IPG 03.31.13 10Q


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 March 31, 2013
or
 
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.
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
(Do not check if a smaller reporting company)
  
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No ý
The number of shares of the registrant’s common stock outstanding as of April 15, 2013 was 428,397,893.


INDEX
 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
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.

1
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
March 31,
 
2013
 
2012
REVENUE
$
1,543.0

 
$
1,506.8

 
 
 
 
OPERATING EXPENSES:
 
 
 
Salaries and related expenses
1,132.1

 
1,104.9

Office and general expenses
453.3

 
441.3

Total operating expenses
1,585.4

 
1,546.2

 
 
 
 
OPERATING LOSS
(42.4
)
 
(39.4
)
 
 
 
 
EXPENSES AND OTHER INCOME:
 
 
 
Interest expense
(36.8
)
 
(32.6
)
Interest income
6.4

 
8.0

Other income (expense), net
1.8

 
(1.3
)
Total (expenses) and other income
(28.6
)
 
(25.9
)
 
 
 
 
Loss before income taxes
(71.0
)
 
(65.3
)
Benefit of income taxes
(12.4
)
 
(19.2
)
Loss of consolidated companies
(58.6
)
 
(46.1
)
Equity in net income of unconsolidated affiliates
0.1

 
0.4

NET LOSS
(58.5
)
 
(45.7
)
Net loss attributable to noncontrolling interests
2.2

 
2.7

NET LOSS ATTRIBUTABLE TO IPG
(56.3
)
 
(43.0
)
Dividends on preferred stock
(2.9
)
 
(2.9
)
NET LOSS AVAILABLE TO IPG COMMON STOCKHOLDERS
$
(59.2
)
 
$
(45.9
)
 
 
 
 
Loss per share available to IPG common stockholders - basic and diluted
$
(0.14
)
 
$
(0.10
)
 
 
 
 
Weighted-average number of common shares outstanding - basic and diluted
414.2
 
437.6
 
 
 
 
Dividends declared per common share
$
0.075

 
$
0.060

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

2
Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Millions)
(Unaudited)
 
Three months ended
March 31,
 
2013
 
2012
NET LOSS
$
(58.5
)
 
$
(45.7
)
 
 
 
 
OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
Foreign currency translation adjustments
(38.8
)
 
45.1

 
 
 
 
Available-for-sale securities:
 
 
 
Changes in market value of available-for-sale securities
0.4

 
0.5

Less: recognition of previously unrealized (gains) losses included in net loss
(1.0
)
 
0.6

Income tax effect
0.1

 
0.0

 
(0.5
)
 
1.1

 
 
 
 
Derivative instruments:
 
 
 
Changes in fair value of derivative instruments
0.0

 
(2.8
)
Less: recognition of previously unrealized losses in net loss
0.4

 
0.0

Income tax effect
(0.2
)
 
0.0

 
0.2

 
(2.8
)
 
 
 
 
Defined benefit pension and other postretirement plans:
 
 
 
Net actuarial gains for the period
(1.1
)
 
(0.3
)
Less: amortization of unrecognized losses, transition obligation and
prior service cost included in net loss
2.8

 
1.9

Other
(0.5
)
 
(0.1
)
Income tax effect
(0.7
)
 
(0.5
)
 
0.5

 
1.0

 
 
 
 
Other comprehensive (loss) income, net of tax
(38.6
)
 
44.4

TOTAL COMPREHENSIVE LOSS
(97.1
)
 
(1.3
)
Less: comprehensive loss attributable to noncontrolling interests
(3.4
)
 
(2.2
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO IPG
$
(93.7
)
 
$
0.9


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
















3
Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
(Unaudited)
 
March 31,
2013
 
December 31,
2012
ASSETS:
 
 
 
Cash and cash equivalents
$
1,645.7

 
$
2,574.8

Marketable securities
5.4

 
16.0

Accounts receivable, net of allowance of $61.0 and $59.0
3,885.7

 
4,496.6

Expenditures billable to clients
1,511.4

 
1,318.8

Other current assets
400.0

 
332.1

Total current assets
7,448.2

 
8,738.3

Furniture, equipment and leasehold improvements, net of accumulated
    depreciation of $1,136.6 and $1,134.9
485.6

 
504.8

Deferred income taxes
182.4

 
160.5

Goodwill
3,588.9

 
3,580.6

Other non-current assets
513.2

 
509.7

TOTAL ASSETS
$
12,218.3

 
$
13,493.9

 
 
 
 
LIABILITIES:
 
 
 
Accounts payable
$
5,650.2

 
$
6,584.8

Accrued liabilities
596.4

 
728.2

Short-term borrowings
159.7

 
172.1

Current portion of long-term debt
1.9

 
216.6

Total current liabilities
6,408.2

 
7,701.7

Long-term debt
2,071.6

 
2,060.8

Deferred compensation
465.7

 
489.0

Other non-current liabilities
555.1

 
558.6

TOTAL LIABILITIES
9,500.6

 
10,810.1

 
 
 
 
Redeemable noncontrolling interests (see Note 5)
235.3
 
227.2
 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock
221.5

 
221.5

Common stock
50.9

 
48.8

Additional paid-in capital
2,705.6

 
2,465.4

Retained earnings
648.7

 
738.3

Accumulated other comprehensive loss, net of tax
(325.4
)
 
(288.0
)
 
3,301.3

 
3,186.0

Less: Treasury stock
(852.0
)
 
(765.4
)
Total IPG stockholders’ equity
2,449.3

 
2,420.6

Noncontrolling interests
33.1

 
36.0

TOTAL STOCKHOLDERS’ EQUITY
2,482.4

 
2,456.6

TOTAL LIABILITIES AND EQUITY
$
12,218.3

 
$
13,493.9

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

4
Table of Contents

THE INTERPUBLIC GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
(Unaudited)
 
Three months ended
March 31,
  
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(58.5
)
 
$
(45.7
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization of fixed assets and intangible assets
38.2

 
34.6

Provision for uncollectible receivables
3.8

 
6.7

Amortization of restricted stock and other non-cash compensation
15.5

 
16.7

Net amortization of bond discounts (premiums) and deferred financing costs
1.4

 
(1.7
)
Deferred income tax benefit
(49.5
)
 
(51.5
)
Other
(0.4
)
 
10.4

Changes in assets and liabilities, net of acquisitions and dispositions, providing (using) cash:
 
 
 
Accounts receivable
567.4

 
742.3

Expenditures billable to clients
(206.2
)
 
(193.7
)
Other current assets
(53.2
)
 
(34.1
)
Accounts payable
(898.2
)
 
(808.4
)
Accrued liabilities
(131.8
)
 
(150.9
)
Other non-current assets and liabilities
(3.6
)
 
(23.2
)
Net cash used in operating activities
(775.1
)
 
(498.5
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisitions, including deferred payments, net of cash acquired
(34.9
)
 
(2.1
)
Capital expenditures
(17.8
)
 
(22.4
)
Net sales (purchases) and maturities of short-term marketable securities
11.1

 
(0.3
)
Other investing activities
1.8

 
3.5

Net cash used in investing activities
(39.8
)
 
(21.3
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Purchase of long-term debt
(0.2
)
 
(400.1
)
Proceeds from issuance of long-term debt
0.0

 
246.8

Repurchase of common stock
(75.8
)
 
(52.5
)
Common stock dividends
(31.0
)
 
(26.2
)
Net (decrease) increase in short-term bank borrowings
(11.4
)
 
3.8

Distributions to noncontrolling interests
(1.2
)
 
(1.8
)
Preferred stock dividends
(2.9
)
 
(2.9
)
Exercise of stock options
18.1

 
4.9

Other financing activities
0.3

 
(1.0
)
Net cash used in financing activities
(104.1
)
 
(229.0
)
Effect of foreign exchange rate changes on cash and cash equivalents
(10.1
)
 
19.2

Net decrease in cash and cash equivalents
(929.1
)
 
(729.6
)
Cash and cash equivalents at beginning of period
2,574.8

 
2,302.7

Cash and cash equivalents at end of period
$
1,645.7

 
$
1,573.1

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

5
Table of Contents

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 loss
 
 
 
 
 
 
 
 
(56.3
)
 
 
 
 
 
(56.3
)
 
(2.2
)
 
(58.5
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(37.4
)
 
 
 
(37.4
)
 
(1.2
)
 
(38.6
)
Reclassifications related to redeemable
    noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.7

 
1.7

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1.2
)
 
(1.2
)
Change in redemption value of redeemable
    noncontrolling interests
 
 
 
 
 
 
 
 
0.9

 
 
 
 
 
0.9

 
 
 
0.9

Repurchase of common stock
 
 
 
 
 
 
 
 
 
 
 
 
(75.8
)
 
(75.8
)
 
 
 
(75.8
)
Common stock dividends
 
 
 
 
 
 
 
 
(31.0
)
 
 
 
 
 
(31.0
)
 
 
 
(31.0
)
Preferred stock dividends
 
 
 
 
 
 
 
 
(2.9
)
 
 
 
 
 
(2.9
)
 
 
 
(2.9
)
Conversion of convertible notes to common stock
 
 
16.9

 
1.7

 
198.3

 
 
 
 
 
 
 
200.0

 
 
 
200.0

Capped call transaction
 
 
 
 
 
 
10.8

 
 
 
 
 
(10.8
)
 
0.0

 
 
 
0.0

Stock-based compensation
 
 
0.9

 
0.4

 
26.4

 
 
 
 
 
 
 
26.8

 
 
 
26.8

Exercise of stock options
 
 
1.7

 
0.2

 
18.1

 
 
 
 
 
 
 
18.3

 
 
 
18.3

Shares withheld for taxes
 
 
(0.1
)
 
(0.2
)
 
(19.2
)
 
 
 
 
 
 
 
(19.4
)
 
 
 
(19.4
)
Other
 
 
 
 
 
 
5.8

 
(0.3
)
 
 
 
 
 
5.5

 
 
 
5.5

Balance at March 31, 2013
$
221.5

 
511.4

 
$
50.9

 
$
2,705.6

 
$
648.7

 
$
(325.4
)
 
$
(852.0
)
 
$
2,449.3

 
$
33.1

 
$
2,482.4

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

6
Table of Contents

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 loss
 
 
 
 
 
 
 
 
(43.0
)
 
 
 
 
 
(43.0
)
 
(2.7
)
 
(45.7
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
43.9

 
 
 
43.9

 
0.5

 
44.4

Reclassifications related to redeemable
    noncontrolling interests
 
 
 
 
 
 
13.0

 
 
 
 
 
 
 
13.0

 
3.9

 
16.9

Noncontrolling interest transactions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.8
)
 
(0.8
)
Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1.8
)
 
(1.8
)
Change in redemption value of redeemable
    noncontrolling interests
 
 
 
 
 
 
 
 
3.3

 
 
 
 
 
3.3

 
 
 
3.3

Repurchase of common stock
 
 
 
 
 
 
 
 
 
 
 
 
(52.5
)
 
(52.5
)
 
 
 
(52.5
)
Common stock dividends
 
 
 
 
 
 
 
 
(26.2
)
 
 
 
 
 
(26.2
)
 
 
 
(26.2
)
Preferred stock dividends
 
 
 
 
 
 
 
 
(2.9
)
 
 
 
 
 
(2.9
)
 
 
 
(2.9
)
Stock-based compensation
 
 
(0.1
)
 
0.6

 
13.4

 
 
 
 
 
 
 
14.0

 
 
 
14.0

Exercise of stock options
 
 
0.4

 
0.1

 
4.9

 
 
 
 
 
 
 
5.0

 
 
 
5.0

Shares withheld for taxes
 
 
(0.1
)
 
(0.2
)
 
(22.5
)
 
 
 
 
 
 
 
(22.7
)
 
 
 
(22.7
)
Other
 
 


 


 
0.9

 
(0.6
)
 
 
 
 
 
0.3

 
(0.5
)
 
(0.2
)
Balance at March 31, 2012
$
221.5

 
491.6

 
$
48.7

 
$
2,437.2

 
$
335.7

 
$
(181.8
)
 
$
(467.4
)
 
$
2,393.9

 
$
34.2

 
$
2,428.1

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

7
Table of Contents

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
 
March 31,
2013
 
December 31,
2012
Book
Value
 
Fair
Value 1
 
Book
Value
 
Fair
Value 1
6.25% Senior Unsecured Notes due 2014 (less unamortized
discount of $0.2)
6.29%
 
$
352.4

 
$
376.8

 
$
352.8

 
$
372.6

10.00% Senior Unsecured Notes due 2017 (less unamortized
discount of $7.7)
10.38%
 
592.3

 
642.8

 
591.9

 
660.8

2.25% Senior Notes due 2017 (less unamortized
discount of $0.7)
2.30%
 
299.3

 
299.0

 
299.3

 
297.8

4.00% Senior Notes due 2022 (less unamortized
discount of $2.8)
4.13%
 
247.2

 
252.4

 
247.1

 
258.7

3.75% Senior Notes due 2023 (less unamortized
discount of $1.5)
4.32%
 
498.5

 
482.9

 
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
 
 
83.8

 
83.9

 
87.3

 
90.8

Total long-term debt
 
 
2,073.5

 
 
 
2,277.4

 
 
Less: current portion 2
 
 
1.9

 
 
 
216.6

 
 
Long-term debt, excluding current portion
 
 
$
2,071.6

 
 
 
$
2,060.8

 
 
 
1 
See Note 11 for information on the fair value measurement of our long-term debt.
2 
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 a repurchase option 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
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.







8
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

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. As of March 31, 2013, we received 0.8 settlement shares from the option counterparties. The remaining exercised capped call options settled in April 2013.

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 quarter of 2013, we reclassified $0.4 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 March 31, 2013.

Note 3:  Convertible Preferred Stock
The conversion rate of our 5 1/4% Series B Cumulative Convertible Perpetual Preferred Stock (the "Series B Preferred Stock")is subject to adjustment upon the occurrence of certain events, including the payment of cash dividends on our common stock. During the 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.

Note 4:  Loss Per Share
The following sets forth basic and diluted loss per common share available to IPG common stockholders.
 
Three months ended
March 31,
 
2013
 
2012
Net loss available to IPG common stockholders
$
(59.2
)
 
$
(45.9
)
Weighted-average number of common shares outstanding - basic and diluted
414.2

 
437.6

Loss per share available to IPG common stockholders - basic and diluted
$
(0.14
)
 
$
(0.10
)
Basic and diluted shares outstanding and loss per share are equal for the three months ended March 31, 2013 and 2012 because our potentially dilutive securities are antidilutive as a result of the net loss available to IPG common stockholders in each period presented.







9
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

The following table presents the potential shares excluded from the diluted loss per share calculation because the effect of including these potential shares would be antidilutive.
 
Three months ended
March 31,
 
2013
 
2012
Restricted stock, stock options and other equity awards
5.7

 
6.3

4.75% Notes 1
13.4

 
16.5

4.25% Notes 1
0.0

 
30.9

Preferred stock outstanding
17.1

 
16.7

Total
36.2

 
70.4

 
 
 
 
Securities excluded from the diluted loss per share calculation
because the exercise price was greater than the average market price:
 
 
 
Stock options 2
3.2

 
7.2

 
1 
We retired all of our outstanding 4.75% Notes and 4.25% Notes in March 2013 and March 2012, respectively. See Note 2 for further information on our 4.75% Notes. For purposes of calculating diluted loss 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. We have entered into agreements that may require us to purchase additional equity interests in certain consolidated and unconsolidated subsidiaries. The amounts at which we record these transactions in our financial statements are based on estimates of the future financial performance of the acquired entity, the timing of the exercise of these rights, changes in foreign currency exchange rates and other factors.
During the first quarter of 2013, we completed six acquisitions, including a full-service digital agency in India and a mobile marketing agency in Australia. All six acquisitions were included in the Integrated Agency Networks (“IAN”) operating segment. During the first quarter of 2013, we recorded approximately $53.0 of goodwill and intangible assets related to these acquisitions.
During the first quarter of 2012, we completed three acquisitions, which included an entertainment marketing agency in the United Kingdom. All three acquisitions were included in the Constituency Management Group ("CMG") operating segment. During the first quarter of 2012, we recorded approximately $5.0 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.
 
Three months ended
March 31,
 
2013
 
2012
Cost of investment: current-year acquisitions
$
39.0

 
$
2.4

Cost of investment: prior-year acquisitions
0.7

 
0.9

Less: net cash acquired
(4.1
)
 
(1.2
)
 
 
 
 
Total cash paid for acquisitions 1
$
35.6

 
$
2.1

 
1 
Of the total cash paid, $0.7 for the three months ended March 31, 2013 is classified under the financing section of the unaudited Consolidated Statements of Cash Flows within other financing activities. 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, $34.9 and $2.1 for the three months ended March 31, 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.



10
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

Many of our acquisitions also include provisions under which the noncontrolling equity owners may require us to purchase additional interests in a subsidiary at their discretion. The following table presents changes in our redeemable noncontrolling interests.
 
Three months ended
March 31,
 
2013
 
2012
Balance at beginning of period
$
227.2

 
$
243.4

Change in related noncontrolling interests balance
(1.7
)
 
(3.9
)
Changes in redemption value of redeemable noncontrolling interests:
 
 
 
Additions
12.5

 
0.0

Redemptions and other
(1.3
)
 
(13.0
)
Redemption value adjustments 1
(1.4
)
 
(2.8
)
Balance at end of period
$
235.3

 
$
223.7

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

Note 6:  Supplementary Data
Accrued Liabilities
The following table presents the components of accrued liabilities.
 
March 31,
2013
 
December 31,
2012
Salaries, benefits and related expenses
$
363.5

 
$
478.2

Office and related expenses
48.4

 
51.6

Acquisition obligations
36.1

 
29.5

Interest
33.9

 
42.4

Professional fees
20.7

 
21.7

Other
93.8

 
104.8

Total accrued liabilities
$
596.4

 
$
728.2


2004 Restatement Liabilities
As part of the restatement we presented in our 2004 Annual Report on Form 10-K (the “2004 Restatement”), we recognized liabilities related to vendor discounts and credits where we had a contractual or legal obligation to rebate such amounts to our clients or vendors. Reductions to these liabilities are achieved through settlements with clients and vendors, but also may occur if the applicable statute of limitations in a jurisdiction has lapsed. As of March 31, 2013 and December 31, 2012, we had vendor discounts and credit liabilities of $25.5 and $26.9, respectively, related to the 2004 Restatement.

Other Income (Expense), Net
Results of operations for the three months ended March 31, 2013 and 2012 include certain items that are not directly associated with our revenue-producing operations.
 
Three months ended
March 31,
 
2013
 
2012
Gains (losses) on sales of businesses and investments
$
2.2

 
$
(3.4
)
Vendor discounts and credit adjustments
0.2

 
2.4

Other expense, net
(0.6
)
 
(0.3
)
Total other income (expense), net
$
1.8

 
$
(1.3
)
Sales of Businesses and Investments – During the three months ended March 31, 2013, the gains on sales of businesses and investments primarily related to a gain recognized from the sale of marketable securities in the Asia Pacific region within our IAN

11
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

segment. During the three months ended March 31, 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.
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.

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. 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.
 
Three months ended
March 31,
 
2013
 
2012
Number of shares repurchased
6.2

 
4.9

Aggregate cost, including fees
$
75.8

 
$
52.5

Average price per share, including fees
$
12.17

 
$
10.61

As of March 31, 2013, $524.2 remains available for repurchase under the share repurchase programs. The share repurchase programs have no expiration date.
 
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
(37.6
)
 
0.4

 
0.0

 
(1.6
)
 
(38.8
)
Amount reclassified from accumulated other comprehensive loss, net of tax
0.0

 
(0.9
)
 
0.2

 
2.1

 
1.4

Total change for the period
(37.6
)
 
(0.5
)
 
0.2

 
0.5

 
(37.4
)
Balance as of March 31, 2013
$
(167.7
)
 
$
0.3

 
$
(12.5
)
 
$
(145.5
)
 
$
(325.4
)
Reclassifications out of accumulated other comprehensive loss, net of tax for the three months ended March 31, 2013 are as follows:
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item in the Consolidated Statement of Operations
Foreign currency translation adjustments
$
0.0

 
 
Gains on available-for-sale securities
(1.0
)
 
Other income (expense), net
Losses on derivative instruments
0.4

 
Interest expense
Amortization of defined benefit pension and postretirement plans items 1
2.8

 
 
Tax effect
(0.8
)
 
Benefit of income taxes
Total amount reclassified from accumulated other comprehensive loss, net of tax for the three months ended March 31, 2013
$
1.4

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

12
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

Note 7:  Income Taxes
For the three months ended March 31, 2013, our effective income tax rate of 17.5% 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 $30.0 and $40.0 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.

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 three months ended March 31, 2013.
 
Awards
 
Weighted-average
grant-date fair value
(per award)
Stock options
0.7

 
$
4.14

Stock-settled awards
0.9

 
$
12.76

Performance-based awards
1.5

 
$
11.91

Total stock-based compensation awards
3.1

 
 
During the three months ended March 31, 2013, the Compensation Committee granted performance cash awards under the 2009 PIP with a total target value of $71.8. Of this amount, awards with a total target value of $34.3 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 three months ended March 31, 2013, the Compensation Committee granted cash awards under the Interpublic Restricted Cash Plan with a total target value of $0.9. Cash awards are amortized over the vesting period, typically three years.





















13
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

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 March 31,
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
$
0.0

 
$
0.0

 
$
2.5

 
$
2.7

 
$
0.0

 
$
0.0

Interest cost
1.4

 
1.6

 
5.4

 
5.4

 
0.5

 
0.6

Expected return on plan assets
(2.0
)
 
(1.9
)
 
(4.8
)
 
(4.5
)
 
0.0

 
0.0

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized actuarial losses
2.1

 
1.5

 
0.7

 
0.3

 
0.0

 
0.1

Net periodic cost
$
1.5

 
$
1.2

 
$
3.8

 
$
3.9

 
$
0.5

 
$
0.7

During the three months ended March 31, 2013, we contributed $3.7 of cash to our foreign pension plans, with no contributions to our domestic pension plan. For the remainder of 2013, we expect to contribute approximately $1.0 and $16.0 of cash to our domestic and foreign pension plans, respectively.

Note 10:  Segment Information
We have two reportable segments, IAN and CMG. IAN is comprised of McCann Worldgroup, Draftfcb, Lowe & Partners, 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 (loss). The segment information is presented consistently with the basis described in our 2012 Annual Report on Form 10-K.




















14
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

Summarized financial information concerning our reportable segments is shown in the following table.
 
Three months ended
March 31,
 
2013
 
2012
Revenue:
 
 
 
IAN
$
1,241.1

 
$
1,243.9

CMG
301.9

 
262.9

Total
$
1,543.0

 
$
1,506.8

 
 
 
 
Segment operating income (loss):
 
 
 
IAN
$
(22.6
)
 
$
(15.3
)
CMG
14.0

 
7.5

Corporate and other
(33.8
)
 
(31.6
)
Total
(42.4
)
 
(39.4
)
 
 
 
 
Interest expense
(36.8
)
 
(32.6
)
Interest income
6.4

 
8.0

Other income (expense), net
1.8

 
(1.3
)
Loss before income taxes
$
(71.0
)
 
$
(65.3
)
 
 
 
 
Depreciation and amortization of fixed assets and intangible assets:
 
 
 
IAN
$
30.9

 
$
28.4

CMG
3.8

 
3.4

Corporate and other
3.5

 
2.8

Total
$
38.2

 
$
34.6

 
 
 
 
Capital expenditures:
 
 
 
IAN
$
10.0

 
$
12.8

CMG
1.0

 
2.0

Corporate and other
6.8

 
7.6

Total
$
17.8

 
$
22.4

 
 
 
 
 
March 31,
2013
 
December 31,
2012
Total assets:
 
 
 
IAN
$
10,597.1

 
$
11,035.3

CMG
1,087.6

 
1,073.1

Corporate and other
533.6

 
1,385.5

Total
$
12,218.3

 
$
13,493.9

 















15
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 three months ended March 31, 2013. The following tables present information about our financial instruments measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
 
March 31, 2013
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents
$
958.0

 
$
0.0

 
$
0.0

 
$
958.0

 
Cash and cash equivalents
Short-term marketable securities
5.4

 
0.0

 
0.0

 
5.4

 
Marketable securities
Long-term investments
1.6

 
0.0

 
0.0

 
1.6

 
Other assets
Total
$
965.0

 
$
0.0

 
$
0.0

 
$
965.0

 
 
 
 
 
 
 
 
 
 
 
 
As a percentage of total assets
7.9
%
 
0.0
%
 
0.0
%
 
7.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Mandatorily redeemable noncontrolling interests 1
0.0

 
0.0

 
24.6

 
24.6

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
 
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

 
 
 
1 
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.





16
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)

The following tables present 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.
Liabilities
Three months ended
March 31, 2013
Mandatorily redeemable noncontrolling interests -
Balance at beginning of period
$
25.3

Realized gains included in net loss
(0.7
)
Mandatorily redeemable noncontrolling interests -
Balance at end of period
$
24.6

Realized gains included in net loss 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 March 31, 2013 and December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
 
March 31, 2013
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Total long-term debt
$
0.0

 
$
2,053.9

 
$
83.9

 
$
2,137.8

 
$
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 $382.6 and $410.3 as of March 31, 2013 and December 31, 2012, respectively, and the amount of parent company guarantees primarily relating to credit facilities was $283.0 and $283.4 as of March 31, 2013 and December 31, 2012, respectively.







17
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.


18
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.








19
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 months ended March 31, 2013, as compared with the same period in 2012.
 
Three months ended
March 31, 2013
% Increase
Total
 
Organic
Revenue
2.4
 %
 
2.3
 %
Salaries and related expenses
2.5
 %
 
2.2
 %
Office and general expenses
2.7
 %
 
3.4
 %
 
 
 
 
 
Three months ended
March 31,
 
2013
 
2012
Operating margin
(2.7
)%
 
(2.6
)%
Expenses as % of revenue:
 
 
 
Salaries and related expenses
73.4
 %
 
73.3
 %
Office and general expenses
29.4
 %
 
29.3
 %
 
 
 
 
Net loss available to IPG common stockholders
$
(59.2
)
 
$
(45.9
)
 
 
 
 
Loss per share available to IPG common stockholders - basic and diluted
$
(0.14
)
 
$
(0.10
)
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 quarter of 2013 include the Brazilian Real, Japanese Yen and the South African Rand. During the first quarter 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. For the first quarter of 2013, foreign currency fluctuations resulted in net decreases of approximately 1% in revenues and operating expenses, which had no net impact on our operating loss or 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 first quarter of 2013, the net effect of acquisitions and divestitures was an increase to revenue and operating expenses compared to the prior-year period.










20
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 Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

REVENUE
 
 
 
Components of Change
 
 
 
Change
 
Three months
ended
March 31, 2012
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
Three months
ended
March 31, 2013
Organic
 
Total
Consolidated
$
1,506.8

 
$
(12.2
)
 
$
13.3

 
$
35.1

 
$
1,543.0

 
2.3
 %
 
2.4
 %
Domestic
879.7

 
0.0

 
10.5

 
4.2

 
894.4

 
0.5
 %
 
1.7
 %
International
627.1

 
(12.2
)
 
2.8

 
30.9

 
648.6

 
4.9
 %
 
3.4
 %
United Kingdom
125.2

 
(0.6
)
 
1.1

 
12.7

 
138.4

 
10.1
 %
 
10.5
 %
Continental Europe
167.3

 
2.4

 
(0.5
)
 
(9.7
)
 
159.5

 
(5.8
)%
 
(4.7
)%
Asia Pacific
170.9

 
(4.5
)
 
2.1

 
7.4

 
175.9

 
4.3
 %
 
2.9
 %
Latin America
79.3

 
(5.9
)
 
0.1

 
12.8

 
86.3

 
16.1
 %
 
8.8
 %
Other
84.4

 
(3.6
)
 
0.0

 
7.7

 
88.5

 
9.1
 %
 
4.9
 %
During the first quarter of 2013, our revenue increased by $36.2, or 2.4%, compared to the first quarter of 2012, due to an organic revenue increase of $35.1, or 2.3%, and the effect of net acquisitions of $13.3, partially offset by an adverse foreign currency rate impact of $12.2. Our organic revenue increase was primarily attributable to net client wins in the prior year in several client sectors, most notably in the auto and transportation sector, and throughout most geographic regions. Regionally, the largest organic revenue increases were in the Latin America region, primarily in Brazil, in the United Kingdom, and in the Asia Pacific region, predominantly in Australia, as well as several other key markets. Partially offsetting these increases was a decline in the Continental Europe region due to a continued challenging economic climate. In the domestic market, our organic revenue increase reflects growth at several of our agencies, most notably at our events marketing business, partially offset by the loss of certain client assignments in prior periods.
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.
Refer to the segment discussion later in this MD&A for information on changes in revenue by segment.

OPERATING EXPENSES
 
Three months ended
March 31,
 
2013
 
2012
Salaries and related expenses
$
1,132.1

 
$
1,104.9

Office and general expenses
453.3

 
441.3

Total operating expenses
$
1,585.4

 
$
1,546.2

Operating loss
$
(42.4
)
 
$
(39.4
)
 
Salaries and Related Expenses
 
 
 
Components of Change
 
 
 
Change
 
2012
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
2013
Organic
 
Total
Three months ended March 31,
$
1,104.9

 
$
(7.2
)
 
$
9.8

 
$
24.6

 
$
1,132.1

 
2.2
%
 
2.5
%

21
Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)


Our staff cost ratio, defined as salaries and related expenses as a percentage of total consolidated revenue, increased slightly in the first quarter of 2013 to 73.4% from 73.3% when compared to the prior-year period. Salaries and related expenses in the first quarter of 2013 increased by $27.2 compared to the first quarter of 2012, due to an organic increase of $24.6 and the effect of net acquisitions of $9.8, partially offset by a favorable foreign currency rate impact of $7.2. The organic increase was primarily attributable to an increase in base salaries, benefits and temporary help of $24.9. The increase in base salaries, benefits and temporary help was primarily due to increases in our workforce, predominantly in our international regions, most notably in the Asia Pacific and Latin America regions, and businesses where we had revenue growth, as well as modest wage increases. Partially offsetting the organic increase was a reduction in incentive award expense of $4.2, 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
March 31,
 
2013
 
2012
Salaries and related expenses
73.4
%
 
73.3
%
Base salaries, benefits and tax
61.3
%
 
60.8
%
Incentive expense
4.0
%
 
4.4
%
Severance expense
1.7
%
 
1.4
%
Temporary help
3.8
%
 
4.0
%
All other salaries and related expenses
2.6
%
 
2.7
%

Office and General Expenses
 
 
 
Components of Change
 
 
 
Change
 
2012
Foreign
Currency
 
Net
Acquisitions/
(Divestitures)
 
Organic
 
2013
Organic
 
Total
Three months ended March 31,
$
441.3

 
$
(5.1
)
 
$
2.0

 
$
15.1

 
$
453.3

 
3.4
%
 
2.7
%
Our office and general expense ratio, defined as office and general expenses as a percentage of total consolidated revenue, increased slightly in the first quarter of 2013 to 29.4% from 29.3% when compared to the prior-year period. Office and general expenses in the first quarter of 2013 increased by $12.0 compared to the first quarter of 2012, primarily due to an organic increase of $15.1, partially offset by a favorable foreign currency rate impact of $5.1. The organic increase was primarily attributable to higher production expenses related to pass-through costs, which are also reflected in revenue, for certain projects where we acted as principal that increased in size or were new during the first quarter of 2013.
The following table details our office and general expenses as a percentage of total consolidated revenue.
 
Three months ended
March 31,
 
2013
 
2012
Office and general expenses
29.4
%
 
29.3
%
Professional fees
1.8
%
 
2.0
%
Occupancy expense (excluding depreciation and amortization)
7.9
%
 
8.1
%
Travel & entertainment, office supplies and telecommunications
3.9
%
 
4.1
%
All other office and general expenses
15.8
%
 
15.1
%
All other office and general expenses primarily include production expenses, and, to a lesser extent, depreciation and amortization, bad debt expense, foreign currency gains (losses), restructuring and other reorganization-related charges (reversals), long-lived asset impairments and other expenses.








22
Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)


EXPENSES AND OTHER INCOME
 
Three months ended
March 31,
 
2013
 
2012
Cash interest on debt obligations
$
(36.1
)
 
$
(34.2
)
Non-cash interest
(0.7
)
 
1.6

Interest expense
(36.8
)
 
(32.6
)
Interest income
6.4

 
8.0

Net interest expense
(30.4
)
 
(24.6
)
Other income (expense), net
1.8

 
(1.3
)
Total (expenses) and other income
$
(28.6
)
 
$
(25.9
)
Net Interest Expense
For the three months ended March 31, 2013, net interest expense increased by $5.8 as compared to the prior-year period. 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 intend to retire our 10.00% Senior Unsecured Notes due 2017 in July 2013. Non-cash interest expense increased because the premium associated with our 4.25% Convertible Senior Notes due 2023, which were retired in March 2012, was fully amortized.

Other Income (Expense), Net
Results of operations for the three months ended March 31, 2013 and 2012 include certain items that are not directly associated with our revenue-producing operations. 
 
Three months ended
March 31,
 
2013
 
2012
Gains (losses) on sales of businesses and investments
$
2.2

 
$
(3.4
)
Vendor discounts and credit adjustments
0.2

 
2.4

Other expense, net
(0.6
)
 
(0.3
)
Total other income (expense), net
$
1.8

 
$
(1.3
)
Sales of Businesses and Investments – During the three months ended March 31, 2013, the gains on sales of businesses and investments primarily related to a gain recognized from the sale of marketable securities in the Asia Pacific region within our Integrated Agency Networks ("IAN") segment. During the three months ended March 31, 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.
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.

INCOME TAXES
 
Three months ended
March 31,
 
2013
 
2012
Loss before income taxes
$
(71.0
)
 
$
(65.3
)
Benefit of income taxes
$
(12.4
)
 
$
(19.2
)
Effective income tax rate
17.5
%
 
29.4
%
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 months ended