sale of an equity investment. During the three and nine months ended September 30, 2018, the amounts recognized are primarily a result of transaction-related costs from the Acxiom acquisition.

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 September 30, 2019, $338.4, excluding fees, remains available for repurchase under the share repurchase programs authorized in previous years, which have no expiration date.

Note 8:  Income Taxes

For the three and nine months ended September 30, 2019, our income tax provision was negatively impacted by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances, and net losses on sales of businesses and the classification of certain assets as held for sale, for which we did not receive a tax benefit, partially offset by excess tax benefits on employee share-based payments. For the nine months ended September 30, 2019, our income tax provision was also positively impacted by the settlement of state income tax audits.

We have various tax years under examination by tax authorities in various countries, and in various states, 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 $10.0 and $20.0 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. With limited exceptions, we are no longer subject to state and local income tax audits for years prior to 2013 or non-U.S. income tax audits for years prior to 2009.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 9:  Restructuring Charges

In the first quarter of 2019, the Company implemented a cost initiative (the "2019 Plan") to better align our cost structure with our revenue primarily related to specific client losses occurring in 2018, the components of which are listed below.

	Nine months ended September 30, 2019
Severance and termination costs	$	22.0
Lease restructuring costs	11.9
Total restructuring charges	$	33.9

Net restructuring charges were comprised of $27.6 at IAN and $5.6 at CMG for the first nine months of 2019. All restructuring actions were identified and initiated by the end of the first quarter of 2019, with all actions substantially completed by the end of the second quarter of 2019 and we don't expect any further restructuring adjustments.

During the first nine months of 2019, severance and termination costs related to a planned reduction in workforces of 627 employees. The employee groups affected include executive, regional and account management as well as administrative, creative and media production personnel. Cash payments of $18.4 were made during the first nine months of 2019, with the remaining liability of $3.6 expected to be paid by the end of the fourth quarter of 2019.

Lease impairment costs relate to the office spaces that were vacated as part of the 2019 Plan, which includes impairment on the right-of-use asset of operating leases, furniture, and leasehold improvements. Given the remaining lease terms involved, the lease obligation will be paid out over a period of several years, net of sublease income.

Note 10:  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. In May 2019, our shareholders approved the 2019 Performance Incentive Plan (the “2019 PIP”), replacing the 2014 Performance Incentive Plan (the “2014 PIP”) and previous incentive plans. The number of shares of common stock initially available for grants of all equity awards under the 2019 PIP is 27.0. Pursuant to the terms of the 2019 PIP, the number of shares that may be awarded to any one participant for any stock based awards is limited to 2.0 shares in the aggregate. The vesting period of awards granted is generally commensurate with the requisite service period. We generally issue new shares to satisfy the exercise of stock options or the distribution of other stock-based awards.

Additionally, under the 2019 PIP, we have the ability to issue performance cash awards. The performance cash awards are granted to certain employees who otherwise would have been eligible to receive performance-based stock awards. These awards have a service period vesting condition and a performance vesting condition. The amount of the performance cash award received by an employee with a performance vesting condition can range from 0% to 300% of the target amount of the original grant value. Performance cash awards generally vest in three years. A committee of the Board of Directors may grant performance cash awards to any eligible employee; however, no employee can receive more than $10.0 during a performance period.

We issued the following stock-based awards under the 2014 PIP and 2019 PIP during the nine months ended September 30, 2019.

	Awards			Weighted-average grant-date fair value (per award)
Restricted stock (shares or units)	2.5			$	22.78
Performance-based stock (shares)	2.1			$	20.16
Total stock-based compensation awards	4.6

During the nine months ended September 30, 2019, the Compensation Committee granted performance cash awards under the 2014 and 2019 PIP and restricted cash awards under the 2009 Restricted Cash Plan with a total annual target value of $40.6 and $20.3, respectively. Cash awards are expensed over the vesting period, typically three years.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 11:  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, 2018	$	(716.4	)		$	(5.3	)		$	(219.4	)		$	(941.1	)
Other comprehensive (loss) income before reclassifications	(37.2		)		0.0				1.6				(35.6		)
Amount reclassified from accumulated other comprehensive loss, net of tax	5.2				1.4				3.9				10.5
Balance as of September 30, 2019	$	(748.4	)		$	(3.9	)		$	(213.9	)		$	(966.2	)

	Foreign Currency Translation Adjustments				Derivative Instruments				Defined Benefit Pension and Other Postretirement Plans				Total
Balance as of December 31, 2017	$	(585.3	)		$	(6.8	)		$	(235.7	)		$	(827.8	)
Other comprehensive loss before reclassifications	(119.6		)		0.0				(0.6		)		(120.2		)
Amount reclassified from accumulated other comprehensive loss, net of tax	16.7				1.2				4.8				22.7
Balance as of September 30, 2018	$	(688.2	)		$	(5.6	)		$	(231.5	)		$	(925.3	)

Amounts reclassified from accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, 2019 and 2018 are as follows:

	Three months ended September 30,								Nine months ended September 30,								Affected Line Item in the Consolidated Statements of Operations
	2019				2018				2019				2018
Foreign currency translation adjustments	$	(0.6	)		$	3.3			$	5.2			$	16.7			Other expense, net
Losses on derivative instruments	0.6				0.6				1.8				1.7				Interest expense
Amortization of defined benefit pension and postretirement plan items	1.7				1.9				5.0				6.0				Other expense, net
Tax effect	(0.6		)		(0.6		)		(1.5		)		(1.7		)		Provision for income taxes
Total amount reclassified from accumulated other comprehensive loss, net of tax	$	1.1			$	5.2			$	10.5			$	22.7

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 12:  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. 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,	2019				2018				2019				2018				2019				2018
Service cost	$	0.0			$	0.0			$	1.2			$	1.1			$	0.0			$	0.0
Interest cost	1.2				1.2				3.0				3.1				0.3				0.3
Expected return on plan assets	(1.5		)		(1.7		)		(4.2		)		(4.5		)		0.0				0.0
Settlements and curtailments	0.0				0.0				0.0				0.1				0.0				0.0
Amortization of:
Prior service cost (credit)	0.0				0.0				0.0				0.0				0.0				0.0
Unrecognized actuarial losses	0.5				0.4				1.2				1.4				0.0				0.0
Net periodic cost	$	0.2			$	(0.1	)		$	1.2			$	1.2			$	0.3			$	0.3

	Domestic Pension Plan								Foreign Pension Plans								Domestic Postretirement Benefit Plan
Nine months ended September 30,	2019				2018				2019				2018				2019				2018
Service cost	$	0.0			$	0.0			$	3.5			$	3.1			$	0.0			$	0.0
Interest cost	3.6				3.4				9.3				9.9				0.9				0.8
Expected return on plan assets	(4.4		)		(5.0		)		(13.0		)		(14.2		)		0.0				0.0
Settlements and curtailments	0.0				0.0				0.0				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	1.4				1.2				3.6				4.4				0.0				0.1
Net periodic cost	$	0.6			$	(0.4	)		$	3.5			$	3.6			$	0.8			$	0.8

The components of net periodic cost other than the service cost component are included in the line item “Other expense, net” in the Consolidated Statements of Operations.

During the nine months ended September 30, 2019, we contributed $1.9 and $13.1 of cash to our domestic and foreign pension plans, respectively. For the remainder of 2019, we expect to contribute approximately $1.0 and $4.0 of cash to our domestic and foreign pension plans, respectively.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

Note 13:  Segment Information

As of September 30, 2019, we have two reportable segments: IAN and CMG. IAN is comprised of McCann Worldgroup, FCB (Foote, Cone & Belding), MullenLowe Group, IPG Mediabrands, Acxiom, our digital specialist agencies 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. Beginning in the first quarter of 2019, Acxiom's results are presented in IAN, although we 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 EBITA. Summarized financial information concerning our reportable segments is shown in the following table.

	Three months ended September 30,								Nine months ended September 30,
	2019				2018				2019				2018
Total revenue:
IAN	$	1,903.9			$	1,774.7			$	5,744.7			$	5,272.7
CMG	534.2				522.8				1,574.8				1,585.7
Total	$	2,438.1			$	2,297.5			$	7,319.5			$	6,858.4
Net revenue:
IAN	$	1,743.9			$	1,580.5			$	5,260.9			$	4,690.9
CMG	317.5				315.2				931.2				927.0
Total	$	2,061.4			$	1,895.7			$	6,192.1			$	5,617.9
Segment EBITA:
IAN	$	261.2			$	240.2			$	637.4			$	543.4
CMG	51.8				49.2				97.3				113.1
Corporate and other	(11.0		)		(22.6		)		(75.4		)		(91.2		)
Total	$	302.0			$	266.8			$	659.3			$	565.3
Amortization of acquired intangibles:
IAN	$	20.6			$	3.9			$	61.3			$	11.9
CMG	1.1				1.2				3.3				3.7
Corporate and other	0.0				0.0				0.0				0.0
Total	$	21.7			$	5.1			$	64.6			$	15.6
Depreciation:
IAN	$	41.3			$	33.0			$	128.8			$	98.2
CMG	4.8				4.9				14.3				14.5
Corporate and other	1.2				1.0				5.4				5.7
Total	$	47.3			$	38.9			$	148.5			$	118.4
Capital expenditures:
IAN	$	44.5			$	35.2			$	106.9			$	82.9
CMG	4.0				4.2				7.9				7.2
Corporate and other	5.2				4.8				19.0				15.6
Total	$	53.7			$	44.2			$	133.8			$	105.7

 

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

	September 30, 2019				December 31, 2018
Total assets 1:
IAN	$	13,998.5			$	13,867.9
CMG	1,656.1				1,516.7
Corporate and other	343.0				235.7
Total	$	15,997.6			$	15,620.3

1 Results for December 31, 2018 have been restated to conform to the current-period presentation.

The following table presents the reconciliation of segment EBITA to Income before income taxes.

	Three months ended September 30,								Nine months ended September 30,
	2019				2018				2019				2018
IAN EBITA	$	261.2			$	240.2			$	637.4			$	543.4
CMG EBITA	51.8				49.2				97.3				113.1
Corporate and other EBITA	(11.0		)		(22.6		)		(75.4		)		(91.2		)
Less: consolidated amortization of acquired intangibles	21.7				5.1				64.6				15.6
Operating income	280.3				261.7				594.7				549.7
Total (expenses) and other income	(47.6		)		(37.6		)		(144.2		)		(115.6		)
Income before income taxes	$	232.7			$	224.1			$	450.5			$	434.1

Note 14:  Fair Value Measurements

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

Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

We primarily apply the market approach to determine the fair value of financial instruments that are measured at fair value on a recurring basis. There were no changes to our valuation techniques used to determine the fair value of financial instruments during the nine months ended September 30, 2019. The following tables present information about our financial instruments measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

	September 30, 2019																Balance Sheet Classification
	Level 1				Level 2				Level 3				Total
Assets
Cash equivalents	$	132.4			$	0.0			$	0.0			$	132.4			Cash and cash equivalents
Liabilities
Contingent acquisition obligations 1	$	0.0			$	0.0			$	106.2			$	106.2			Accrued liabilities and Other non-current liabilities
	December 31, 2018																Balance Sheet Classification
	Level 1				Level 2				Level 3				Total
Assets
Cash equivalents	$	132.1			$	0.0			$	0.0			$	132.1			Cash and cash equivalents
Liabilities
Contingent acquisition obligations 1	$	0.0			$	0.0			$	148.4			$	148.4			Accrued liabilities and Other non-current liabilities

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 $42.2 from December 31, 2018 to September 30, 2019 is primarily due to payments and a reclassification from an arrangement during the second quarter of 2019. 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 September 30, 2019 and December 31, 2018, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	September 30, 2019																December 31, 2018
	Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Total long-term debt	$	0.0			$	3,595.2			$	44.3			$	3,639.5			$	0.0			$	3,605.6			$	38.0			$	3,643.6

Our long-term debt is comprised of senior notes, a term loan and other notes payable. The fair value of our senior notes, which are traded over-the-counter, is based on quoted prices in markets that are not active. Therefore, these senior notes are classified as Level 2 within the fair value hierarchy. Our term loan is a fixed price commitment that cannot be traded on the open market, and therefore is 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. 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 4 for further information on our long-term debt.

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, 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.

Note 15:  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. 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

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Notes to Consolidated Financial Statements – (continued)

(Amounts in Millions, Except Per Share Amounts)

(Unaudited)

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 2018 Annual Report on Form 10-K, we have guaranteed certain obligations of our subsidiaries relating principally to operating leases, uncommitted lines of credit and cash pooling arrangements. As of September 30, 2019 and December 31, 2018, the amount of parent company guarantees on lease obligations was $764.5 and $824.5, respectively, the amount of parent company guarantees relating to uncommitted lines of credit was $310.2 and $349.1, 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 $199.0 and $207.8, respectively.

Note 16:  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.

Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued amended guidance on lease accounting. We adopted the standard using the modified retrospective approach with an effective date of January 1, 2019. Prior-year financial statements were not recast under the new standard. The adoption resulted in the presentation of a right-of-use asset and lease liability on our Consolidated Balance Sheet and corresponding impacts on our Consolidated Statement of Cash Flows, but did not have a significant impact on our Consolidated Statements of Operations. See Note 3 for further discussion on our adoption of the new leases standard.

Financial Instrument Credit Losses

In June 2016, the FASB issued amended guidance on the accounting for credit losses on certain types 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. This amended guidance is 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.

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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 (the "Company," "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 2018 Annual Report on Form 10-K, as well as our other reports and filings with the Securities and Exchange Commission (the "SEC"). Our 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 2018 Annual Report on Form 10-K of our accounting policies that require critical judgment, assumptions and estimates.

RECENT ACCOUNTING STANDARDS, by reference to Note 16 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

We are one of the world’s premier global advertising and marketing services companies. Our companies specialize in consumer advertising, digital marketing, media planning and buying, public relations, specialized communications disciplines and data management. 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 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 acquisitions and strategic alliances and 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 financial goals include competitive organic net revenue growth and expansion of EBITA margin, 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.

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. We exclude the impact of billable expenses in analyzing our operating performance as the fluctuations from period to period are not indicative of the performance of our underlying

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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)

businesses and have no impact on our EBITA, as defined and discussed within the Non-GAAP Financial Measure section of this MD&A, 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 currencies that most adversely impacted our results during the first nine months of 2019 were the British Pound Sterling and Euro.

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, including the acquisition of Acxiom, 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 EBITA. These metrics are also used by management to assess the financial performance of our reportable segments, Integrated Agency Networks ("IAN") and Constituency Management Group ("CMG"). In certain of our discussions, we analyze net revenue by geographic region and by business sector, in which we focus on our top 100 clients, which typically constitute approximately 55% to 60% of our annual consolidated net revenues.

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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)

The following table presents a summary of our financial performance for the three and nine months ended September 30, 2019 and 2018.

	Three months ended September 30,											Nine months ended September 30,
Statement of Operations Data	2019				2018				% Increase/ (Decrease)			2019				2018				% Increase/ (Decrease)
REVENUE:
Net revenue	$	2,061.4			$	1,895.7			8.7	%		$	6,192.1			$	5,617.9			10.2	%
Billable expenses	376.7				401.8				(6.2	)%		1,127.4				1,240.5				(9.1	)%
Total revenue	$	2,438.1			$	2,297.5			6.1	%		$	7,319.5			$	6,858.4			6.7	%
OPERATING INCOME	$	280.3			$	261.7			7.1	%		$	594.7			$	549.7			8.2	%
EBITA 1	$	302.0			$	266.8			13.2	%		$	659.3			$	565.3			16.6	%
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS	$	165.6			$	161.0						$	327.1			$	292.7
Earnings per share available to IPG common stockholders:
Basic	$	0.43			$	0.42						$	0.85			$	0.76
Diluted	$	0.42			$	0.41						$	0.84			$	0.75
Operating Ratios