Document
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 September 30, 2016
or
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-6686
ipglogoa01a03a01a04.jpg
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)
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 October 15, 2016 was 397,009,967.


INDEX
 
Page
 
 
 
Item 1.
 
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015
 
Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015
 
Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2016 and 2015
 
Item 2.
Item 3.
Item 4.
 
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
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
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
REVENUE
$
1,922.2

 
$
1,865.5

 
$
5,582.1

 
$
5,417.6

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
Salaries and related expenses
1,228.8

 
1,202.2

 
3,728.7

 
3,622.6

Office and general expenses
486.2

 
471.4

 
1,400.5

 
1,379.5

Total operating expenses
1,715.0

 
1,673.6

 
5,129.2

 
5,002.1

 
 
 
 
 
 
 
 
OPERATING INCOME
207.2

 
191.9

 
452.9

 
415.5

 
 
 
 
 
 
 
 
EXPENSES AND OTHER INCOME:
 
 
 
 
 
 
 
Interest expense
(21.7
)
 
(21.3
)
 
(68.8
)
 
(62.5
)
Interest income
4.7

 
5.6

 
16.1

 
17.8

Other income (expense), net
6.1

 
(37.2
)
 
(11.1
)
 
(36.4
)
Total (expenses) and other income
(10.9
)
 
(52.9
)
 
(63.8
)
 
(81.1
)
 
 
 
 
 
 
 
 
Income before income taxes
196.3

 
139.0

 
389.1

 
334.4

Provision for income taxes
63.8

 
61.1

 
91.9

 
137.4

Income of consolidated companies
132.5

 
77.9

 
297.2

 
197.0

Equity in net income (loss) of unconsolidated affiliates
0.2

 
0.1

 
(1.6
)
 
0.6

NET INCOME
132.7

 
78.0

 
295.6

 
197.6

Net income attributable to noncontrolling interests
(4.1
)
 
(3.1
)
 
(4.7
)
 
(3.3
)
NET INCOME AVAILABLE TO IPG COMMON STOCKHOLDERS
$
128.6

 
$
74.9

 
$
290.9

 
$
194.3

 
 
 
 
 
 
 
 
Earnings per share available to IPG common stockholders:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.18

 
$
0.73

 
$
0.47

Diluted
$
0.32

 
$
0.18

 
$
0.71

 
$
0.47

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
397.7

 
407.6

 
399.5

 
409.7

Diluted
407.9

 
415.5

 
408.8

 
417.0

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.15

 
$
0.12

 
$
0.45

 
$
0.36

 
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
(Amounts in Millions)
(Unaudited)
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
NET INCOME
$
132.7

 
$
78.0

 
$
295.6

 
$
197.6

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE LOSS
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
Foreign currency translation adjustments
4.4

 
(109.0
)
 
43.5

 
(218.0
)
Less: reclassification adjustments recognized in net income
(4.2
)
 
14.9

 
2.3

 
13.7

 
0.2

 
(94.1
)
 
45.8

 
(204.3
)
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Changes in fair value of available-for-sale securities
0.2

 
0.2

 
0.4

 
0.4

Less: recognition of previously unrealized gains included in net income
(0.1
)
 
0.0

 
(1.3
)
 
0.0

Income tax effect
0.1

 
0.0

 
0.1

 
(0.1
)
 
0.2

 
0.2

 
(0.8
)
 
0.3

 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Recognition of previously unrealized losses in net income
0.5

 
0.5

 
1.5

 
1.5

Income tax effect
(0.2
)
 
(0.7
)
 
(0.6
)
 
(1.1
)
 
0.3

 
(0.2
)
 
0.9

 
0.4

 
 
 
 
 
 
 
 
Defined benefit pension and other postretirement plans:
 
 
 
 
 
 
 
Net actuarial (losses) gains for the period
(79.2
)
 
2.8

 
(78.4
)
 
8.5

Less: amortization of unrecognized losses, transition obligation and prior service cost included in net income
1.2

 
1.3

 
3.7

 
7.5

Less: settlement and curtailment losses (gains) included in net income
0.1

 
(0.2
)
 
0.3

 
0.0

Other
0.0

 
0.1

 
0.0

 
(0.1
)
Income tax effect
13.0

 
(2.6
)
 
12.5

 
(4.8
)
 
(64.9
)
 
1.4

 
(61.9
)
 
11.1

 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
(64.2
)
 
(92.7
)
 
(16.0
)
 
(192.5
)
TOTAL COMPREHENSIVE INCOME (LOSS)
68.5

 
(14.7
)
 
279.6

 
5.1

Less: comprehensive income attributable to noncontrolling interests
5.4

 
0.8

 
5.9

 
0.3

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO IPG
$
63.1

 
$
(15.5
)
 
$
273.7

 
$
4.8


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)
 
September 30,
2016
 
December 31,
2015
ASSETS:
 
 
 
Cash and cash equivalents
$
891.6

 
$
1,502.9

Marketable securities
3.0

 
6.8

Accounts receivable, net of allowance of $59.1 and $54.2, respectively
3,714.4

 
4,361.0

Expenditures billable to clients
1,843.7

 
1,594.4

Other current assets
280.5

 
228.0

Total current assets
6,733.2

 
7,693.1

Property and equipment, net of accumulated depreciation of $989.3
and $961.9, respectively
581.6

 
567.2

Deferred income taxes
298.7

 
228.4

Goodwill
3,715.3

 
3,608.5

Other non-current assets
510.7

 
487.9

TOTAL ASSETS
$
11,839.5

 
$
12,585.1

 
 
 
 
LIABILITIES:
 
 
 
Accounts payable
$
6,025.9

 
$
6,672.0

Accrued liabilities
631.7

 
760.3

Short-term borrowings
133.0

 
150.1

Current portion of long-term debt
24.5

 
1.9

Total current liabilities
6,815.1

 
7,584.3

Long-term debt
1,583.3

 
1,610.3

Deferred compensation
485.7

 
464.2

Other non-current liabilities
733.0

 
672.6

TOTAL LIABILITIES
9,617.1

 
10,331.4

 
 
 
 
Redeemable noncontrolling interests (see Note 4)
246.9

 
251.9

 
 
 
 
STOCKHOLDERS’ EQUITY:
 
 
 
Common stock
40.7

 
40.4

Additional paid-in capital
1,481.2

 
1,404.1

Retained earnings
1,546.6

 
1,437.6

Accumulated other comprehensive loss, net of tax
(862.8
)
 
(845.6
)
 
2,205.7

 
2,036.5

Less: Treasury stock
(264.3
)
 
(71.0
)
Total IPG stockholders’ equity
1,941.4

 
1,965.5

Noncontrolling interests
34.1

 
36.3

TOTAL STOCKHOLDERS’ EQUITY
1,975.5

 
2,001.8

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
11,839.5

 
$
12,585.1

 
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)
 
Nine months ended
September 30,
  
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
295.6

 
$
197.6

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization of fixed assets and intangible assets
117.5

 
116.3

Provision for uncollectible receivables
13.6

 
12.2

Amortization of restricted stock and other non-cash compensation
59.0

 
49.7

Net amortization of bond discounts and deferred financing costs
4.2

 
4.2

Deferred income tax provision (benefit)
2.6

 
(33.7
)
Losses on sales of businesses
16.1

 
38.1

Other
29.0

 
13.0

Changes in assets and liabilities, net of acquisitions and dispositions, providing (using) cash:
 
 
 
Accounts receivable
666.3

 
308.0

Expenditures billable to clients
(241.2
)
 
(235.1
)
Other current assets
(21.3
)
 
(12.1
)
Accounts payable
(696.3
)
 
(538.7
)
Accrued liabilities
(207.9
)
 
(110.3
)
Other non-current assets and liabilities
(72.0
)
 
(47.5
)
Net cash used in operating activities
(34.8
)
 
(238.3
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(114.5
)
 
(80.7
)
Acquisitions, net of cash acquired
(47.9
)
 
(5.9
)
Other investing activities
(5.8
)
 
(3.9
)
Net cash used in investing activities
(168.2
)
 
(90.5
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Repurchase of common stock
(193.3
)
 
(172.3
)
Common stock dividends
(179.6
)
 
(147.2
)
Acquisition-related payments
(36.7
)
 
(31.8
)
Net (decrease) increase in short term bank borrowings
(26.0
)
 
29.4

Tax payments for employee shares withheld
(22.7
)
 
(17.4
)
Distributions to noncontrolling interests
(10.8
)
 
(13.1
)
Exercise of stock options
10.2

 
11.8

Excess tax benefit on share-based compensation
0.0

 
9.0

Other financing activities
(0.1
)
 
2.6

Net cash used in financing activities
(459.0
)
 
(329.0
)
Effect of foreign exchange rate changes on cash and cash equivalents
50.7

 
(128.5
)
Net decrease in cash and cash equivalents
(611.3
)
 
(786.3
)
Cash and cash equivalents at beginning of period
1,502.9

 
1,660.6

Cash and cash equivalents at end of period
$
891.6

 
$
874.3


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)
 
 
 
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, 2015
406.3

 
$
40.4

 
$
1,404.1

 
$
1,437.6

 
$
(845.6
)
 
$
(71.0
)
 
$
1,965.5

 
$
36.3

 
$
2,001.8

Net income
 
 
 
 
 
 
290.9

 
 
 
 
 
290.9

 
4.7

 
295.6

Other comprehensive (loss) income
 
 
 
 
 
 
 
 
(17.2
)
 
 
 
(17.2
)
 
1.2

 
(16.0
)
Reclassifications related to redeemable
    noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 


 
0.5

 
0.5

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10.8
)
 
(10.8
)
Change in redemption value of redeemable
    noncontrolling interests
 
 
 
 
 
 
(1.3
)
 
 
 
 
 
(1.3
)
 
 
 
(1.3
)
Repurchase of common stock
 
 
 
 
 
 
 
 
 
 
(193.3
)
 
(193.3
)
 
 
 
(193.3
)
Common stock dividends
 
 
 
 
 
 
(179.6
)
 
 
 
 
 
(179.6
)
 
 
 
(179.6
)
Stock-based compensation
3.9

 
0.3

 
88.2

 
 
 
 
 
 
 
88.5

 
 
 
88.5

Exercise of stock options
1.2

 
0.1

 
10.2

 
 
 
 
 
 
 
10.3

 
 
 
10.3

Shares withheld for taxes
(1.1
)
 
(0.1
)
 
(22.9
)
 
 
 
 
 
 
 
(23.0
)
 
 
 
(23.0
)
Other
 
 
 
 
1.6

 
(1.0
)
 
 
 
 
 
0.6

 
2.2

 
2.8

Balance at September 30, 2016
410.3

 
$
40.7

 
$
1,481.2

 
$
1,546.6

 
$
(862.8
)
 
$
(264.3
)
 
$
1,941.4

 
$
34.1

 
$
1,975.5

 
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)
 
 
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, 2014
414.6

 
$
41.2

 
$
1,547.5

 
$
1,183.3

 
$
(636.7
)
 
$
(19.0
)
 
$
2,116.3

 
$
34.9

 
$
2,151.2

Net income
 
 
 
 
 
 
194.3

 
 
 
 
 
194.3

 
3.3

 
197.6

Other comprehensive loss
 
 
 
 
 
 
 
 
(189.5
)
 
 
 
(189.5
)
 
(3.0
)
 
(192.5
)
Reclassifications related to redeemable
    noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.3

 
4.3

Distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(13.1
)
 
(13.1
)
Change in redemption value of redeemable
    noncontrolling interests
 
 
 
 
 
 
(3.6
)
 
 
 
 
 
(3.6
)
 
 
 
(3.6
)
Repurchase of common stock
 
 
 
 
 
 
 
 
 
 
(172.3
)
 
(172.3
)
 
 
 
(172.3
)
Common stock dividends
 
 
 
 
 
 
(147.2
)
 
 
 
 
 
(147.2
)
 
 
 
(147.2
)
Stock-based compensation
2.4

 
0.3

 
63.1

 
 
 
 
 
 
 
63.4

 
 
 
63.4

Exercise of stock options
1.2

 
0.1

 
11.8

 
 
 
 
 
 
 
11.9

 
 
 
11.9

Shares withheld for taxes
(0.8
)
 
(0.1
)
 
(17.4
)
 
 
 
 
 
 
 
(17.5
)
 
 
 
(17.5
)
Excess tax benefit from stock-based compensation
 
 
 
 
9.0

 
 
 
 
 
 
 
9.0

 
 
 
9.0

Other
 
 
 
 
(0.4
)
 
(0.6
)
 
 
 
 
 
(1.0
)
 
1.4

 
0.4

Balance at September 30, 2015
417.4

 
$
41.5

 
$
1,613.6

 
$
1,226.2

 
$
(826.2
)
 
$
(191.3
)
 
$
1,863.8

 
$
27.8

 
$
1,891.6

 
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 2015 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
 
September 30,
2016
 
December 31,
2015
Book
Value
 
Fair
Value 1
 
Book
Value
 
Fair
Value 1
2.25% Senior Notes due 2017 (less unamortized discount and issuance costs of $0.2 and $0.5, respectively)
2.30%
 
$
299.3

 
$
301.5

 
$
298.8

 
$
299.3

4.00% Senior Notes due 2022 (less unamortized discount and issuance costs of $1.7 and $1.4, respectively)
4.13%
 
246.9

 
266.8

 
246.4

 
250.9

3.75% Senior Notes due 2023 (less unamortized discount and issuance costs of $1.0 and $2.6, respectively)
4.32%
 
496.4

 
524.9

 
496.0

 
484.8

4.20% Senior Notes due 2024 (less unamortized discount and issuance costs of $0.8 and $3.1, respectively)
4.24%
 
496.1

 
539.0

 
495.8

 
496.4

Other notes payable and capitalized leases
 
 
69.1

 
69.1

 
75.2

 
75.2

Total long-term debt
 
 
1,607.8

 
 
 
1,612.2

 
 
Less: current portion
 
 
24.5

 
 
 
1.9

 
 
Long-term debt, excluding current portion
 
 
$
1,583.3

 
 
 
$
1,610.3

 
 
 
1
See Note 11 for information on the fair value measurement of our long-term debt.
Credit Agreements
We maintain a committed corporate credit facility (the "Credit Agreement") and uncommitted lines of credit to increase our financial flexibility. The Credit Agreement is a revolving facility, expiring in October 2020, 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 Company has the ability to increase the commitments under the Credit Agreement from time to time by an additional amount of up to $250.0, provided the Company receives commitments for such increases and satisfies certain other conditions. The aggregate available amount of letters of credit outstanding may decrease or increase, subject to a sublimit on letters of credit of $200.0 or the equivalent in other currencies. Our obligations under the Credit Agreement are unsecured.
We were in compliance with all of our covenants in the Credit Agreement as of September 30, 2016.

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


Note 3:  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,
 
2016
 
2015
 
2016
 
2015
Net income available to IPG common stockholders
$
128.6

 
$
74.9

 
$
290.9

 
$
194.3

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding - basic
397.7

 
407.6

 
399.5

 
409.7

Add: Effect of dilutive securities
 
 
 
 
 
 
 
       Restricted stock, stock options and other equity awards
10.2

 
7.9

 
9.3

 
7.3

Weighted-average number of common shares outstanding - diluted
407.9

 
415.5

 
408.8

 
417.0

 
 
 
 
 
 
 
 
Earnings per share available to IPG common stockholders:
 
 
 
 
 
 
 
       Basic
$
0.32

 
$
0.18

 
$
0.73

 
$
0.47

       Diluted
$
0.32

 
$
0.18

 
$
0.71

 
$
0.47

As part of the adoption of Financial Accounting Standards Board (the “FASB”) Accounting Standards Update 2016-09, our excess tax benefit is no longer included in our calculation of diluted shares under the treasury stock method, resulting in an increase of 1.6 shares in the effect of dilutive securities for the three and nine months ended September 30, 2016.

Note 4:  Acquisitions
We continue to evaluate strategic opportunities to expand our industry expertise, strengthen our position in high-growth and key strategic geographical markets and industry sectors, advance our technological capabilities and improve our operational efficiency through both acquisitions and increased ownership interests in current investments. Our acquisitions typically provide for an initial payment at the time of closing and additional contingent purchase price payments based on the future performance of the acquired entity. We have entered into agreements that may require us to purchase additional equity interests in certain consolidated and unconsolidated subsidiaries. The amounts at which we record these transactions in our financial statements are based on estimates of the future financial performance of the acquired entity, the timing of the exercise of these rights, foreign currency exchange rates and other factors.
During the first nine months of 2016, we completed nine acquisitions, including a product and service design consultancy based in the U.S., an integrated healthcare marketing communications agency based in the U.S., a content creation and digital agency with offices in the U.S. and the U.K., a mobile consultancy and application development agency based in the U.K., a branded content production agency specializing in sports and entertainment based in Australia, a full-service public relations and digital agency based in China, a search engine optimization and digital content marketing agency based in the U.K., a mobile focused digital agency based in the U.K. and a business consultancy services agency based in Australia. Of our nine acquisitions, three were included in the Integrated Agency Networks ("IAN") operating segment, and six were included in the Constituency Management Group ("CMG") operating segment. During the first nine months of 2016, we recorded approximately $147.9 of goodwill and intangible assets related to our acquisitions, primarily in CMG.
During the first nine months of 2015, we completed two acquisitions, including a full-service digital agency in the U.K. Of our two acquisitions, one was included in the IAN operating segment, and one was included in the CMG operating segment. During the first nine months of 2015, we recorded approximately $14.0 of goodwill and intangible assets related to our acquisitions.

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


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,
 
2016
 
2015
Cost of investment: current-year acquisitions
$
61.0

 
$
8.3

Cost of investment: prior-year acquisitions
37.2

 
31.8

Less: net cash acquired
(13.6
)
 
(2.4
)
Total cost of investment
84.6

 
37.7

Operating expense 1
18.7

 
17.6

Total cash paid for acquisitions 2
$
103.3

 
$
55.3

 
1
Represents cash payments made that were either in excess of the initial value of contingent payments or contingent upon the future employment of the former owners of the acquired companies and are recorded in the operating section of the unaudited Consolidated Statements of Cash Flows.
2
$47.9 of cash paid for acquisitions for the nine months ended September 30, 2016 is classified under the investing section of the unaudited Consolidated Statements of Cash Flows, as acquisitions, net of cash acquired. This amount relates to initial payments for new transactions. $36.7 of cash paid for acquisitions for the nine months ended September 30, 2016 is classified under the financing section of the unaudited Consolidated Statements of Cash Flows as acquisition-related payments. This amount relates to deferred payments and increases in our ownership interest for prior acquisitions.
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. Redeemable noncontrolling interests are adjusted quarterly to their estimated redemption value, but not less than their initial fair value. Any adjustments to the redemption value impact retained earnings, except for foreign currency translation adjustments. The following table presents changes in our redeemable noncontrolling interests.
 
Nine months ended
September 30,
 
2016
 
2015
Balance at beginning of period
$
251.9

 
$
257.4

Change in related noncontrolling interests balance
(1.5
)
 
(9.4
)
Changes in redemption value of redeemable noncontrolling interests:
 
 
 
Additions
6.8

 
0.5

Redemptions and other
(14.8
)
 
(24.4
)
Redemption value adjustments
4.5

 
2.4

Balance at end of period
$
246.9

 
$
226.5


Note 5:  Supplementary Data
Accrued Liabilities
The following table presents the components of accrued liabilities.
 
September 30,
2016
 
December 31,
2015
Salaries, benefits and related expenses
$
386.9

 
$
502.4

Acquisition obligations
73.8

 
50.1

Office and related expenses
42.9

 
51.0

Interest
17.2

 
17.3

Other
110.9

 
139.5

Total accrued liabilities
$
631.7

 
$
760.3



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


Other Income (Expense), Net
Results of operations for the three and nine months ended September 30, 2016 and 2015 include certain items that are not directly associated with our revenue-producing operations.
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Gains (losses) on sales of businesses and investments
$
3.9

 
$
(37.6
)
 
$
(14.6
)
 
$
(37.8
)
Other income, net
2.2

 
0.4

 
3.5

 
1.4

Total other income (expense), net
$
6.1

 
$
(37.2
)
 
$
(11.1
)
 
$
(36.4
)
Gains (Losses) on Sales of Businesses and Investments – During the three and nine months ended September 30, 2016, the amounts recognized are related primarily to sales of businesses within our IAN segment. During the three and nine months ended September 30, 2015, the amounts recognized are related to sales of businesses within our IAN and CMG segments and the classification of certain assets as held for sale within our IAN segment.

Share Repurchase Program
In February 2016, 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 "2016 Share Repurchase Program"), which was in addition to the remaining amount available to be repurchased from the $300.0 authorization made by the Board in February 2015 (the "2015 Share Repurchase Program").
We may effect such repurchases through open market purchases, trading plans established in accordance with SEC rules, derivative transactions or other means. We expect to continue to repurchase our common stock in future periods, although the timing and amount of the repurchases will depend on market conditions and other funding requirements.
The following table presents our share repurchase activity under our share repurchase programs for the nine months ended September 30, 2016 and 2015.
 
Nine months ended
September 30,
 
2016
 
2015
Number of shares repurchased
8.5

 
8.5

Aggregate cost, including fees
$
193.3

 
$
172.3

Average price per share, including fees
$
22.69

 
$
20.36

We fully utilized the 2015 Share Repurchase Program during the third quarter of 2016. As of September 30, 2016, $265.4 remains available for repurchase under the 2016 Share Repurchase Program. The 2016 Share Repurchase Program has no expiration date.

Note 6:  Income Taxes
For the three months ended September 30, 2016, our effective income tax rate was 32.5%. For the nine months ended September 30, 2016, our effective income tax rate of 23.6% was positively impacted by the settlement of 2011 and 2012 income tax audits, which included the recognition of certain previously unrecognized tax benefits of $23.4, the reversal of valuation allowances of $12.2 as a consequence of the disposition of certain businesses in Continental Europe, $10.5 related to the adoption of the FASB Accounting Standards Update 2016-09, Stock Compensation, and the recognition of previously unrecognized tax benefits as a result of a lapse in statute of limitations. The positive impacts to our tax rates were partially offset by losses in certain foreign jurisdictions where we receive no tax benefit due to 100% valuation allowances and by losses on sales of businesses for which we did not receive a full tax benefit.
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.

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


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 2007 or non-U.S. income tax audits for years prior to 2006.

Note 7:  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 2014 Performance Incentive Plan (the "2014 PIP") during the nine months ended September 30, 2016.
 
Awards
 
Weighted-average
grant-date fair value
(per award)
Stock-settled awards
1.1

 
$
21.86

Performance-based awards
3.2

 
$
19.56

Total stock-based compensation awards
4.3

 
 
During the nine months ended September 30, 2016, the Compensation Committee granted performance cash awards and restricted cash awards under the 2014 PIP with a total target value of $40.8 and $4.8, respectively. Cash awards are expensed over the vesting period, which is typically three years.

Note 8:  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
 
Available-for-Sale
Securities
 
Derivative
Instruments
 
Defined Benefit Pension and Other Postretirement Plans
 
Total
Balance as of December 31, 2015
$
(665.6
)
 
$
1.3

 
$
(9.6
)
 
$
(171.7
)
 
$
(845.6
)
Other comprehensive income (loss) before reclassifications
42.3

 
0.4

 
0.0

 
(64.5
)
 
(21.8
)
Amount reclassified from accumulated other comprehensive loss, net of tax
2.3

 
(1.2
)
 
0.9

 
2.6

 
4.6

Balance as of September 30, 2016
$
(621.0
)
 
$
0.5

 
$
(8.7
)
 
$
(233.6
)
 
$
(862.8
)
 
Foreign Currency
Translation Adjustments
 
Available-for-Sale
Securities
 
Derivative
Instruments
 
Defined Benefit Pension and Other Postretirement Plans
 
Total
Balance as of December 31, 2014
$
(436.3
)
 
$
0.8

 
$
(10.9
)
 
$
(190.3
)
 
$
(636.7
)
Other comprehensive (loss) income before reclassifications
(215.0
)
 
0.4

 
0.0

 
6.0

 
(208.6
)
Amount reclassified from accumulated other comprehensive loss, net of tax
13.7

 
(0.1
)
 
0.4

 
5.1

 
19.1

Balance as of September 30, 2015
$
(637.6
)
 
$
1.1

 
$
(10.5
)
 
$
(179.2
)
 
$
(826.2
)

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


Amounts reclassified from accumulated other comprehensive loss, net of tax, for the three and nine months ended September 30, 2016 and 2015 are as follows:
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
Affected Line Item in the Consolidated Statements of Operations
 
2016
 
2015
 
2016
 
2015
 
Foreign currency translation adjustments 1
$
(4.2
)
 
$
14.9

 
$
2.3

 
$
13.7

 
Other income (expense), net
Gains on available-for-sale securities
(0.1
)
 
0.0

 
(1.3
)
 
0.0

 
Other income (expense), net
Losses on derivative instruments
0.5

 
0.5

 
1.5

 
1.5

 
Interest expense
Amortization of defined benefit pension and postretirement plan items 2
1.3

 
1.1

 
4.0

 
7.5

 
 
Tax effect
(1.3
)
 
(2.2
)
 
(1.9
)
 
(3.6
)
 
Provision for income taxes
Total amount reclassified from accumulated other comprehensive loss, net of tax
$
(3.8
)
 
$
14.3

 
$
4.6

 
$
19.1

 
 
 
1
These foreign currency translation adjustments are primarily a result of the sales of businesses.
2
These accumulated other comprehensive loss components are included in the computation of net periodic cost. See Note 9 for further information.

Note 9:  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. (the "U.K. Pension Plan") is a defined benefit plan and is our most material foreign pension plan in terms of the benefit obligation and plan assets. During the third quarter of 2016, the U.K. Pension Plan was amended and participants ceased accruing incremental service benefits, requiring the U.K. Pension Plan to be re-measured. As a result, we re-measured the benefit obligation resulting in the recognition of a pre-tax net actuarial loss of $79.2, as reflected in our Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016. The net actuarial loss was primarily due to an increase to the projected benefit obligation resulting from a lower discount rate, partially offset by higher actual investment returns.
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,
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
0.0

 
$
0.0

 
$
2.4

 
$
2.7

 
$
0.0

 
$
0.0

Interest cost
1.4

 
(4.1
)
 
4.1

 
4.9

 
0.4

 
0.5

Expected return on plan assets
(1.5
)
 
(1.8
)
 
(4.9
)
 
(5.3
)
 
0.0

 
0.0

Settlements and curtailments
0.0

 
0.0

 
0.1

 
(0.2
)
 
0.0

 
0.0

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost (credit)
0.0

 
0.0

 
0.1

 
0.0

 
(0.1
)
 
(0.1
)
Unrecognized actuarial losses
0.3

 
0.3

 
0.9

 
1.1

 
0.0

 
0.0

Net periodic cost
$
0.2

 
$
(5.6
)
 
$
2.7

 
$
3.2

 
$
0.3

 
$
0.4



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


 
Domestic Pension Plan
 
Foreign Pension Plans
 
Domestic Postretirement Benefit Plan
Nine months ended September 30,
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service cost
$
0.0

 
$
0.0

 
$
7.3

 
$
7.6

 
$
0.0

 
$
0.0

Interest cost
4.4

 
(1.1
)
 
13.3

 
14.3

 
1.1

 
1.2

Expected return on plan assets
(4.9
)
 
(5.6
)
 
(15.5
)
 
(15.6
)
 
0.0

 
0.0

Settlements and curtailments
0.0

 
0.0

 
0.3

 
0.0

 
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
1.0

 
4.4

 
2.7

 
3.1

 
0.0

 
0.0

Net periodic cost
$
0.5

 
$
(2.3
)
 
$
8.2

 
$
9.5

 
$
1.0

 
$
1.1

During the nine months ended September 30, 2016, we contributed $20.3 of cash to our foreign pension plans. For the remainder of 2016, we expect to contribute approximately $5.0 of cash to our foreign pension plans. We do not expect to make any contributions to our Domestic Pension Plan in 2016.

Note 10:  Segment Information
As of September 30, 2016, we have two reportable segments: IAN and CMG. IAN is comprised of McCann Worldgroup, Foote, Cone & Belding ("FCB"), MullenLowe Group, IPG Mediabrands, 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. The profitability measure employed by our chief operating decision maker for allocating resources to operating divisions and assessing operating division performance is segment operating income (loss). Segment information is presented consistently with the basis described in our 2015 Annual Report on Form 10-K; however, segment operating income (loss) for the three and nine months ended September 30, 2016 and 2015 includes a minimal impact of restructuring and other reorganization-related charges.

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
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
IAN
$
1,503.2

 
$
1,484.1

 
$
4,453.3

 
$
4,351.3

CMG
419.0

 
381.4

 
1,128.8

 
1,066.3

Total
$
1,922.2

 
$
1,865.5

 
$
5,582.1

 
$
5,417.6

 
 
 
 
 
 
 
 
Segment operating income (loss):
 
 
 
 
 
 
 
IAN
$
183.3

 
$
182.9

 
$
421.7

 
$
419.2

CMG
54.8

 
48.2

 
125.2

 
109.5

Corporate and other
(30.9
)
 
(39.2
)
 
(94.0
)
 
(113.2
)
Total
207.2

 
191.9

 
452.9

 
415.5

 
 
 
 
 
 
 
 
Interest expense
(21.7
)
 
(21.3
)
 
(68.8
)
 
(62.5
)
Interest income
4.7

 
5.6

 
16.1

 
17.8

Other income (expense), net
6.1

 
(37.2
)
 
(11.1
)
 
(36.4
)
Income before income taxes
$
196.3

 
$
139.0

 
$
389.1

 
$
334.4

 
 
 
 
 
 
 
 
Depreciation and amortization of property and equipment and intangible assets:
 
 
 
 
 
 
 
IAN
$
29.1

 
$
27.9

 
$
85.9

 
$
87.5

CMG
4.9

 
4.9

 
14.6

 
13.9

Corporate and other
5.7

 
5.3

 
17.0

 
14.9

Total
$
39.7

 
$
38.1

 
$
117.5

 
$
116.3

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
IAN
$
39.7

 
$
23.0

 
$
86.9

 
$
55.4

CMG
4.7

 
2.3

 
8.4

 
5.8

Corporate and other
7.1

 
5.6

 
19.2

 
19.5

Total
$
51.5

 
$
30.9

 
$
114.5

 
$
80.7

 
 
 
 
 
 
 
 
 
September 30,
2016
 
December 31,
2015
 
 
 
 
Total assets:
 
 
 
 
 
 
 
IAN
$
10,285.1

 
$
10,738.2

 
 
 
 
CMG
1,419.0

 
1,338.6

 
 
 
 
Corporate and other
135.4

 
508.3

 
 
 
 
Total
$
11,839.5

 
$
12,585.1

 
 
 
 
 


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 nine months ended September 30, 2016. The following tables present information about our financial instruments measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.
 
September 30, 2016
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents
$
117.9

 
$
0.0

 
$
0.0

 
$
117.9

 
Cash and cash equivalents
Short-term marketable securities
3.0

 
0.0

 
0.0

 
3.0

 
Marketable securities
Long-term investments
0.5

 
0.0

 
0.0

 
0.5

 
Other non-current assets
Total
$
121.4

 
$
0.0

 
$
0.0

 
$
121.4

 
 
 
 
 
 
 
 
 
 
 
 
As a percentage of total assets
1.0
%
 
0.0
%
 
0.0
%
 
1.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Mandatorily redeemable noncontrolling interests 1
$
0.0

 
$
0.0

 
$
53.2

 
$
53.2

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents
$
875.7

 
$
0.0

 
$
0.0

 
$
875.7

 
Cash and cash equivalents
Short-term marketable securities
6.8

 
0.0

 
0.0

 
6.8

 
Marketable securities
Long-term investments
0.4

 
0.0

 
0.0

 
0.4

 
Other non-current assets
Total
$
882.9

 
$
0.0

 
$
0.0

 
$
882.9

 
 
 
 
 
 
 
 
 
 
 
 
As a percentage of total assets
7.0
%
 
0.0
%
 
0.0
%
 
7.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Mandatorily redeemable noncontrolling interests 1
$
0.0

 
$
0.0

 
$
45.0

 
$
45.0

 
 
 
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 table presents additional information about financial instruments measured at fair value on a recurring basis and for which we utilized Level 3 inputs to determine fair value for the nine months ended September 30, 2016 and 2015.
 
Three months ended
September 30,
 
Nine months ended
September 30,
Liabilities
2016
 
2015
 
2016
 
2015
Mandatorily redeemable noncontrolling interests -
   Balance at beginning of period
$
57.8

 
$
44.9

 
$
45.0

 
$
32.8

Level 3 additions
5.1

 
1.9

 
16.3

 
23.7

Level 3 reductions
(10.6
)
 
(3.9
)
 
(11.8
)
 
(15.3
)
Realized losses included in net income
0.9

 
1.4

 
4.9

 
2.3

Foreign currency translation
0.0

 
(0.2
)
 
(1.2
)
 
0.6

Mandatorily redeemable noncontrolling interests -
   Balance at end of period
$
53.2

 
$
44.1

 
$
53.2

 
$
44.1

Realized losses included in net income for mandatorily redeemable noncontrolling interests are reported as a component of interest expense in the unaudited Consolidated Statements of Operations.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The following table presents information about our financial instruments that are not measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
 
September 30, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Total long-term debt
$
0.0

 
$
1,632.2

 
$
69.1

 
$
1,701.3

 
$
0.0

 
$
1,531.4

 
$
75.2

 
$
1,606.6

Our long-term debt is comprised of 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 for 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 proprietary valuation methods and therefore are classified as Level 3 within the fair value hierarchy. See Note 2 for further information on our long-term debt.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Certain non-financial assets and liabilities are measured at fair value on a recurring basis, primarily accrued restructuring charges.
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 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. The types of allegations that arise in connection with such legal proceedings may vary in nature, but can include claims related to contract, employment, tax and intellectual property matters. We evaluate all cases each reporting period and record liabilities for losses from legal proceedings when we determine that it is probable that the outcome in a legal proceeding will be unfavorable and the amount, or potential range, of loss can be reasonably estimated. In certain cases, we cannot reasonably estimate the potential loss because, for example, the litigation is in its early stages. While any outcome related to litigation or such governmental proceedings in which we are involved cannot be predicted with certainty, management believes that the outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.

17
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)


As previously disclosed, on April 10, 2015, a federal judge in Brazil authorized the search of the records of an agency's offices in São Paulo and Brasilia, in connection with an ongoing investigation by Brazilian authorities involving payments potentially connected to local government contracts. The Company had previously investigated the matter and taken a number of remedial and disciplinary actions. The Company is in the process of concluding a settlement related to these matters with government agencies and has previously provided for such settlement in its Consolidated Financial Statements.
Guarantees
As discussed in our 2015 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 $834.1 and $619.4 as of September 30, 2016 and December 31, 2015, respectively, and the amount of parent company guarantees primarily relating to credit facilities was $353.5 and $336.5 as of September 30, 2016 and December 31, 2015, respectively.

Note 13:  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.
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.
Stock Compensation
In March 2016, the FASB issued amended guidance on the accounting for employee share-based payments which requires all excess tax benefits and tax deficiencies to be recognized on the income statement instead of as additional paid-in capital, with prospective application required. The guidance also changes the classification of such tax benefits or tax deficiencies on the Consolidated Statement of Cash Flows from a financing activity to an operating activity, with prospective application required. Additionally, the guidance changes the classification of employee taxes paid when an employer withholds shares for tax-withholding purposes on the Consolidated Statement of Cash Flows from an operating activity, previously included in the changes in Accounts Payable, to a financing activity, with retrospective application required. We have early adopted this amended guidance as of the quarter ended March 31, 2016. See Notes 3 and 6 to the Consolidated Financial Statements for additional information related to the adoption of this amended guidance.
Leases
In February 2016, the FASB issued amended guidance on lease accounting which requires an entity to recognize a right-of-use asset and a corresponding lease liability on its balance sheet for virtually all of its leases with a term of more than 12 months, including those classified as operating leases. Both the asset and liability will initially be measured at the present value of the future minimum lease payments, with the asset being subject to adjustments such as initial direct costs. Consistent with current U.S. GAAP, the presentation of expenses and cash flows will depend primarily on the classification of the lease as either a finance or an operating lease. The new standard also requires additional quantitative and qualitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases in order to provide additional information about the nature of an organization’s leasing activities. This amended guidance, which will be effective beginning January 1, 2019, requires modified retrospective application, with early adoption permitted. As a result of the adoption of this amended guidance, we expect to have a significant impact on our Consolidated Balance Sheets but not on our Consolidated Statements of Operations.
Fair Value Measurements
In January 2016, the FASB issued amended guidance which updates the fair value presentation requirements for certain financial instruments. Equity investments with readily determinable fair values, other than those accounted for using the equity method of accounting, will be measured at fair value with changes recorded through current earnings rather than other comprehensive income. This amended guidance will be effective for us beginning January 1, 2018, and is required to be adopted prospectively with a cumulative-effect adjustment recorded on our Consolidated Balance Sheets, if applicable. We do not expect the adoption of this amended guidance to have a significant impact on our Consolidated Financial Statements.

18
Table of Contents
Notes to Consolidated Financial Statements – (continued)
(Amounts in Millions, Except Per Share Amounts)